The current level of sharp price rise in India has its political and economic implications. The results of next year's general elections, among other things, may crucially depend on how effectively the double-digit inflation could be curtailed in the next few months. The current level of inflation, which is the result of both demand and supply side factors in general, has certainly been induced by the high level circulation of money supply, both white and black, that is seemingly generated from higher nominal wages in several sectors of the economy, with the ongoing real estate boom adding to it. These are starkly similar to the challenges that Professor Milton Friedman addressed throughout his professional career. Friedman gave a new life to quantity theory of money, arguing that increases in prices in an economy are always preceded by increases in the growth rate of money supply. He also argued that sharp changes in money supply could trigger downturns and upturns in total economic activity. Friedman's theories remain highly relevant to most of the industrial economies, more so to currently fast growing economies like India.
With the passing away of Milton Friedman, at the ripe age of 94, on November 16, 2006, the world has lost one of its esteemed champions of freedom and a forthright advocator of the laissez-faire philosophy in modern times. As another anniversary of his demise rolls over, it is the right time to reflect on his contribution to economic theory and policy as an unparalleled genius. While Friedman vanquished the concept of orthodox Keynesianism, he established how free markets can be `humane'. A forerunner to compassionate capitalism, touted widely for political purposes these days, he argued that free markets would bring greater freedom and better living standards to the less developed countries. After the 1991 crisis, India decided to go the Friedman way by reducing trade barriers, liberalizing tax systems, privatizing public sector units and making the private sector expertise available to the economy, and letting the investors decide stock values and bond yields. As a result, a stable path of growth is ensured to the country for the past 18 years.
Friedman had advised Indian policy makers in the past. Way back in 1955, when the US government had sent Friedman to India as an adviser, he tried his best to convince the policy makers of India about the virtues of free markets and the benefits that would flow out of them.
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