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Published in:
2007 | OriginalPaper | Chapter
Inflation
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Classical theory assumed a Say’s Law full-employment economy where money was neutral and increases in the supply of money could not affect employment and real output. Thus, as the 18th-century Scottish philosopher and classical economist David Hume argued, any increase in the quantity of money in the economy must directly increase the price level (i.e., cause inflation). Nobel Prize winner and classical monetarist theorist Milton Friedman is usually credited with coining the statement “inflation is always and everywhere a monetary phenomenon” where inflation is merely too many dollars chasing too few goods.