The *reason* that Freidman is wrong is that you want to encourage the increase in speed of the velocity of money.
...And people *hoard* cash if they perceive it to be a good store of money...an action (i.e. hoarding) that is antithetical to speeding up the movement of money.
Your economy becomes more robust as money churns through more and more transactions at ever faster rates. Paying a bill online, paying for a book online, trading stocks online instead of mailing in market orders, all of these things speed up the velocity of money...and that has the effect of increasing the wealth for everyone involved.
The counter-example is South America. In South America the billionaires hoard money. It's cultural. The billionaire's wife has to haggle. When she shops she has to get the absolute best price deal or else she loses face. To avoid losing face, she won't consumate a deal that doesn't give her a lower price than anyone else...so deal after deal fails to get done. The store-keepers know that she's rich...they know that she doesn't deserve a lower price than the starving peasants who shop there, so they don't want to cut her a better deal than everyone else. Again, it's cultural. They would lose face if they caved to every rich shopper.
So enormous amounts of everyday transactions fail to happen in South America. The end result is that money doesn't move very fast down there...and if money doesn't move, your economy acts as though no one has any money...as if you lived in a time before money was even invented...stone age poverty. Hyperbole added for effect, of course.
Compare. Contrast. Money moves enormously fast in the U.S. and we are all prosperous. Money in South America, though, moves so slowly that those nations have very lethargic economies.
But, those South American billionaires love to store their wealth in the form of cash (though often in cash form other countries). They "see" their wealth in terms of cash on hand. To them, money should store wealth.
To me, that's precisely what moeny should *not* do. Money should merely facilitate retail and wholesale trades, not act as a store of wealth.
If you want to store your wealth, then you should use money to purchase traditional stores of wealth such as real estate, mineral rights, oil itself, gold, factories, licenses, etc.
Freidman wants your money to store wealth. That's the South American recipe for economic stagnation. There are better ways to store your wealth than cash...
Lessee. Milton Friedman is an idiot and you are recommending storing your money in something other than cash. Oh, Yeah, people should listen to you. Do you have a rational thought about investments or are you a self appointed guru?
Southack, I'm replacing "South Americans" with "foreign central banks" in your argument. Does it work?
>>> But, those foreign central banks love to store their wealth in the form of cash (dollars). They "see" their wealth in terms of cash on hand. To them, money should store wealth.
To me, that's precisely what money should *not* do. Money should merely facilitate retail and wholesale trades, not act as a store of wealth.
If you want to store your wealth, then you should use money to purchase traditional stores of wealth such as real estate, mineral rights, oil itself, gold, factories, licenses, etc.
Freidman wants your money to store wealth. That's the foreign central bank recipe for economic stagnation. There are better ways to store your wealth than cash... <<<
It doesn't work real well. Foreign central banks have used dollar reserves *precisely* becasue they have been a relative store of value. Since the demand for dollars is decreasing and the dollar is not as great a store of value, we should see some flight to the Euro and other currencies -- that are perceived as stores of value.
Regarding "hoarding" -- isn't that just a word to indicate strong demand for something? There's strong demand because of a perceived store of value. What really is troublesome is "dis-hoarding" when people perceive that holding a currency is a losing proposition. This leads to people unloading dollars as quickly as possible in order to stem the loss of value. When many people do this simultaneously, the herd mentatlity can lead to panic unloading of a currency. I think I prefer hoarding to dis-hoarding. Prices and currency are more stable.
Oh, and regarding Freidman...is he really wrong or do you just disagree with his conclusions based on your own research?