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Friedman has stated in his "k-precent rule" that the money supply should increase by a fixed percentage each year.

On the other hand, the "Friedman rule" states that the nominal interest rate should be 0, (which would cause deflaction).

Am I correct in thinking that Friedman is contradicting himself here?

Something else that seems to contradict the Friedman rule: he at a different point has stated that he would be in favor of a gold standard, which would effectively mean that the money supply would grow by an amount that depends on whatever gold production is, which is generally a small percentage.

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  • $\begingroup$ What does the last paragraph have to do with with your question? $\endgroup$ – Giskard May 3 '18 at 17:59
  • $\begingroup$ This is essentially another example of a policy prescription that contradicts the Friedman rule. $\endgroup$ – user56834 May 3 '18 at 18:07
  • $\begingroup$ Not a big fan of Friedman, but it is possible that the money supply could grow at k% per year with the nominal rate stuck at 0%. However, I think these “rules” came up in different contexts, and Friedman himself did not label them as “Friedman Rules”; that was done by others afterward. $\endgroup$ – Brian Romanchuk May 4 '18 at 1:29
  • $\begingroup$ @brianRomanchuk, if the real interest is positive (which it usually is), and the nominal interest rate is 0, then inflation must be negative, and according to friedman's own belief in the quantity theory of money, money supply has to go down. Maybe we should just conclude from this that Friedman concluded two things that are mutually contradictory, maybe he changed his mind? $\endgroup$ – user56834 May 4 '18 at 9:17
  • $\begingroup$ @Programmer2134 - the real policy interest rate in the US has been negative for almost a decade. In any event, these rules showed up in different contexts. The 0% nominal rate rule is a theoretical result, and I don’t think it was a policy recommendation of his. $\endgroup$ – Brian Romanchuk May 4 '18 at 10:34

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