I have to say that I am with Milton Friedman on this one. The 1970s is a perfect example. Have you ever read about an experiment where a mouse is given a dose of drug that makes the mouse feel good, if the mouse slaps a lever in its cage? Pretty soon that mouse is slapping the lever as fast as it can, until the mouse finally kills itself with the drug. That mouse was the Fed during the 1970s.

In economics, it is important to face reality. Reality is that if people have to pay more for one major commodity, they have less money to spend on other things. In other words, a recession will result. The irrational response of the Fed was to rapidly inflate the money supply in response. Once again this is an example of mistaking money for something real. Unless there is more production, then all the Fed is accomplishing by expanding the money supply is to dilute the value of each dollar (i.e., inflation).

Notice the high rate of increase in the money supply (in red) during the 1970s.

Notice the corresponding high rates of inflation during the same period of time.

MV=PT is called and identity. That means that it is true by definition. The symbols stand for money supply times the velocity of money equals the price level times the number of transaction in the economy. While Keynesians rightfully point out that you cannot say that a change in M directly means a one for one change in P, it seems obvious to me that M and P are the most volatile. If you assume the V will not change quickly, then you would have to assume that a rapid increase in the money supply would result in a rapid increase in T (number of transaction), in order to believe that such an increase in the money supply will not lead to high inflation. While there maybe an initial increase in T if there is significant unused capacity in the economy, a 15% increase in the money supply will not result in anything close to a 15% increase in T.

Milton Friedman has a great book on this topic. It is entitled "Money Mischief."