And this video shows why.
Milton Friedman understood perfectly well that central banks are vital in modern market economies to stabilise fractional reserve banking, and he rightly blamed the Federal Reserve for not intervening properly from 1929 to 1933 to stop the financial collapse.
But, of course, for most Austrians – with the exception of the GMU Austrians and (probably) the radical subjectivists – central banks are an unmitigated “evil” and should not even exist.
The “liquidationism” of such Austrians actually entails not only that central banks should do nothing during recessions, but also that they abolish themselves.
In light of this, it is indeed no surprise that Rothbardian Austrians loathe Friedman.
Why is this of interest? Because over at Free Advice Robert Murphy posts a video of Arnold Schwarzenegger singing a paean to Milton Friedman in an attempt to show that all the “non-interventionist stuff in Friedman … is inconsistent with his fine-tuning monetary policy ideas.”
But it is no such thing. Milton Friedman had (from his own perspective) a coherent economic theory that accepted fractional reserve banking as part and parcel of capitalism (unlike Rothbardians), and that such a system needed a central bank to stabilise it.
There is no contradiction involved in followers of Friedman praising his Free to Choose (1980) book and television series and ideas on personal liberty, but accepting the need for a central bank and even some type of monetary policy, as Friedman did.
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"of course, for most Austrians – with the exception of the GMU Austrians and (probably) the radical subjectivists – central banks are an unmitigated “evil” and should not even exist."
ReplyDeleteMost (if not all) GMU Austrians also oppose central banks and think they should not exist.
It's true that as a practical matter, Friedman accepted central banking, but he was quite sensitive to how vulnerable this made him to others' out-libertarianing him. So his theoretical view -- that discretionary (monetary) fine-tuning usually lagged too long behind the actual business cycle and was likely to be ineffective at best and counterproductive at worst -- was icy toward actually-existing central bankers. Moreover, his policy advice was to abolish the Federal Reserve and replace it with a monetary growth "rule"; a chimera as fantastical as anything the Austrians propose.
ReplyDeleteAdd to this Friedman's habit of describing the Fed's *failure* to stop the Great Depression (and other recessions) as the Fed *causing* the downturn -- a neat sleight-of-hand that is possible if one believes monetary policy to be all powerful -- and you have a quite ambiguous legacy. As Paul Samuelson said, "Now I don't think Milton is a charlatan. He
believes what he says at any time he says it. But he also
has a very healthy respect for his audience. If you are a
yokel, he gives you a hokum answer. If he is giving his
presidential address [in his capacity as American Eco-
nomic Association president], he states it more guard-
edly and more carefully."
Will