Current Evidence on the Resource Costs of Irredeemable Paper Money

In 1986, Milton Friedman published a brief article in the Journal of Political Economy suggesting the possibility that real resource costs associated with the production and use of money could be greater under the current fiat money regime than under the commodity money regimes that preceded it. His article, and the broader implication about the resource costs of paper money, however, received scant attention. For by 1986, the Fed’s disinflationary policies had come to full fruition, inaugurating the Great Moderation that ushered in two decades of low inflation, low unemployment, and strong real growth in the U.S. economy.

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