So in that spirit, I think some heterodox Keynesian views of Friedman are worth mentioning:
Thomas Palley, “Milton Friedman: The Great Conservative Partisan,” November 27th, 2006.One can also revisit Friedman’s debate with the Post Keynesian economists Paul Davidson and Sidney Weintraub (Davidson and Weintraub 1973), which, I think, makes profitable reading.
James K. Galbraith, “The Collapse of Monetarism and the Irrelevance of the New Monetary Consensus,” March 31, 2008.
All in all, Thomas Palley has a nice summing up of Friedman’s monetarist doctrine:
“Monetarism’s most famous aphorism is that ‘inflation is always and everywhere a monetary phenomenon.’ This saying reflects Friedman’s polemical powers, capturing for monetarists what all sensible economists already knew. Inflation is about rising prices, and prices are intrinsically a monetary phenomenon since they are denominated in money terms.Moreover, attempts by central banks to actually control base money or the broad money stock, as under Margaret Thatcher and Paul Volcker, ended in miserable failure. Central banks soon turned to inflation targeting, and the idea of direct controls on money supply growth died a humiliating death.
Sustained inflation requires that the money supply grow in order to finance transacting at higher prices. For Friedman, this made villainous central banks the exclusive cause of inflation because of his belief that they control the money supply. However, the reality is that the private sector can also inflate the money supply through its own credit creation activities. Additionally, central banks (viz. the Bernanke Fed) may be compelled to temporarily accommodate inflationary private sector pressures to avoid triggering costly recessions. The implication is that inflation can have different causes, something Friedman denied. Sometimes inflation is caused by excessively easy monetary policy or large budget deficits financed by central banks. Other times it is due to private sector forces, including speculative booms and conflicts over income distribution.”
Thomas Palley, “Milton Friedman: The Great Conservative Partisan,” November 27th, 2006.
This is no doubt what prompted John Kenneth Galbraith (father of James K. Galbraith) to say that “Milton Friedman’s misfortune is that his economic policies have been tried”!
UPDATE
Here are some further links:
Ramanan, “Nicholas Kaldor on Milton Friedman’s Influence,” The Case For Concerted Action, 13 July 2013.BIBLIOGRAPHY
“Milton Friedman’s Distortions, Part II,” Unlearning Economics, July 12, 2013.
“Milton Friedman’s Distortions,” Unlearning Economics, November 27, 2012.
Davidson, Paul and Sidney Weintraub. 1973. “Money as Cause and Effect,” The Economic Journal 83.332: 1117–1132.
Hi LK, don't forget Kaldor's critic of Friedman in 1970. Here is the relevant article, and I add a nice post from Ramanan: http://public.econ.duke.edu/~kdh9/Courses/Graduate%20Macro%20History/Readings-1/Kaldor.pdf and http://www.concertedaction.com/2013/07/13/nicholas-kaldor-on-milton-friedmans-influence/
ReplyDeleteNice links. I have updated above.
DeleteHere is Robert Neild emeritus Professor of Economics at Cambridge University. on Milton Friedman and the statement' signed in 1981 by 364 brittish economists warning about
Deleteof obvouis failures of monetarism.
http://www.res.org.uk/view/article4Oct12Feature.html
Here is a book that is it seems out print but available online.-Elton Rayack-University of Rhode Island
Not So Free to Choose: The Political Economy of Milton Friedman and Ronald Reagan
Praeger, New York 1987.
http://www.stat.uchicago.edu/~amit/MFI/NSFTC.html
"Central banks soon turned to inflation targeting, and the idea of direct controls on money supply growth died a humiliating death"
ReplyDeleteAre you planning a post on inflation-targeting? This also requires control over the money supply and (as far as I can see) Post-Keynesians should think it as impossible to accomplish as money supply growth targeting.
"Are you planning a post on inflation-targeting? This also requires control over the money supply and (as far as I can see) Post-Keynesians should think it as impossible to accomplish as money supply growth targeting."
DeleteIf you target inflation the growth in the money supply that is necessary to achieve the target is not fixed. If the central bank targets inflation it has to let Mb and M increase to whatever level is necessary to achieve the inflation target.
well yes, but if they don't believe that the CB has control over M how are they going to do that ?
DeleteI don´t understand why you think the CB should control M if it wants to target inflation. The CB sets a certain interest rate (which it thinks will help it to achieve its preferred inflation rate), and supplies the amount of reserves necessary to make sure that the banking system continues to function at this interest rate. If inflation is too high for its taste, the CB will just increase the interest rate.
ReplyDeleteJan,
ReplyDeleteI agree that is exactly how inflation targeting works.
My point is that Post-Keynsians like to point out that when the CB tried to use interest rates to control M2 directly it failed.
In other words when the CB tried to follow a rule "If M2 is too high for its taste just increase the interest rate" it proved impossible to hit the target.
Given this, is not clear to me why "If inflation is too high for its taste, the CB will just increase the interest rate" would work any better.
What is the difference ? In both cases a function of the money supply is being targeted.
I just cannot see the problem. The CB sets an interest rate and supplies all the reserves necessary to satisfy the demand for credit at that rate. There´s no function of the money supply targeted here, the money supply is endogenously determined by the demand for credit. The CB cannot control M2 but it controls the interest rate.
ReplyDelete