Is David Friedman a follower of the Austrian School of Economics? I know his father was the founder of the Chicago School, but I also know David Fiedman is an anarcho-capitalist. Is there a branch of the Chicago School that doesn't defend the Federal Reserve?
I am not a member of the Austrian school of economics.
Is there a branch of the Chicago School that does defend the Federal Reserve? My father argued that it was largely responsible for the Great Depression.
Friedmanites, such as myself, (quoting Richard H. Timberlake) are especially critical of the Fed’s “ineptness” during the Great Contraction, 1929-1933, when, as [Friedman and Schwartz] reported, Fed policy allowed the commercial banking system to disintegrate, the common money stock to decline at the rate of eight per cent per year for four years, and the economy to suffer a catastrophic contraction.
"I'm not a fan of Murray Rothbard." -- David D. Friedman
In an interview with Russ Roberts at EconTalk, Milton Friedman admits he was always committed to abolishing the Fed.
Quoting Friedman from the interview, The difficulty of having people understand monetary theory is very simple—the central banks are good at press relations. The central banks hire people and the central banks employ a large fraction of all economists so there is a bias to tell the case—the story—in a way that is favorable to the central banks.
But the Great Depression was such a major event and such a disaster that there was no way in which you could talk it away, although they tried to do so. If you read the annual reports of the Federal Reserve Board or its testimony before Congress, you will find that as late as 1933, at the very depths of the depression, it's talking about how much worse things would have been if the Fed hadn't behaved so well.
But the evidence was so clear. You had a decline in the quantity of money by a third from 1929 to 1933 and that coincided with the decline in the economy by half or so. When you have 25 percent of the working force unemployed, you can't just talk it away.
"Neoclassical, it's not that Austrians shun indifference curves for the sake of it, it's that most macro-economic policy advice based on it commits the fallacy of interpreting utility cardinally (as it shouldn't) while it is defined ordinally (as it should).
How do you overcome that problem?"
One way is by using cardinal utility, something that has been possible since Von Neumann demonstrated how the utility function could incorporate choices under uncertainty.
For technical differences, read Bryan Caplan's Why I am Not an Austrian Economist.
"Caplan's criticism is one of the few well-reasoned critiques, but it has received a number of responses. Most of these are actually responses to a paper he wrote in the Southern Economic Journal, "The Austrian Search for Realistic Foundations", which is very similar, so you should have no problem applying them to this particular critique. I'll list the responses in chronological order, and I'll include Caplan's own rebuttals:
"Economic Science and Neoclassicism", by Jörg Guido Hülsmann
"Austrian Theorizing: Recalling the Foundations", and the errata, by Walter Block
"Kaldor-Hicks Efficiency and the Problem of Central Planning", by Edward Stringham
"Probability, Common Sense, and Realism: A Reply to Hülsmann and Block", by Bryan Caplan
"Realism: Austrian vs. Neoclassical Economics, Reply to Caplan", by Walter Block
"Probability and the Synthetic A Priori: A Reply to Block", by Bryan Caplan
"Rejoinder to Caplan on Bayesian Economics", by Walter Block
Those are the direct responses, which directly quote and criticise Caplan. Caplan's criticisms are, however, recycled from years past, so if you really want a good understanding of Austrian Economics, I suggest you also read books and papers that deal with the specific issues (e.g. indifference) brought up. You can find a reading list here." - http://mises.org/Community/forums/p/3841/52624.aspx
I've read several of those papers; I find them ridiculous.
Essentially, I steadfastly subscribe to the opposite side: Bayesian reasoning is good, empiricism is good, law and economics is good.
Thank you for your answer, Professor Friedman. I will look into Von Neumann's cardinal utility.
If possible to list exhaustively, could you please point out the other approaches possible to overcome the problem?
On a sort of related note, David Friedman's Private Creation and Enforcement of Law seems to be on Bob Murphy's syllabus for his upcoming Mises Academy course, The Economics of Private Legal and Defense Services.
(Response to Consultant)
I'm not sure I know which problem you are thinking of. The big one isn't, I think, ordinal vs cardinal, it's the problem of interpersonal comparisons. I discuss that at some length in the context of the definition of economic efficiency in both Price Theory and Law's Order, which are webbed on my site, as well as in Hidden Order, which isn't. The short answer is that one can do better than nothing, although not as well as one would like to.
Nice to see you here again Professor Friedman!
I thought your son Patri made an excellent presentation at Mises Brasil, where he showed the evolution of approach by 3 generations of Friedman thinkers on the subject of human liberty.
I just noticed your presentation is available, now I have something to watch tonight. :)
"a whole mess of the Mises U lectures address differences between Austrian and Neoclassical and why."
1. I would have said that Austrians are neoclassical economists--as are Keynesians. Did you mean differences between Austrians and other sorts of neoclassicals?
2. Are any of those lectures given by supporters of the Chicago school?
Yes it was sort of: here is the 'mainstream' take on subject X, here is the Austrian take, here is why we think we are right. Sometimes attacking Keynes, sometimes the Chicago school, sometimes both at the same time.
It was a conference on the Austrian school, so no there were no Chicagoites to defend the position, but if people wanted to learn Chicago school stuff, I am sure they have their own conferences.
link to the lectures
There is a YouTubed debate between Caplan and Boettke on Austrian economics.
Neoclassical: "Plus, the monetarist school (if that's what you're referring to) doesn't "defend" the Federal Reserve; Milton Friedman wanted to abolish it. He believed, at least, replacing humans with a mechanical rule to be applied annually was a step in the right direction."
Yes, I was referring to the monetarist school. Even if not in the form of the Federal Reserve, did Milton Friedman not defend central banking?
David Friedman: "I am not a member of the Austrian school of economics. Is there a branch of the Chicago School that does defend the Federal Reserve? My father argued that it was largely responsible for the Great Depression."
I very much appreciate your responding, professor. Why do some people, Walter Block for one, say that your father defended the Fed? How much was he opposed to it? Did he really want to abolish it? Did he think it shouldn't be replaced by some other form of central banking?
I wonder whether you are attempting a most clever sleight of hand by saying this. He clearly, unmistakably expressed that the Federal Reserve's mistake was not bailing out the jewish banks, which is exactly the same position as any Keynesian.
what does 'jewish' have to do with it? did Milton make such statements?
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring