We all have in our heads the instinctive notion that more money circulating in an economy is inflationary. Indeed the notion of the proportionality of money and prices exists in academia as well. It is known as the quantity theory of money, for which Milton Friedman received a Nobel Prize in 1976. The proportionality of money and prices has a long history. It probably first derived from events when gold was the money in question: when more of it was found on the ground, it directly resulted in more money jingling in pockets, which led to more spending and, ultimately, … Continue reading—>
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