As a monetarist, I have long argued about the fundamental relationship between broad money — currency plus bank deposits — and the determination of national income, and that monetary policy should not be focused on an arbitrary inflation target and discretionary changes to interest rates. The post-pandemic inflation surge showed this clearly: too much money was chasing too few goods. However, central bankers refuse to acknowledge their policy errors, preferring to keep faith in Keynesian orthodoxy. Libertarians and monetarists, of course, have long argued for a rules-based system that eliminates central bankers’ discretion and warns of the perils of political interference in monetary policy decisions.
Enter Elon Musk. Not an economist, not a central banker — but the world’s richest man and a highly influential entrepreneur. Yet his recent criticisms of reckless government spending and unchecked money printing could have come straight from the pages of a monetarist textbook.
No stranger to controversy, Musk has now turned his focus on Washington’s fiscal excesses, which have seen the U.S. national debt balloon beyond $36 trillion with a staggering $1.9 trillion deficit expected for 2025 according to the Congressional Budget Office. Through his fledgling Department of Government Efficiency (DOGE), he has supposedly identified $170 billion in ‘estimated savings’ or $1,056 saved per taxpayer, according to the official DOGE website. A hefty sum, but barely a dent in the $5 trillion pandemic-era stimulus that flooded the economy and prepared the way for the subsequent inflationary surge, and below the ’$2 trillion’ he initially suggested.
Musk has emerged as a high-profile advocate for some free-market ideas, frequently invoking the work of Milton Friedman to criticize inflationary policies and state overreach. On X (formerly Twitter), Musk has shared multiple videos of Friedman, each accompanied by unambiguous praise. “Milton Friedman was spot on,” he wrote in one post highlighting Friedman’s condemnation of unchecked government spending. In another, Musk labelled him “the best,” quoting his remark that “Inflation is made in Washington because only Washington can create money.” He has also endorsed Friedman’s famous takedown of the ‘free lunch’ fallacy, calling it “wise words from a true genius.”
Musk’s argument is simple enough and reflects a clear recognition of Friedman’s monetarist insights. He warns of the dangers on the state’s monopoly over money creation, how inflation is the inevitable consequence of ‘printing’ too much money, and why a bloated government should be stripped down to its basic functions. And in this assessment, he is right.
Monetarism explains his concern. If the money supply grows faster than the economy’s ability to produce goods and services, prices will rise. This is not radical thinking; it is Economics 101. With interest rates held near zero in recent years, Washington borrowed cheaply, while the money supply exploded. In the year to February 2021, M2 in the US expanded by 26%, while M4 in the UK jumped by 15%. Predictably, inflation surged on both sides of the Atlantic.
Musk is right to criticize the Federal Reserve’s role in all of this. While Washington spent beyond its means, the Fed was only too happy to act as enabler, purchasing trillions of dollars in government bonds, effectively monetizing U.S. debt, and flooding the financial system with liquidity. When inflation predictably surged in 2021 and 2022, peaking at a high of 9.1% in June 2022 — following Friedman’s famous ‘long and variable lags’ of monetary transmission — the Fed seemed surprised. Monetarists, meanwhile, felt vindicated.
Across the Atlantic, the Bank of England repeated the mistake, pumping £450 billion into the economy through quantitative easing in 2020. Warnings from a small group of UK monetarists were brushed aside; inflation, officials insisted, would be ‘transitory.’ Eighteen months later in October 2022, inflation hit a 40-year high of 11.1%, and the nine members of the Monetary Policy Committee found themselves caught off guard (and no doubt a little embarrassed). Rather than owning up to their role in over-expanding the money supply, they scrambled for excuses — blaming the war in Ukraine, supply chain disruptions, even Brexit. Anything but their own policy failures.
But Musk, like me, sees it for what it really is: a failure of monetary policy. While central bankers tinkered with quarter-point rate adjustments, they ignored the elephant in the room — that inflation was inevitable the moment they flooded the system with ‘cheap’ central bank money.
The evidence is clear. The Federal Reserve ‘printed’ too many dollars, the Bank of England ‘printed’ too many pounds, and both institutions failed to anticipate the consequences. Inflation was not a sudden and unforeseeable shock; it was the predictable result of excessive monetary expansion. Musk sees it. Monetarists see it. The data confirms it. But policymakers refuse to acknowledge it.
Musk’s frustration is understandable — and one I share. He sees the U.S. awash in debt-laden dollars, with the Federal Reserve an eager accomplice in Washington’s spending spree; I see the UK grappling with a similar dilemma: QE-driven cash has inflated asset prices and deepened inequality, while the UK economy languishes — stagnant, with a political leadership bereft of ideas for much needed growth.
However, the solution is not to replace the current system with volatile speculative alternatives like digital tokens or a ‘Crypto Strategic Reserve,’ recently enshrined in an executive order by his boss, President Trump. Instead, the solution lies in restoring monetary discipline with a rules-based central bank that aligns money supply growth with real economic output and insulates monetary policy from political meddling and excess. History suggests that neither central bank nor government will course-correct voluntarily. Without institutional reform, the same errors will be repeated and, in doing so, set the stage for the next crisis, while still dealing with the fallout from the current one.
Musk has identified the right problem. Whether he will be able to steer monetary excess (and government spending) back to sanity before the bill inevitably comes due, bringing with it higher taxes and austerity, remains to be seen — but he will have my backing in trying.
