Tuesday, May 17, 2011

Mises, Hayek and Rothbard Turn Over in Their Graves

In a post today, Paul Krugman foists Milton Friedman as a person who understood money supply and its relation to economic growth:
And then there’s the claim that hard money is the key to growth. Milton Friedman turned over in his grave
Friedman always thought in terms of aggregates when it came to money supply and never was able to grasp the insight of such economists as Ludwig von Mises, Friedrich Hayek and Murray Rothbard, who explained that money's impact on the structure of the economy is never neutral, but is an advantage to those who get the money first.

Not surprisingly, economic regime apologistse have designed economic indicators in a way to imply the economy is doing well, when it is simply an  advantage to the elitists who get new money pumped out to them first.  For example, the indicator, "core price" inflation, is seen as the best measure of price inflation and is seen as not climbing significantly and thus all is well on the price inflation front. But "core" inflation is an indicator that provides an edge for elitist who get new money first. It is a price inflation indicator that excludes gas and food. So, yeah, for the elitist who gets new money first, gas and food are a small part of his budget, but for the poor schmuck and the end of the money printing line, who only gets the new money (and less of it) after prices are up and where gas and food are a major part of the budget, the real price inflation he faces is dissed as insignificant. Indeed, for the elitist, the price inflation the poor schmuck faces is insignificant!

Friedman by his aggregative thinking on money, which failed to recognize the non-neutrality of newly printed money, served up on a platter a confusion that regime apologists like Krugman bring out to attack anyone, anytime who attempts to discuss the structural and price inflationary damage done by central bank money printing. Don't fall for it. Money printing has bad consequences for all, except the elitists.


  1. I am not an economist, but I'd wager that I share such ignorance with Krugman. He walks out any particular theory that coincides with his explanation of current events without any regard for his denunciation of that idea the day before. I am not a numbers guy, but I do know if you fudge the calculation by not including staples like gas and food, the answer- good or bad- that you get is largely worthless to describe the system you are trying to model.

  2. But Hayek was in complete agreement with Milton Friedman that the Depression would have been prevented had the Fed not let the money supply fall. And later he even denounced the gold standard.

  3. Rothbard makes many valid criticisms of Friedman, .....but a "statist"? Come on. Friedman was wrong on monetary policy, but he articulated the case for free markets in language the average person could understand better than ANY economist.

    Friedman's defense of capitalism and free trade based on individual self interest on the Donahue show in 1979 is an absolute masterwork:

    Now, after watching this clip full through, does this sound like a statist?

  4. First, free markets and a state-granted monopoly on the medium of exchange are mutually exclusive (if you have one, you don't have the other). So, whether you're Milton Friedman or Joe Schmoe, if you support the existence of a central bank, you don't support free markets.

    Second, whether or not one thinks Friedman can be described as a "statist" is subjective. While Rothbard's use of "statist" was not nearly as common in the 70's as it is today, it should not be considered a controversial assertion.

    I have watched that entire episode of Donahue (more than once actually) but don't understand how it relates to your question. Yes, he was an articulate defender of markets but he was also a statist. What's your point?

    Milton's son, David, is the statism-free Friedman. :)

  5. If they think food and gas and education and housing price inflation is too volatile why not just use a yearly or multi-yearly average?