Friedman is only "wrong" in the sense that the more your currency stores wealth, the more difficult it becomes to speed up the velocity of money.
If your bank account always had $1,000 in it, but every day that $1,000 had more and more purchasing power, then you'd be hard-pressed to spend your money. This is what happens with computers getting cheaper each month. People delay buying a new PC as long as possible because they know that their money will buy more of a machine the later that they wait.
In contrast, if your $1,000 buys less and less each day, then you have an incentive to hurry up to spend your money sooner, rather than waiting for it to become worthless. In this environment it is considerably easier to speed up the velocity of money.
Well, the slow speed of money is the South American economic model. The fast speed of money is the U.S. model.
If you had to choose one economic model, the U.S. version will always win out.
Forgive my ignorance, but the velocity of money has it any thing to do with the money multiplier?
Thanks.
I disagree. Someone is buying those 5,000 dollar big screen HDTV's. There is as market for new products before they get to a level of affordability. Why do they even market them? I was in a store today and every tv in there was tagged at several thousand dollars. This store has been in business for at least twenty years. Are you telling me that they are going out of businees? I think not.