Friedman, an American economist and Nobel laureate in economics, believed that “Inflation is always and everywhere a monetary phenomenon.” However, the relationship between money supply and inflation in the real economy is not simply expressed in terms of the amount of money.

A large amount of data experience shows that there is an obvious positive relationship between money supply and inflation, which is mainly applicable to the long term, but this relationship is not obvious in the short term. Professor Friedman examined the relationship between money supply (measured by M2) and inflation (measured by the GDP deflation factor) from 1867 to 1960 in American history. Note that he is examining the relationship between the average growth rates of these two indicators every ten years, that is, using each decade as a data point to examine the relationship between money supply and inflation. The general conclusion drawn is: high money supply leads to high inflation. However, when this kind of investigation is used for short-term analysis, especially when observing monthly money supply and inflation data, economists find it difficult to find any regular relationship between the two.

The statement "inflation is a monetary phenomenon" is a general description of the final result from a long-term perspective, leaving aside the process of specific factors in the economy: that is, inflation ultimately It all boils down to too much money. This is the same as floods caused by too much water, regardless of whether the water comes from the Yangtze River, the Yellow River, or rain from the sky. In short, too much water is the basic condition for flooding. It can also be understood that too much money is the basic condition for inflation. Therefore, the causes of inflation and the fact that inflation is a monetary phenomenon are issues at different levels. This means that in the long run, to curb inflation, we must effectively control the money supply; in the short term, to curb inflation, we must analyze specific issues.