Please help me understand this.
Milton Freidman said that the Federal Reserve could have prevented the Great Depression had they loosened money supply regulations. Now, Ben Bernanke is printing trillions out of thin air.
Is Freidman's assesment wrong? I actually think what he is saying sounds correct. Had the Fed bought Treasuries in 1931 the money would have prevented the bank runs, thus preventing the collapse.
However, by printing all of this money, eventually we are going to experience price increases. Now, the Fed and the US Govt must somehow reel in the money supply. Of course, they will not do this. But, if they would, inflation could be avoided.
What am I missing about Freidman's assesment and Bernanke's obvious emulation of Freidman policy?
Is there another aspect that I am missing?
I am not an economist, and I have not read Rothbard's book "The Great Depression", but I plan to soon.
Was Freidman a Keynesian?
As far as I know (I'm not an economist), Friedman advocated stable price level. He suggested some central banking policies, so that the supply of money could be calculated as "by a computer". He knew that inflation is always a monetary phenomenon, and he advocated that the money supply should be expanded in relationship with the increase in productivity. He also was a great Keynes admirer, but he critiziced many of his economic ideas. Many economists say that monetarism is a variant of keynesianism. I just don't think that Bernanke is really a Friedmanite.
camp_steveo:Was Freidman a Keynesian?
Yes and No
http://mises.org/MultiMedia/mp3/Keynes89/03_Keynes_Garrison.mp3
camp_steveo: Had the Fed bought Treasuries in 1931 the money would have prevented the bank runs, thus preventing the collapse.
Bought it with what? The Fed doesn't obtain a source of income.
'Men do not change, they unmask themselves' - Germaine de Stael
Thank you for the link, I will read it later.
Anarchist Cain: Bought it with what? The Fed doesn't obtain a source of income.
I understand that the Fed was restricted by the gold standard. But it seems that Freidman suggests the Fed should have abandoned the GS at least temporarily in order to inflate the monetary base enough to prevent the bank runs. Essentially, I am thinking that Freidman was advocating printing money "from thin air".
This is one of the things that I hear many people arguing that the Fed does that is unconstitutional, creating money from thin air. While I completely agree with this, I am basically confused by the argument that had the Fed printed more money the GD could have been avoided coming from the same people who argue that the Fed should be audited or abolished.
I think there are many confused people, myself included...lol I am going to read your link, and then when I finish what I am currently reading, I am going to read Rothbard's "The Great Depression" to get an Austrian perspective.
Thanks for your reply,
~SC
ivanfoofoo: I just don't think that Bernanke is really a Friedmanite.
I just don't think that Bernanke is really a Friedmanite.
I agree with this assesment. However, I really don'y know what Bernanke is. I am wondering if he even knows what he is. These are strange times we are living in...
He will be lucky if they don't charge him with perjury, and if Paulson doesn't set him out in July.
I hope HR 1207 and S604 get passed.
camp_steveo:This is one of the things that I hear many people arguing that the Fed does that is unconstitutional, creating money from thin air. While I completely agree with this, I am basically confused by the argument that had the Fed printed more money the GD could have been avoided coming from the same people who argue that the Fed should be audited or abolished.
Well because Milton Friedman is from the Chicago school of economics while the Austrian school is completely different.
Friedman was a Keynesian in the sense that he used the framework developed by Keynesian economists, without really challenging their fundamental assumptions (i.e. level of aggregation) as follower of Frank Knight he had no theory of capital, and in this regard ignored the theory of capital that Keynes had been so keen to do away with. Ultimately this meant that for the most part the debates between monetarists and Keynesian devolved into empirical debates concerning the elasticity of various curves, such as how elastic investment is with regards to the interest rate.
As has been mentioned, monetarists of the Friedman variety advocate "The Friedman Rule" which states that the Fed should expand the money supply at a somewhat constant rate, that rate being determined by the growth of the economy. Without any coherent theory of capital, the monetarists can only really see the usual harmful effects of inflation (redistribution of wealth, uncertainty, menu costs etc.), ignoring the lengthening of the structure of production that follows from the lowering of the interest rate (keep in mind, Friedman had no notion of how money actually enters the economy and as such relied on the Fed dropping money from a helicopter).
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
Milton Friedman is a great pro-free market economist. What he and Austrians have in common is that they both hate the Fed. To quote Milton Friedman in an interview by Reason Magazine, "the unsolved economic problem today is how to get rid of the Federal Reserve". However, Friedman is certainly much more practical. Read this quote, "difference between me and people like Murray Rothbard is that, though I want to know what my ideal is, I think I also have to be willing to discuss changes that are less than ideal so long as they point me in that direction." Another quote embodies Milton Friedman is "I am a libertarian with a small 'l' and a Republican with a capital 'R.' And I am a Republican with a capital 'R' on grounds of expediency, not on principle."
Nevertheless, Milton Friedman, though strongly advocating abolishing the Fed, believes that a total control over the money supply is still very necessary, so he suggest the entire Federal Reserve System to be replaced with a computer. Friedman is also very much an empiricalist, but Austrian Economists do not base their theories on empirical research, because there are just too many variables that you can't hold them all.
Thank you for your replies.
I have much to learn, but I must say that from my upbringing I have been taught to love Liberty, and I have come to believe that govt interventionism into the free market is against liberty in every sense of the word.
I will continue to check in to this forum, and post when I can. Thanks again.