Would reject the argument of it being incomplete, in fact it's the Keynesian theories that are incomplete. They are saying to adjust and react to these "shocks" or "oil prices", which to begin with are often not shocks but are pretty planned and could be easily explained. Second, Hayek himself said "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

@@NotAnEconomist absolutely…I believe Friedman’s principle tenant was leave the free markets alone in large measure. I have heard him say he would rather eliminate the Federal reserve and have a formula for determining the expansion or contraction of money supply. We are so overplussed with Government and well meaning beaurocrats who have this notion that Government can control things that it seems likely to collapse the entire system at some point.

watch it on 0.25 speed and write it down

Transcript Monetarism is another framework for thinking about business cycles. Nobel laureate Milton Friedman of the University of Chicago-he was the most famous proponent of monetarism. And, as the name suggests, monetarism emphasizes the importance of the money supply, and it emphasizes the decisions central banks make about what to do with the money supply. Now, monetarism is based on something called the quantity theory of money. That means, in the long run, the absolute amount of money in an economy doesn't matter, doesn't influence real output or real employment. But in the short run, changes in the rate of inflation can matter. So there are two potential dangers in monetarism: too much inflation, and too little inflation. Let's think first about too much inflation, because this is a big part of how monetarism became more popular. In the 1970s, in America, rates of inflation were considered to be too high, and monetarism had a way to explain this. It said the Federal Reserve was creating too much new money for the economy, and that means prices will be rising and inflation tends to distort the allocation of economic resources. Individuals cannot tell which prices are going up because of the inflation, and which prices are going up because something is more or less valuable, and that what we should do is lower the rate of inflation and bring about more economic stability. So at the time, a lot of Keynesian economists were accepting this higher rate of inflation. But monetarism was saying that, yes, at first more inflation is going to get you higher economic output, but pretty quickly people figure out that there's inflation going on, and that inflation ceases to be effective in stimulating the economy. On the other side of the ledger, there's the danger that monetary growth will be too low, and that means the rate of price inflation will be too low or there may be deflation altogether. And in that setting, according to monetarism, aggregate demand will be too low. In this case, monetarist and Keynesian doctrine-they're actually pretty similar. Monetarists, like Keynesians, believe that a lot of nominal wages are sticky-that is, they can't be readjusted or renegotiated all the time. This may be a matter of contract, or a matter of law, minimum wages, or maybe just a matter of workplace morale. But when you have sticky wages, and that flow of nominal purchasing power, that flow of money through an economy, when it declines, well, wages cannot just fall in tandem, and employers will lay off some workers, and you will get a business cycle downturn. So for monetarists, there's a kind of Goldilocks rule. It's desired that there be a constant rate of money supply growth. Sometimes that's been given as about 2 to 3%-not too high, not too low. In general, monetarists believe in constraining the central bank through rules. They don't trust the central bank to have a lot of discretion, and to turn on a dime and make a lot of very complicated, precise decisions. Monetarists emphasize that lags are long and variable. The information of policy makers can be unreliable, so they simply want the stable rule, which rules out the two cases of inflation too high and inflation too low. So, so far, so good. Monetarism has had a huge impact, and because of Milton Friedman and other monetarists, economists now look much, much more at money supplies and central bank policies. But, that said, monetarism still has some important problems. First, monetarism is quite an incomplete account of business cycles. A lot of business cycles can be caused by, say, the bursting of bubbles, or problems in credit markets, or negative real shocks, or other factors. And monetarism just doesn't have a lot to say about these cases. Second, monetarism assumes that there's this notion of "the money supply" as a single, well-defined thing. But, in fact, empirically there are many different money supply measures. There are narrow measures, such as currency plus bank reserves held at the Fed. Or you could add in demand deposits, savings deposits, different kind of credit relationships. Which of those is the true real money supply? Which of those should we stabilize? It turns out those different measures of the money supply-they don't always move together so closely. And if we stabilize one of them, well, other measures of the money supply may not be that stable at all. Finally, there's another problem with monetarism. If the central bank really does fix a rate of growth for the money supply, this can make it harder to respond to other kinds of shocks. What if there's a negative real shock, such as an oil price hike? Some economists think the central bank should then be more expansionary. What if interest rates turn volatile? Maybe then, again, the central bank should expand credit a bit more. There may be a shock to velocity. The rate at which that money turns over in the economy may change. And, at least under simple forms of monetarism, again, the central bank cannot easily adjust for that. It's the case, in fact-there's now an offshoot doctrine of monetarism, sometimes called market monetarism or nominal GDP targeting, that says, yes, we start with monetarism, but we actually want to allow the central bank the ability to respond to those changes in velocity. Now monetarists, who generally do not trust in discretion, are willing to put up with these shocks, but in the real world there's a big debate-many people believe the central bank actually should go beyond the confines of this very limited rule and try to offset some of these other kinds of shocks hitting an economy. So, in sum, monetarism is really important, but still it is considered a somewhat incomplete doctrine of business cycles.

@@galloe Good job man!

Well, as we all accept fiat money we will need central bank.

End the fed monopoly and allow competition for private currency.

You can't ensure that, and they literally do it all the time. They are allowed to do it all the time, whenever they feel like it, because the Federal Reserve is privately owned. It is not _even_ part of the government, which would at least remove any incentive to destroy the economy for the sole benefit of a handful of bankers. Of course, literally handing over absolute control of the economy to the central government would be just as bad, if not worse. Any private or government institution which has the exclusive power to make decisions affecting the lives and well-being of others will inevitably use that advantage for their own benefit at the expense of everyone else, because frankly, they don't care about everyone else. They only care about themselves and their own profit. We should abolish the Federal Reserve. It is not necessary. Free banking is a possible alternative, but even better would be to use decentralized banking with a blockchain. The interesting thing about cryptocurrency is that you can code it to do things that regular money cannot do, eliminating the need for centralized banks. It would also have the added benefit of eliminating greedy middlemen who essentially force you to pay them in order to exchange currencies, for no reason other than just because they can.

Bob Bilder the privatization of currency will lead to an inefficient way of resource allocation. Exchange of goods will be difficult for consumers and firms as consumers will have to think about exchange rates between banks and which stores accept this and that currency and which firms Gabor your currency etc. It limits consumer sovereignty and choice and causes disruptions in exchange. By monopolizing money and economies of scale is done that benefits the public welfare of all people, making exchange easy and simple. The fed is controlled but the top scholars and PhD’s of the economic academia and are thus expertly run and are not under the same constraints in policy making as elected positions are.

@@lolygagger5991 Nice statement but not borne out by actual cases. There have been periods of time where the money supply was privatized and worked well. If we view money as a product, why would the supply, demand and information elements that governor and regulate these things not also apply to competing currencies. VISA has no problem with instatenously and accurately computing a small transaction you make while visiting India on holiday and despite all the 'complexity' you describe as being a hinderance to the overall system.

Scott sumner

Very interesting! Good point

Brad Keen they have to straw man him in order to rationalize the existence of their jobs. Since Friedman's policies are empirically correct and do not require any economist oversight, contemporary economists have to distort his message and disprove the distorted message in order to create a market for themselves

Yeah, quadruple the oil prices is result of government intervention. Not putting gold in circulation before the Great Depression is result of government intervention. Saving FreddieMac and Fannie Mae is result of government intervention. Bruh

@@libertardsbeware4180 Well yes, USA was embargoed by the arab league because of them helping Israel, so yes, it was because of the government.

The government did put regulations on Freddie Mac and Fannie Mae to lend out credit easier so American's could afford to purchase houses more readily. When this was mandated - cheap credit without almost any discretion skyrocketed.

@Cole DeBeer Where is milton friedmans trickle down economics theory? You are applying an existent theory that is really just made up by leftists to demonize anyone who disagrees with you. Second, anyone who acts like the 08 crisis had anything to do with the free market is a fool and purposely looks at one side of the evidence. The obvious flaw was government backed subprime loans given to the poor so they could get houses. This is common knowledge, and for you to use it as proof as a maket failure shows your bias and ignorance.

I think central banks will fear creating massive inflation like they did in 2008 because if they do, people will switch to bitcoin or an alternate cryptocurrency.

mecheatgood Essentially, Central Banks fear Bitcoin?

mecheatgood I’d doubt it, bitcoins value changes day by day which doesn’t make a good store for wealth and it’s not that liquid cause you can’t use it to buy most things yet

Alen Saric Excellent point; however, Bitcoin will change over time.

Flaming Basketball Club Thats true, I see bitcoin as more of a digital commodity than a currency

Friedman was in support of a central bank. He just believed that the Federal Reserve System should ultimately be replaced with a computer program. He favored a system that would automatically buy and sell securities in response to changes in the money supply. - Friedman, M. (1996). The Counter-Revolution in Monetary Theory. In Explorations in Economic Liberalism

Wrong. infating the money supply is real inflation. Price inflation is a symptom of it.

Prices cant inflate, they can only go up or down. The supply of money, however, can inflate, which is the literal original definition of inflation.

​@@historynut3460I learned that the definition of inflation is the general increase of all prices, not the bloating of money supply. This is even though inflation literally means blowing air into something to make it bigger/seem bigger.

That is Tyler Cowen speaking. -Roman

Right, like Friedman didn't understand the difference between M0, M2, etc.. There's a big difference between "I don't have an answer for this problem" and "that's not a problem the FED should solve because it's likely to make it worse".

What excatly is M0 and M2?

@@cannontaylor97 Wel,l this answer is too late, however the Money Supply 0 (M0) is defined as ALL the CASH (= Federal Reserve Notes, US Notes + Coins) IN EXISTENCE. Money Supply 2 (M2) is EVERY FORM OF MONEY (cash, coins AND NOW balances in bank accounts) in CIRCULATION. M2 tends to be seen as a better Macroeconomic Calculation, because it seems to be more comprehensive.

Robyn Rosenberg just watch the video

agreed! Didn't discuss the incompleteness of the Keynesian theories, which are far more incomplete and inconsistent

is that right? i heard that britain and france declared war because hitler crossed the line by invading poland

In simple words, when inflation happens, goods that you consume decrease in quantity as result of higher price, assuming that you earnings/salary is constant. Then you need to work more to get the same level as before the inflation. Work more usually means stimulation to economy.