I've heard the 1920s bubble be blamed on Irving Fisher's influence on Fed Chariman Benjamin Strong; obviously that bubble led to the '29 crash. And in Rothbard's lecture on Milton Friedman in 1970, Rothbard claims that in the middle of the previous year, the Nixon-era Fed finally stopped expanding the money supply, but the Friedmanites insisted doing so would lead to deflation and insisted that they reopen the money spigot in order to stabilize prices; the Fed did so in 1970. It would seem then that the Friedmanites might have been to blame for the 1970s stagflation. Also the Fisherite/Friedmanite emphasis on price stabilization seems to have been the governing principle of the Fed under Greenspan and Bernanke. The latter, who focused on depressions in his academic career, has explicitly endorsed the Friedman/Schwartz explanation of what went wrong in the Great Depression, and how the Fed ought to have responded (by continuing to expand the money supply, as Bernanke has been doing so in response to the housing crash).
It seems like the three worst economic events of this century have stemmed more from Fisherite/Friedmanite monetary-expansion-for-price-stabilization than Keynesian policy. Of course that doesn't necessarily make Keynesianism any less wrong; the contrast only perhaps comes from the fact that Keynesianism hasn't been implemented in policy as much as Fisherism/Friedmanism (perhaps because it is more obviously foolish).
How is monetarism not Keynesian?
The fallacies of intellectual communism, a compilation - On the nature of power
I'm tempted to invoke Hayek here and point out that politicians always call for the opinions of economists and proceed to dimiss and ignore the advice they give. But I think it's perhaps more important to point out that monetary policy is just one part of government policy, whilst you might be able to make a case that monetarism is worse in this regard I think it should be clear to most Austrians that Keynesian doctrine has been more damaging than monetarism in just about every other area. Consider this, Keynes argued that wages should be pushed up to prop up aggregate demand, however, to the best of my knowledge Friedman made no such claims concerning labour. However, in the recession it's important far labour (and capital) to be mobile in order to end the depression quickly. In fact, one of the biggest causes of the depth of the great depression were a number of impediments on labour etc. I also don't think it's necessarily true that because a school of thought has more destructive consequences it is more wrong in theory. I'd argue that monetarism gets a number of things right that Keynesians get wrong. Keep in mind, Friedman made some insights that complement the ABCT.
As for Stranger's response. Well, to begin with monetarism is not simply limited to the Friedman variety. Yeager and Skousen could both be considered Austrians and monetarists at the same time (although, Yeager is a far better economist than Skousen). Furthermore, the world simply isn't limited to Austrians vs. Everybody else.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
Giles, don't you dare to shred our cool lonely knight dreams!
Monetarism is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over longer periods and that objectives of monetary policy are best met by targeting the growth rate of the money supply.[1]
thats your keynes right there isnt it?
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
First, what's your source?
And no, that's not Keynesian, because:
You can also think uncle Miltie for the withholding tax and the school "voucher" idea that probably prevent schools from ever being government/violent union free. The first causing an explosion in the size and expansion of government. The second giving people the absurd notion that stealing money and forcing people into private institutions is somehow is "private" itself or would retain the efficiency or freedom of having voluntarist institutions.
He's also largely responsible for the separation of micro and macro economics. Especially among very loosely self-identifying libertarians. Wherein people think nothing of utilities, environmental protection, currency, "mergers" (in anti-trust), roads, etc. being managed by something outside of the market. For the benefit of expected market outcomes of course and not the principle of emergence or spontaneity of the market. Which, like superstition, opens the door for pretty much any other arbitrary exception reason or principle (why not fascist healthcare, SWAT teams, military intervention, welfare state, fighting drug crime, wage laws, banks, etc.).
its wikipedia.
1. no they want a stable slightly increasing price level. whereas keynesians want what in contrast?
4 who doesnt believe that a vastly varying money supply (i.e one sent on a rollercoaster ride by a hypothetical government) would not effect output in the short or longer run? short run effects lead to long run effect. (i.e. rate of capital accumulation etc)
5 you are probably using a technical definition of active, perhaps just give an example ?
Giles, I agree with you that there are crucial distinctions between Keynesians and Monetarists (as is implied by my OP). But regarding...
GilesStratton: Keynes wanted an activist monetary policy, monetarists don't.
Keynes wanted an activist monetary policy, monetarists don't.
Isn't Fed price stabilization inherently activist?
So I offered five differences based on three sentences and you disagree with one of them? Keep in mind, that they want the stable price level for different reasons to Keynes, because AFAIK Keynes didn't want a stable price level.
As for your last point, look at the difference between the Taylor Rule and the rule advocated by Friedman.
GilesStratton: So I offered five differences based on three sentences and you disagree with one of them? Keep in mind, that they want the stable price level for different reasons to Keynes, because AFAIK Keynes didn't want a stable price level. As for your last point, look at the difference between the Taylor Rule and the rule advocated by Friedman.
Is this addressing Nir or me?
this is simply an argument over categorisation . for me there are significantly keynesian features to monetarism, enough to make it remarkable. the common faults are both poor economics. hence why i wrote what i wrote.
of course keynesianism is not exactly monetarism. which is true for all things that have small or large similarities.
Friedmanites believe that some inflation is good, while Keynesians believe all inflation is good.
Friedman and Keynes are both at fault, and I'm inclined to believe that the former has more to do with our current economic condition. Stop and consider his positions regaurding freely floating exchange rates, the removal of the gold standard, and central planning by benevolent/omniscient bankers. Basically, he's in favor of price setting, first at the higher stages of production, and then at the lower. Complete monetary control is no different than complete economic control; it's just more subtle.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
Lilburne, I was addressing nir, but this is an interesting question you raise. I don't think that in Friedman's conception of a central bank price stabilization is inherently activist. As I mentioned to nir there is a huge different between the Taylor rule and the "Friedman rule". As Austrian "economists" I'm sure we'd both agree that by their very nature central banks are "activist". That said, when you look at the policies advocated by Friedman and those advocated by Keynes there is clearly a discernable difference. Keynes literally saw the Fed as a "gift" to mankind that is necessary to boost AD in order to ward of depressions. OTOH, I think one could say that Friedman saw the Fed and central banks in general as necessary evil.
so the difference is adverbs....
Keynes intervenes and inflates precociouslyFriedman intervenes and inflates grudginglyRothbard intervenes and inflates not-at-all-istically
(is there a better word? there should be..., in the absence of a good word I make one up)
Well perhaps you're correct from a political point of view. From an economics point of, clearly, there are differences. Even if the majority of those differences are simply empirical (i.e. Friedman saw investment in respect to the interest rate as being relatively elastic, Keynes didn't). However, given this, the careers of Friedman and Keynes are clearly different. I mean, if you read Butos response to Time and Money he seems to indicate that Keynes knew where he was going but just not how to get there. In the case of Keynes this was government control of the economy, in Friedman's view this was government leaving the economy alone except in those areas where he believed there was no choice.
Whether or not Austrians wish to admit it, Rothbard was on the fringe. It was far easier for Rothbard to be radical than it was for Friedman. But if you look at Friedman's career and compare it to that of his contemporaries, he was certainly "radical", and a top notch economist at that.
GilesStratton:if you look at Friedman's career and compare it to that of his contemporaries, he was certainly "radical", and a top notch economist at that.
How? He was basically Irving Fisher part 2. He believed that falling prices are a problem and adhered to the principles of the banking school.
can you be a 'top notch' economist post-Mises and his standard setting and not use or understand praxeology at all. ? enquiring minds need to know !
Friedman has not been more destructive than Keynes. He was basically a free-marketeer on every issue except money. But even on money, he would not have favoured the actions by the current Fed because he would have disputed that there's a liquidity problem. Anna Schwartz, his co-author, opposes the Fed's current actions too, as does David Friedman (Milton's son).
Keynesians like Krugman, on the other hand, are all in favour of giving the central bank the power to do whatever it likes. Krugman is never suspicious of government, because he implicitly worships it.
By Austro-libertarian standards, Friedman is a "sell-out". But he's clearly better than the hardcore social democrats who always give the government the benefit of the doubt.
Esuric:He believed that falling prices are a problem and adhered to the principles of the banking school.
Well, they can be a problem.
nirgrahamUK: can you be a 'top notch' economist post-Mises and his standard setting and not use or understand praxeology at all. ? enquiring minds need to know !
That statist, socialist, crank guy?
How is that Friedman was not free about money? I know what monetarism means, but I also know that Friedman didn't favour central banking, he preferred free banking. From Wikipedia:"In a 1995 interview in Reason magazine he said the "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." He said he actually would "like to abolish the Fed," and points out that when he has written about the Fed it is simply his recommendations of how it should be run if it exists."Obviously, he would like free banking to have FRS in order to keep prices somewhat constant.
ivanfoofoo: How is that Friedman was not free about money? I know what monetarism means, but I also know that Friedman didn't favour central banking, he preferred free banking. From Wikipedia:"In a 1995 interview in Reason magazine he said the "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." He said he actually would "like to abolish the Fed," and points out that when he has written about the Fed it is simply his recommendations of how it should be run if it exists."Obviously, he would like free banking to have FRS in order to keep prices somewhat constant.
Interesting.
If I wrote it more than a few weeks ago, I probably hate it by now.
Sukrit Sabhlok:He was basically a free-marketeer on every issue except money.
Since money is half of every market exchange, that's a pretty big "except".
Sukrit Sabhlok:But even on money, he would not have favoured the actions by the current Fed because he would have disputed that there's a liquidity problem.
I'm thinking he would have favored the actions for the sake of price stabilization (fighting deflation).
Sukrit Sabhlok:Keynesians like Krugman, on the other hand, are all in favour of giving the central bank the power to do whatever it likes.
I'm not asking whose ideas are worse. I'm asking which set of ideas have, in practice, had the worst effects.
Both theories are inflationist. The Fisher/Friedman theory modulates inflation in order to strike a balance between upward and downward price pressures. The Keynes theory modulates inflation in order to strike a balance between unemployment and major inflation. The Fisher/Friedman doctrine has the advantage of not being susceptible to a complete empirical contradiction; an economy can't have both a spike and a drop in the average price level at the exact same time, but it can have stagflation. However this theoretical advantage may be why price stabilization has been adopted so readily (and so destructively).
Before the 29 crash, the Fed was inflating in order to stabilize prices: this was very Fisherite. However it seems the New Deal was more Keynesian because it involved more fiscal stimulus and more of a direct concern with unemployment.
The 70s stagflation is often blamed on Keynesianism. But as I mentioned in my OP, it might have been more directly brought on by Friedmanite policy.
The governing principles of the Fed have been both price stabilization (Fisher/Friedman) and full employment (Keynes). But at least thinking back to Fed statements, it seems their finger was more on the price level pulse than on the full employment pulse when deciding interest rates.
ivanfoofoo:Obviously, he would like free banking to have FRS in order to keep prices somewhat constant.
How can you have free banking and a FRS (fractional reserve system) at the same time?
ivanfoofoo:"In a 1995 interview in Reason magazine he said the "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." He said he actually would "like to abolish the Fed," and points out that when he has written about the Fed it is simply his recommendations of how it should be run if it exists."
It seems Friedman was all over the place on these questions throughout his career. Tyler Cowen wrote the following in admiration of Friedman being "non-dogmatic"; I think it's a sign of moorless, positivist, ad hoc reasoning.
The early Milton favored one hundred percent reserve banking, in part as a reaction against the bank failures and excesses of the Great Depression. I read the commodity basket piece as breaking his ties to the commodity money idea, an old (and perhaps outdated?) piece of classical liberal thought. The mid-period Milton favored a fixed rate of monetary growth. The Milton Friedman of 1969 considered the idea of deflation -- an "optimum quantity of money" -- although it is not clear he ever endorsed that proposal. The Milton Friedman of 1986 Friedman and Schwartz toyed with ideas of free banking. The very late period Milton Friedman was moving toward the notion of an inflation rule, as monetary targeting had not worked.
The early Milton favored one hundred percent reserve banking, in part as a reaction against the bank failures and excesses of the Great Depression. I read the commodity basket piece as breaking his ties to the commodity money idea, an old (and perhaps outdated?) piece of classical liberal thought.
The mid-period Milton favored a fixed rate of monetary growth. The Milton Friedman of 1969 considered the idea of deflation -- an "optimum quantity of money" -- although it is not clear he ever endorsed that proposal. The Milton Friedman of 1986 Friedman and Schwartz toyed with ideas of free banking. The very late period Milton Friedman was moving toward the notion of an inflation rule, as monetary targeting had not worked.
Lilburne: ivanfoofoo:Obviously, he would like free banking to have FRS in order to keep prices somewhat constant. How can you have free banking and a FRS (fractional reserve system) at the same time?
Theoretically, it's possible. A bank raises the supply of money so to exceed their reserve requirements set by the standard. I think that it's practically impossible in an ancap society, as full reserve banks would attack FRS banks and cause banks runs on them.
ivanfoofoo: Lilburne: ivanfoofoo:Obviously, he would like free banking to have FRS in order to keep prices somewhat constant. How can you have free banking and a FRS (fractional reserve system) at the same time? Theoretically, it's possible. A bank raises the supply of money so to exceed their reserve requirements set by the standard. I think that it's practically impossible in an ancap society, as full reserve banks would attack FRS banks and cause banks runs on them.
I'm sorry, I meant to type "Federal Reserve System", which is what I thought you meant by "FRS". Which did you mean?
Lilburne: ivanfoofoo: Lilburne: ivanfoofoo:Obviously, he would like free banking to have FRS in order to keep prices somewhat constant. How can you have free banking and a FRS (fractional reserve system) at the same time? Theoretically, it's possible. A bank raises the supply of money so to exceed their reserve requirements set by the standard. I think that it's practically impossible in an ancap society, as full reserve banks would attack FRS banks and cause banks runs on them. I'm sorry, I meant to type "Federal Reserve System", which is what I thought you meant by "FRS". Which did you mean?
Fractional Reserve System. I know, it's confusing... :P
Here's evidence that the Fisher/Friedman emphasis on price stability has influenced Bernanke: a speech Bernanke delivered in 2006, "The Benefits of Price Stability," (HT Mike Rozeff's piece today on the LRC)
Lilburne: Here's evidence that the Fisher/Friedman emphasis on price stability has influenced Bernanke: a speech Bernanke delivered in 2006, "The Benefits of Price Stability," (HT Mike Rozeff's piece today on the LRC)
In this piece, he characterizes the economic policy of the 60s as trying to balance the tradeoff between inflation and unemployment (which I contend is essentially Keynesian)...
The 1960s' idea that greater prosperity could be achieved if only we were willing to accept higher inflation had its origins in an academic study, although the author likely did not intend that outcome. In 1958, A.W. Phillips, using British data, showed that historically inflation had tended to be high in years in which unemployment was low. Similar results were subsequently reported for the United States.4 Phillips did not draw strong policy conclusions from his findings. But that did not stop others from doing so. In the decade following the publication of his paper, his empirical finding was sometimes interpreted (including, for example, by members of the Kennedy and Johnson Administrations) as showing that policymakers could choose (permanently) lower unemployment if they were willing to accept (permanently) higher inflation in exchange. Scholars disagree somewhat about the extent to which policymakers of the time tried actively to take advantage of this supposed tradeoff, but these ideas likely provided part of the intellectual rationale that made the authorities willing to allow inflation to rise throughout the 1960s and in the early 1970s.
And then, according to Bernanke, Friedmanite theory comes in to save the day to disprove the inflation/unemployment tradeoff theory...
The idea of the permanent tradeoff did not go unchallenged, however. In 1967, economists Milton Friedman and Edmund Phelps independently produced influential critiques of this view. Their key contribution was to observe that, if inflation expectations react to changes in actual inflation in an economically reasonable way, then any tradeoff between inflation and unemployment would be short-lived at best.
and
Milton Friedman once again was in the vanguard on this issue. In his 1977 Nobel Prize address, Friedman laid out the modern argument--that, because it harms the efficient operation of markets, high inflation is more likely to raise unemployment than to lower it--and he used the experience of the 1970s to illustrate his point.6 Indeed, by the late 1970s, even economists who were not part of Friedman's monetarist circle were beginning to study and acknowledge the costs to the economy associated with high inflation.7
Bernanke hails how Fed Chairman Paul Volker, "drew on Friedman's monetarist approach" and how, "Like Volcker, Greenspan was ahead of academic thinking in recognizing the potential benefits of increased price stability."
Bernanke believes there is a "modern consensus, that price stability supports both strong growth and stability in output and employment," which as he characterizes it stems directly from Friedman's work.
I suspect that Keynesian policy creates acute problems that are readily recognized as a problem of inflation. In contrast the Fisherite bubble of the 20s wasn't recognized as an inflationary problem because prices were stable. In the same way, I think we have had a Friedmanite bubble under Greenspan and Bernanke that also isn't recognized as an inflationary problem, again because prices were stable. Ultimately these stable-price bubbles are politically more difficult to deal with, because it is harder to convince policy-makers that the remedy for them is to halt monetary expansion.
It could only be cranky maths-and-ad-hoc-rationalising-masquearading-as-economics that could delude people into imagining that government intervention with the intent of artifically stagnating the price system itself could be a "good thing". it surely can't be anything approaching 'good economics'.
ivanfoofoo:He said he actually would "like to abolish the Fed," and points out that when he has written about the Fed it is simply his recommendations of how it should be run if it exists."
It should also be noted that he still wanted government-controlled perpetual inflation. He just didn't want the Fed to be the agency doing it. In a letter to Mankiw, he wrote (emphasis added):
Nothing that I have observed in recent decades has led me to change my mind about the desirability of a monetary rule which simply increased the quantity of money at a fixed rate month after month, year after year. That rule would get rid of the mistakes and that is probably about all you could expect to get from a monetary system. Even better would be to abolish the Fed and mandate the Treasury to keep highpowered money at a constant numerical level.
Nothing that I have observed in recent decades has led me to change my mind about the desirability of a monetary rule which simply increased the quantity of money at a fixed rate month after month, year after year. That rule would get rid of the mistakes and that is probably about all you could expect to get from a monetary system.
Even better would be to abolish the Fed and mandate the Treasury to keep highpowered money at a constant numerical level.
I would say Friedman did more damage on his waffling of policy than he did on theory. In many ways, he did the heavy lifting that Hayek wasn't interested in doing in response to Keynes. In this case, Friedman used the same framework of Keynes and his supporters against them, toppling their own obscene ideas. Sadly, what is replaced with Keynesian theory isn't much better, but I suspect that in such an intellectual tundra as economics, hardier thinkers will strive and thrive.
"The power of liberty going forward is in decentralization. Not in leaders, but in decentralized activism. In a market process." -- liberty student
I'm debating an ardent Friedmanite regarding this on Reddit in Friedman's "Happy Birthday" thread.
I hate the "pragmatic" types. If something is wrong, it's wrong; don't try to make it better, instead, eliminate it. Why is it that no one ever mentions Friedman's positions regarding freely floating international exchange rates amongst different currencies? That was his biggest failure in my opinion.
Esuric: ivanfoofoo:"In a 1995 interview in Reason magazine he said the "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." He said he actually would "like to abolish the Fed," and points out that when he has written about the Fed it is simply his recommendations of how it should be run if it exists." I hate the "pragmatic" types. If something is wrong, it's wrong; don't try to make it better, instead, eliminate it. Why is it that no one ever mentions Friedman's positions regarding freely floating international exchange rates amongst different currencies? That was his biggest failure in my opinion.
That sure is a good target for your hate. Instead everyone should talk about how great it would be if we could go instantaneously to anarcho-capitalism.
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
Juan:Yes, it's much better to support criminal activities AND even justify them on 'theoretical' grounds by dismissing sound reasoning as 'too radical'.
Yes, that's Milton Friedman's legacy, supporting criminal activities. With that view, you could be Naomi Klein's spokesperson.
I think you should have some appreciation for the intellectual division of labor. Was pushing for the elimination of the draft evil because it did not also involve dismantling the military? Is calling for tax and spending cuts evil because you are not also calling for the elimination of government?
And of course should we extend our hatred to Mises for not being radical enough?
Rooster:I think you should have some appreciation for the intellectual division of labor. Was pushing for the elimination of the draft evil because it did not also involve dismantling the military? Is calling for tax and spending cuts evil because you are not also calling for the elimination of government?
Rooster,
I think the problem is when people like Friedman advocate allegedly lesser evils to allegedly obviate worse ones, as opposed to when people fail to denounce all evils while denouncing some. Friedman's errors were errors of commission, not omission. For example, Friedman's negative position of calling for tax cuts, though not necessarily the abolition of the IRS, was not wrong. His positive position of calling for a negative income tax was.