Milton Friedman

QE Phooey, Milton Friedman Thought There Shouldn't be a Federal Reserve at All


There are nearly a fiat trillion's worth of interesting and complicated issues of history, theory, fact, and fair emphasis built into the recent debate over whether or not Milton Friedman would have approved of current Federal Reserve policy. See Paul Krugman, Rand Paul, and James Pethokoukis on various aspects of this. Krug and Petho say yes, Paul implies no.

If we are to just evade those complicated questions and just fall back on the notion that Milton Friedman really understood exactly how a nation's monetary policy should be run, let's revisit what he told me in one of his last interviews for our November 2006 interview feature on the Federal Reserve. (It also stars Ron "end the Fed" Paul.)

Friedman: I would prefer the Fed to follow a much simpler course: to take as its operating magnitude not the federal funds [interest] rate but the quantity of money. Pick whatever definition it wants—M2 [one of many measures of the money supply, including currency, savings, demand deposits, and certain liquid time deposits] is a good definition. I'd just as soon the Fed announce it will increase M2 by 5 percent per year, year after year, month after month. But they are not going to do that.

Reason: Why won't they do what you suggest?

Friedman: They don't want to become irrelevant. It's human nature. You would do the same thing if you were there, and I'm afraid even I would.

Reason: But it would be preferable to abolish the Fed entirely and just have government stick to a monetary growth rule?

Friedman: Yes, it's preferable. And there's no chance at all of it happening.

In other words, saith Milton Friedman: end the Fed! Even though he thinks no one was listening. More have been since 2006, thanks to his fellow panelist in our interview roundtable, Ron Paul, father of Rand.

The very fact this debate is raging puts the lie to Krugman's notion that Friedman is now an "un person." More important than what a living Friedman would say now (which I think would be tied up in complicated questions about whether or not Japan '90s really is in every meaningful way equivalent to USA '00s/10s and whether QE was necessary to prevent deflation) is whether or not current Federal Reserve policies have been a) in any way stymied by this so-called gross misunderstanding of Friedmanite wisdom (I mean, we have had QE) or b) or have actually done the economy any long term good without creating possible future dangers.

I wrote earlier this year on Friedman's gradual radicalization toward more libertarian stances on monetary policy and most other things.

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  1. “Yes, it’s preferable. And there’s no chance at all of it happening.”

    I do this strategy-wise stuff all the time.

    Um…yeah, I don’t think you guys should do this deal, but if you’re going to do it anyway? then here’s what I think you should do.

  2. Why should Krugman care about what MF actually said when he can determine what MF should have said based on a biased selection of MF’s writings?

    1. OH, Krugman is not just biasing MF’s writings. In the article he lambasts Paul Ryan’s quote: “There is nothing more insidious that a country can do to its citizens, than debase its currency.”

      What a poor memory he has!

      “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat…Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” – John Maynard Keynes

  3. The first Paul Krugman link goes to the same page as the James Pethokoukis link.

    1. Fixed now, thanks. (Though it is same link as the LATER Krug one…)

  4. Who cares what Krugman says?

    Not I.

  5. The real reason to end the fed is because it’s totally controlled by the five Jew bankers at the center of the earth.

    1. That’s absurd. It’s run by the Pentavirate, and there’s no reason to end their benevolent control.

      1. So do you think Apple bought Col. Sanders’ share when he went tits up?

        1. Pretty sure the Pilsbury Doughboy got the Colonel’s (PBUH) shares – since that was the succession plan

          1. That makes sense. He does have wee beady eyes, and also uses a chemical that makes you crave his dinner rolls fortnightly.

      2. “But whether the Pentavirate really be one thing, or another, this much is certain – that it has either authorized such a government as we have had, or has been powerless to prevent it. In either case, it is unfit to exist.”

        -Lysander Spooner

      3. I don’t know, I’ve been hearing some rumors that the Discordian Society made a power play and took control of the Fed by proxy through their ownership of the Boy Scouts and the Rosicrutians

        1. Your ideas intrigue me, and I am interested in subscribing to your newsletter *shows secret Masonic sign*

        2. Now I know you’re making it up.

          It’s Rosicrucians.

        3. That’s all just smoke and mirrors orchestrated by the Stonecutters and Steve Guttenberg, you fool!

          1. The metric system never stood a chance.

            1. The metric system is a French Communist conspiracy.

              1. Or so the Dutch Anarchists would have you believe.

        4. Who do you think is behind the immigration bill coming up this fall? Why do you think Victor Cruz got an exception to the excessive celebration band?

          1. the excessive celebration band

            Good beat? Easy to dance to?

            1. Because he’ll cut you! See correction below?

              1. See correction below?$?$

          2. excessive celebration banded saw?

          3. who keeps the metric system down? We do.

            1. I’d walk a mile to keep down the Metric system

        5. No one got it. (Fnord).

    2. That’s a reason to celebrate it!

    3. I thought it was the reverse vampires.

      1. The reverse vampires, working with the saucer people. Get it right!

        1. Don’t forget the Rand Corporation.

      2. “We’re not reverse vampires, we’re GOTHS!”

        1. Urge to burn down Hot Topic… rising.

    4. No way.

      5 Jews at the center of the earth would do a way better job.

      1. You are undoubtedly correct. I hadn’t tought of it that way before.

  6. After Naomi Klein, I’d rather go to extreme lengths to avoid debating the Left on Milton Friedman’s ideas.

    1. You just can’t handle the uncomfortable truth that Milton Friedman was personally dropping Chilean dissidents into the ocean.

      (Hayek was piloting the chopper)

  7. It seems weird to me that nobody has noticed Pauly Krugnuts’ dogged crusade to discredit himself.

    1. I think that’s because he himself hasn’t noticed yet.

  8. What I find most obnoxious about Krugman is his unflinching faith in his own righteousness. Most people start from a point where; they might be wrong, but here is why they are not. Krugman starts from; I’m right, and here is why you are wrong, without ever having listened to the opposing argument. This is why Krugman sounds like a crackpot whenever he talks about those he disagrees with, he never bothers to listen to their arguments. Instead Krugman argues with phantoms of his own imagination, and whenever he invariably wins the illusionary argument, he acts like he’s a hero.

    In short, Krugman is kinda like a forum troll.

    1. Strawmen are his Washington Generals.

    2. Krugnuts = T O N Y would explain a LOT.

      1. You know, I could see old beardface sitting there, stroking his latest dead cat, arguing with us on here. I mean, his characterization of libertarians and Tony’s are incredibly similar.

    3. I don’t think Krugman cares as long as he gets paid $$$.

  9. If not for quotes provided at HnR, would anyone here seek out and read Krugnuts?

    1. I believe the League of Slobbering Sycophants would. They think he’s dreamy.

      Not as dreamy as the Obama, but still, pretty dreamy.

    2. Uh, no – not even here. I just read the summary – I’ve lost so many brain cells through contact with teg stoopid through the years that I minimize contact wherever possible.

      Which is why I truly do appreciate those who take on for the TEAM and read and translate these articles and blog comments – cause they’d kill me if I read them straight up.

      1. My typing skills also have suffered…

  10. Fun facts on spending:

    2007 deficit: $160 billion
    2013 deficit so far: $600 billion
    July spending: $298 billion, up from $254 billion July 2012*


      1. It has also slashed the federal budget, although in July total spending rose to $298 billion from $254 billion in the same month of 2012.

        does not reconcile.

        1. We had to increase spending to learn how to cut it

    1. But…but…BUSH!

    2. But that’s impossible. Shrikey ensured me that The Messiah Obama has slashed the deficit.

  11. Speaking of QE, what round are we on? And how can I make TRILLION$ when it ends and all the market indices correct?

    1. “QE Infinity and Beyond!”

      1. Stupid Squirrels:

        + ?


    Talking about the “Justice” Department Chief Holder’s recent decision [allegedly] to selectively enforce drug laws.

    You go, Matthew!

  13. It was only a few short years ago the LRC (the guardians of libertarian purity) were denouncing Friedman as the devil simply because he wasn’t an Austro-anarchist like they were. There is a strict purity standard to pass in order to be a libertarian, and Friedman did not pass it, and is thus consigned to Purgatory for half of eternity.

    Yeah I get it Lew, there are serious flaws in Monetarism. But there are times you are incapable of distinguishing between a disagreement in methodological foundations and an Unpardonable Deadly Sin.

    1. It goes without saying that Rothbard viewed Friedman as worlds better than the hordes of pious socialists like Krugman, but the core of libertarianism isn’t the compromised version of liberty Friedman sold for decades, and he deserved to be raked over the coals by the Austrians and anarchos.

      Libertarianism needs radicals who will maintain and remind us about the intellectual and moral center of the movement just as much as we need “realists” like Friedman who can build coalitions and work within the Overton window. The idea that we have to maintain solidarity above all else and never pick apart one another’s arguments even in semi-public forums has no place in an enduring political philosophy.

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