Professor Robert MacCulloch: Would Elon Musk get a fail in Monetary Economics by Milton Friedman?

As much as I admire much of what Elon Musk stands for, amusingly he's now getting into economics in a big way. Seems its a hobby for him, when he's not launching rockets. Its related to his new role as boss of the Department of Government Efficiency (or "Doge"). On that note, with President Trump sitting next to him, he gives us a mini-lecture on monetary economics. It starts off, "Provided the economy grows faster than the money supply .. and the output of real useful goods and services exceeds the increase in the money supply .. then you have no inflation". Is this correct?

Milton Friedman, the towering giant of monetary economics, was famous for his "monetarist rule" that the money supply should be increased at a constant rate each year, equal to the average long-run growth rate. Some folks explain it intuitively by appealing to the "Quantity Theory of Money", which says the money supply equals the Price Level multiplied by GDP (assuming the rate at which the money supply turns over each year, its "velocity", stays the same at 1). Consequently, when the money supply rises at the same rate as GDP, prices stay the same & there is no inflation. By stark contrast, the Musk rule for the money supply leads to deflation, or falling prices. Just saying.

Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.