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Monday, July 01, 2013

Milton Friedman: heretic Keynesian

I find it fascinating that as time has gone on, more and more economists are coming around to my view, which I explained in The Return of the Great Depression, that Milton Friedman was not an opponent of Keynesianism, as was always taught in the economics department of my university, but rather, a practitioner of a heretical form of it.  The freshwater vs saltwater conflict was an entirely internecine battle between Keynesians, it was not on the level of Hayek vs Keynes, let alone Mises vs Marx.

In an excerpt from his new book, David Stockman writes about how Friedman's activities as an influential economist completely contradicted his very good essays on human liberty:
At the end of the day, Friedman jettisoned the gold standard for a remarkable statist reason. Just as Keynes had been, he was afflicted with the economist’s ambition to prescribe the route to higher national income and prosperity and the intervention tools and recipes that would deliver it. The only difference was that Keynes was originally and primarily a fiscalist, whereas Friedman had seized upon open market operations by the central bank as the route to optimum aggregate demand and national income.

There were massive and multiple ironies in that stance. It put the central bank in the proactive and morally sanctioned business of buying the government’s debt in the conduct of its open market operations. Friedman said, of course, that the FOMC should buy bonds and bills at a rate no greater than 3 percent per annum, but that limit was a thin reed.

Indeed, it cannot be gainsaid that it was Professor Friedman, the scourge of Big Government, who showed the way for Republican central bankers to foster that very thing. Under their auspices, the Fed was soon gorging on the Treasury’s debt emissions, thereby alleviating the inconvenience of funding more government with more taxes.

Friedman also said democracy would thrive better under a régime of free markets, and he was entirely correct. Yet his preferred tool of prosperity promotion, Fed management of the money supply, was far more anti-democratic than Keynes’s methods. Fiscal policy activism was at least subject to the deliberations of the legislature and, in some vague sense, electoral review by the citizenry.

By contrast, the twelve-member FOMC is about as close to an unelected politburo as is obtainable under American governance. When in the fullness of time, the FOMC lined up squarely on the side of debtors, real estate owners, and leveraged financial speculators—and against savers, wage earners, and equity financed businessmen—the latter had no recourse from its policy actions.
For me, Milton Friedman is, like Margaret Thatcher, a tragic figure of history, an well-intentioned individual with a genuine love of human freedom who nevertheless betrayed his ideals with his professional actions.

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31 Comments:

Anonymous Outlaw X July 01, 2013 5:44 AM  

For me, Milton Friedman is, like Margaret Thatcher, a tragic figure of history, an well-intentioned individual with a genuine love of human freedom who nevertheless betrayed his ideals with his professional actions.

You give Friedman too much credit. He was a Pinochet asshole Chicago school. The bastard need to burn in fucking Hell. Not really, I wish that on no soul. But people like Margret Sanger, Rachel Carson, Edward Bernays, Henry Kissinger and too many too even name It becomes a futile battle without the Book of James.

What pisses me off is most people are blind and the Devil worshiping NWO know it.

Blogger tz July 01, 2013 6:28 AM  

The line drawn is if you believe in government and government managing and controlling things, or to really leave it to the free market and/with the rule of law.

When you try to argue how it should be managed, you are on the wrong side.

I wonder since Ayn Rand was his contemporary, and Alan Greenspan too.

Perhaps it is like the ring from Tolkien, the mere desire corrupts the heart then the mind.

Anonymous Rantor July 01, 2013 6:50 AM  

@tz, Not the desire corrupting the heart but the arrogance, the ego, you may say the Fed is bad and wrong, but if I ran it...

Anonymous Gapeseed July 01, 2013 6:55 AM  

Although it's an extremely long rant, I would definitely recommend Stockman's book. Regarding MF, Stockman contends that Friedman was more naive than anything else. Friedman espoused the Fed rule of financial "eunuchs" who would provide a steady growth in the money supply. What made Friedman think such a process would not be politicized by the likes of Richard Nixon and his cronies? Stockman points out the irony that a man synonymous with free market capitalism thus paved the way for zero interest rate policies and unfettered statism.

Anonymous Roundtine July 01, 2013 7:51 AM  

Inevitability. The pull on finances goes one way. If it wasn't Friedman, it would have been someone else. Unless an organization has extremely clear rules that limits the power of members, eventually they will find a way to make it bigger. The spending impulse is too great and even if you save first, the wealth will be squandered.

Anonymous TheExpat July 01, 2013 7:56 AM  

Unless an organization has extremely clear rules that limits the power of members, eventually they will find a way to make it bigger.

You mean like... a Constitution stating that only Congress has the power to coin money and laws stipulating the death penalty for debasing the currency?

Clear rules don't matter when the will to observe them decreases incrementally until gone.

Anonymous the abe July 01, 2013 7:58 AM  

"Regarding MF, Stockman contends that Friedman was more naive than anything else." -Gapeseed

I'm inclinded to agree. He seemed to think a "happy medium" could be reached whereby expansions in credit and money supplied by a central bank to could be parred with increases in capital and assets within an economy. All of this seemed to presume an informed electorate voicing their principles through their represantives that never materialized.

He recalled an interesting episode in "Money Mischief" whereby gold and subsequent silver currency manipulation in 20s and 30s helped topple the White Chinese government in favor of Mao. Any champions of a future asset-based currency model will have to address concerns about repeating historical episodes like this.


Anonymous Roundtine July 01, 2013 8:06 AM  

Clear rules don't matter when the will to observe them decreases incrementally until gone.

Democracy sucks.

Anonymous Daniel July 01, 2013 8:18 AM  

I am so screwed if, as you suggest, the halocline doesn't have magical powers.

Anonymous Stilicho July 01, 2013 8:21 AM  

For me, Milton Friedman is, like Margaret Thatcher, a tragic figure of history, an well-intentioned individual with a genuine love of human freedom who nevertheless betrayed his ideals with his professional actions.

I concur. What bothers me is that, as an intelligent, well read student of economics and history, Friedman believed that fixing the price of money (and derivatively, the price of everything) would work any better than other socialist price-fixing regimes he had viewed with disdain throughout his career. The only explanation I can come up with is that it was a matter of professional pride/hubris because this was his intellectual brainchild.

Anonymous farmer Tom July 01, 2013 8:23 AM  

Was just recently arguing with a "conservative" that Friedman's statements and his actions were different. Nice to see someone else cite that as well.

Limpbutt and others like him genuinely think they are small/limited government "conservatives", yet they refuse to acknowledge the hypocrisy of claiming to be small government types while actively encouraging and championing actions by n all powerful money printing system.

Anonymous Stilicho July 01, 2013 8:23 AM  

Perhaps it is like the ring from Tolkien, the mere desire corrupts the heart then the mind.

Indeed. One rate to rule them all, one rate to find them, one rate to bring them all and for the banksters bind them.

Anonymous farmer Tom July 01, 2013 8:23 AM  

argued instead of arguing!!

Anonymous Cinco July 01, 2013 8:35 AM  

"One rate to rule them all, one rate to find them, one rate to bring them all and for the banksters bind them."

Quote of the day for sure!

Anonymous Porky July 01, 2013 9:23 AM  

Telling the Fed that it can only buy a little bit is like telling a hog to watch it's caloric intake.



Anonymous praetorian July 01, 2013 9:31 AM  

Friedman, eh?

He designed and implemented the greatest large-scale tyranny in known history, income witholding, which enslaved the middle classes, and didn't express any fucking regret about it later.

He gave credibility to the idea of unlimited money printing as the, er, conservative, er, alternative to, er, unlimited money printing.

He asked Phil Donahue "where in the world do you find these angels?" when debating 'capitalism' vs. 'communism' but apparently couldn't put two and two together regarding the Fed.

Yeah. Fuck that guy. Income witholding alone makes him one of the greatest enemies of practical liberty in history.

Anonymous Stilicho July 01, 2013 9:42 AM  

He designed and implemented the greatest large-scale tyranny in known history, income witholding, which enslaved the middle classes, and didn't express any fucking regret about it later.

I do recall reading about him expressing regret over the withholding scheme, but he never tried to get it stopped. Perhaps because anything collected helped mask what was going on with the monetarist expansions of the Fed balance sheet.

Anonymous DonReynolds July 01, 2013 9:45 AM  

To anyone who studied economics in the post-WWII period, Milton Friedman was a lamp in the swamp at night. Friedman gave some very welcome relief to a good many students from the heavy pounding visited on them by Keynesian professors...some of whom would crucify any student who mentioned Milton Friedman in class. He was also an exponent of freedom and liberty. He was a great man who did some very important work. I have nothing but affection for Milton Friedman. He was the gateway drug for a good many future Libertarians.

But I do agree, in economic terms both Keynes and Friedman were both attempting to accomplish the same thing, even if that was not their intention. Keynes was fixed on fiscal policy and Friedman on monetary policy. David Stockman, who should know better, wants decisions about the economy determined by the democratic political process....but currently that is the domain of fiscal policy. Apparently, Stockman wants politicans to have more authority at the Federal Reserve. (It seems he trusts them and their judgement, after all, they were elected by people who have never given a thought to economics.) Next, David Stockman can reform medicine so that anyone and everyone can get hospital privileges and a Rx pad.

Anonymous DonReynolds July 01, 2013 10:09 AM  

Stilicho...."I concur. What bothers me is that, as an intelligent, well read student of economics and history, Friedman believed that fixing the price of money (and derivatively, the price of everything) would work any better than other socialist price-fixing regimes he had viewed with disdain throughout his career. The only explanation I can come up with is that it was a matter of professional pride/hubris because this was his intellectual brainchild."

Friedman was not a star economics student or an authority on the history of economic thought. He was a gifted mathematician, particularly in mathematical statistics. He did not study economics until he was in graduate school. (Unlike Alan Greenspan, Friedman actually graduated from Columbia.) So much of Milton Friedman's professional work was in economic statistics, econometrics, and mathematical economics. He wrote some popular books on political economy but was not someone who had studied the literature of economics. In this regard (only) he was a lot like yet another "economist".....John Kenneth Galbraith, whose only academic degrees were in animal husbandry and agriculture. The best known "economist" in the world never took a degree in the subject.

Anonymous Josh July 01, 2013 10:30 AM  

Yeah. Fuck that guy. Income witholding alone makes him one of the greatest enemies of practical liberty in history.

This. A thousand times this.

Anonymous Noah B. July 01, 2013 10:41 AM  

"Next, David Stockman can reform medicine so that anyone and everyone can get hospital privileges and a Rx pad."

Sounds good to me.

Anonymous Roundtine July 01, 2013 10:48 AM  

Friedman, and Art Laffer as well, are King's economists, along with Krugman, Stiglitz and the rest of them. They give the government advice.

Blogger Revelation Means Hope July 01, 2013 11:37 AM  

Friedman.
Another fool who believed that the actions of mankind were rational and could be determined, categorized, predicted, and controlled by the use of mathematical equations.

While I believe God has infinite computing power, the reason He knows the future (besides being God and being beyond our comprehension) is because He knows the heart as well. He is not a supercomputer in the sky.

Just one of the many lies of Satan, deluding people into believing that they can predict the future through sophisticated equations.

Anonymous Jack Amok July 01, 2013 11:48 AM  

I do recall reading about him expressing regret over the withholding scheme, but he never tried to get it stopped. Perhaps because anything collected helped mask what was going on with the monetarist expansions of the Fed balance sheet.

He did say, in a 1995 interview with Reason, that he wished there was a way to abolish withholdings. Well, of course there was. Still is. You can do it by... abolishing withholdings. Congress started them with legislation, it could end them the same way. What he really meant was obviously that he wished there was a way to abolish withholdings without abolishing all the other evils they allow. Withholdings are what allow the tax rate to be as high as it is. That is their fundamental evil, aside from masking the impact of tax rates on the average working stiff and conscripting employers into the tax collection racket, what's there to object to?

So he wasn't willing to advocate cutting tax rates to a level sustainable by the average person writing a check once a year.

Yeah, the Ring of Power corrupts. Very few people have the will to throw it into the mountain.

Anonymous Stilicho July 01, 2013 11:56 AM  

Yeah, the Ring of Power corrupts. Very few people have the will to throw it into the mountain.

Where's Gollum when you need him?

Blogger Revelation Means Hope July 01, 2013 12:30 PM  

Interesting to read the incredibly low taxation rate that caused our Founders to rebel against Britain. Because the taxes weren't being masked by paycheck withholding, the people were able to see how they were being raped.

Remember how the Israelites and other people being forced to pay taxes hated their conquerors? The funny thing is, they actually were not taxed at a rate nearly as high as we are today, but because they had to pay it annually in a lump sum, it became obvious to them how much oppression there was by their rulers.

That is the genius of withholding. The huge number who don't pay any substantial taxes don't mind too much. And the majority who do pay a significant amount have become numbed to it through years of seeing the same amount taken out, because it isn't real physical money to them.

If you were paid weekly in gold and silver, and then had to go to the next table and fork over some of that gold and silver to the local government tax collector, maybe then people would start to wake up to reality.

Anonymous Daniel July 01, 2013 1:00 PM  

Where's Gollum when you need him?

A Russian airport.

Anonymous Jack Amok July 01, 2013 1:48 PM  

Where's Gollum when you need him?

A Russian airport.


Perhaps, though I'd be more inclined to think Obama, Reid, SEIU purpleshirts, and the like are our Gollums. Frodo W Bush thought he could wield the Ring for good, but Gollum Obama snatched it from him and is dancing with glee on the edge of the precipice.

Anonymous Rocco from Texas July 01, 2013 2:00 PM  

I read Free to Choose in my early twenties and asked my Dad what he thought of Friedman. My Dad was a very conservative thinker so I imagined he would be a fan of Friedman. He responded that Friedman didn't understand gold, so he didn't understand economics. Friedman thought that the dollar could be linked to any commodity as backing. However, my Dad pointed out, 6,000 years of human history shows that gold, and only gold, is money. This caused me to listen to Friedman a little closer and realize that he was a statist like most other ecomonists.

Anonymous biff July 01, 2013 7:29 PM  

Don't badmouth David Friedman's daddy.


Remember, Milton Friedman grew up when Maynard Keynes was still alive. Keynes was to Krugman as T Rex is to a diseased rat.

Blogger Bob Loblaw July 05, 2013 9:44 PM  

Yeah. Fuck that guy. Income witholding alone makes him one of the greatest enemies of practical liberty in history.

That's not really fair. I saw an interview with Friedman where the interviewer (don't remember who) asked if he was sorry about witholding. He said "Absolutely not. We were at war and we needed a way to fund the war effort." That seems pretty reasonable to me, though the interviewer moved on to other subjects without the obvious followup: "Do you think it should have been abolished after the war?"

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