By Jim Holland

The topic is inflation, the inflation expected from the proposed proposed social spending bill styled Build, Back Better and the reasoning of famous conservative economist Milton Friedman about inflation.

Milton Friedman famously said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.

Is that famous saying true, I wondered. I looked for well known historic events that test this famous saying. Found two.

Spanish Galleons. I found the historic event economists refer to as the Spanish Price Revolution. This came about after gold filled Spanish galleons began to arrive from America. Prices in Europe rose sixfold over 150 years. There was more money to spend with nothing more to buy, so prices were bid up by those with the gold.

Black Death. I also found of the historic Black Death plague that killed  one-third of the population.That plagued economy underwent abrupt and extreme inflation. We in 2021 know more than we want to about how a pandemic makes it difficult (and dangerous) to produce goods or to even procure them through trade. We also see how the shortages lead to inflated prices. Prices that will persist until the shortages are no more.

In the  Spanish Galleons historic event there was an increase in the quantity of money. In the Black Death plague there was a decrease in output; AKA, a supply chain problem.  In both, the ratio of money to things for sale was changed.  Changed so money became the excess; causing money’s value to fall. That is inflation. The two well known historic events support Milton Friedman’s saying,

Inflation is in today’s news reports like it hasn’t been in a twenty years. For two reasons. First, the COVID has caused inflation as the Black Death plague did. 

Second, some are saying the proposed social spending bill styled Build, Back Better would bring on inflation—in the gold filled Spanish galleons brought on the Spanish Price Revolution did.

What did famous conservative economist Milton Friedman contribute to this debate?  Actually nothing. 

As the Biden administration’s plan is to pass the measure using the Budget Reconciliation rule, none of the projected spending will increase debt, nor will money printing happen. All spending has to be matched by identified income sources. Spending with pay-fors is not inflationary 

The “yeah but” here is the trick Progressive are offering pay-fors for as few as one year for programs they intend continuing as far as the they can see.  Leaving financing in the out years source unknown—tax increase? Deficit spending? Program end? What did famous conservative economist Milton Friedman contribute to this debate? 

Conservative economist Friedman’s reasoning was straightforward: “A budget deficit is inflationary if, and only if, it is financed in considerable part by printing money.” 

As Congress and the President can’t “print money”—that is the exclusive job of the Federal Reserve—none of the available options would cause inflation.

Conservatives are duty bound to not like the provisions of the Build, Back Better measure, but the contention that it is the equivalent of a gold filled Spanish galleon waiting off the coast, ready to dump its load of inflation on America is not supported by well know historic events or the reasonings of famous conservative economist Milton Friedman.,

BBB, Black Death, Spanish Galleons 

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