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Money and Economic Development
The Horowitz Lectures of 1972
Milton Friedman

SECOND LECTURE: Monetary Policy in Developing Countries


[NOTE: This lecture draws heavily on an article by the same title which I contributed to Nations and Households in Economic Growth, a collection of essays in honor of Moses Abramowitz, edited by Paul A. David and Melvin W. Reder, to be published by Cambridge University Press in 1973.]

I’m going to talk tonight about monetary policy in developing countries. That, as you all know, is really a question of inflation.

I’m reminded by the many fears that people have been expressing of inflation here of a story that was going the rounds in the United States a year or so ago. It had to do with a man who came under the influence of the new science of cryogenics, which had developed methods of quick-freezing a man and then restoring him. This man got himself frozen for twenty years. Twenty years later, in 1990 or something, he was resurrected or defrosted, or whatever the right word is. The first thing he did on being resurrected was telephone his stockbroker. Before he had himself frozen, he had put all his stocks in an account, and he wanted to know what had happened to the value of those stocks. His broker was delighted to hear from him, to learn he’s alive and so on. Says his broker: “You’re a millionaire now, you’re many, many fold a millionaire. Your stocks have gone up like mad.” Naturally, the man was excited and wanted to hear more, but just at that moment the operator broke in and said: “Your three minutes are up. That will be 250,000 dollars for the next three minutes please.”


1. Nominal income is net national product; money is currency outside commercial banks plus all deposits (time and demand) of the public at commercial banks.
2. Each rate of change is computed as the slope of a least squares straight line between the natural logarithm of the variable (income or money) and time fitted to three successive phase averages.
3. This summary is adapted from Milton Friedman, The Counter-Revolution in Monetary Theory, Occasional Paper 33 (London: Institute of Economic Affairs, 1970), pp. 22-26.
4. See my "The Optimum Quantity of Money" in The Optimum Quantity of Money and Other Essays (Chicago: Aldine Publishing Co. 1969).
5. "Government Revenue from Inflation, "Journal of Political Economy, Vol. 79 (July/August, 1971), 846-856.

Reprinted from Money and Economic Development The Horowitz Lectures 1972 by Milton Friedman, copyright © 1973

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