Friday, July 29, 2011

The Ghost of Murray Rothbard Drives Estabishment Economists Crazy

In an important article, Gary North explains why Establishment economists want to push the economic theories of Murray Rothbard down a memory hole, while they simultaneously attempt to resurrect the views of technocrat Milton Friedman.

The key takeaways from North are:
[Friedman]  argued that the FED did not inflate enough in 1930-33. He wrote this in A Monetary History of the United States (Princeton University Press, 1963).

In that same year, across town (Princeton), another publisher released Murray Rothbard's America's Great Depression, which argued that the FED indeed caused the depression . . . by its expansionist policies, 1926-29. The battle on this issue began in 1963. It still goes on. Establishment economists blame too little government, too little monetary inflation. Rothbard blamed too much of both.
The [Rothbard] ghost did something considered intolerable, 40 years ago. He said that Milton Friedman on the money question was just another promoter of fiat money.
[Friedman]  was a self-conscious disciple of Irving Fisher, the self-professed socialist (if push ever came to shove) and incomparably bad forecaster who announced in September 1929 that the stock market had reached a permanent plateau. He went on to lose his personal fortune (he invented the Rolodex) and his sister-in-law's fortune in the Great Depression. He became a laughing stock among economists, a great embarrassment to the profession. Yet he invented the index number, which is basic to the ideal of targeting inflation by the Federal Reserve System. It was Friedman who almost single-handedly resurrected Fisher's reputation in the 1950s from the grave that it so rightly deserved. Friedman called him the greatest American economist in history.

Ever since late 2008, Ron Paul has reminded the public, in effect, "we Austrians told you so, and we also told you why -- the Federal Reserve's policies under Greenspan and Bernanke." The Federal Reserve caused the crisis of 2008. To expect it to be able to cure it safely is naive.
The Friedmanites, who did not see the crisis coming in 2007 -- but a lot of Austrians did, and said so in print -- were caught flat-footed. They are now enraged at Ron Paul and the Austrian economists. So, there is no hue and cry from Fiedmanites over the massive expansion of the monetary base.
Friedman spent his career devising strategies to make the government more efficient. He was a technician who, as a Treasury Department staff economist, advised the U.S. Treasury on how to be more efficient, beginning in 1943, with his technical support for New York Federal Reserve Chairman Beardsley Ruml's plan to impose withholding taxes on the American people. The government got more efficient, fast. Revenues from income taxes (personal and corporate) quadrupled from $8 billion to $34 billion, 1942-1944.
We need less efficient government. Friedman never grasped this. Rothbard did. The few Establishment economists and columnists who have read Rothbard have never forgiven him for this.
The Austrians argue that monetary policy should be decentralized by means of the use of precious metals coins. All other schools of economics, invoking Keynes and Fisher, believe that monetary policy should be centralized in a committee of university-screened graduates of state-accredited universities. These people must be given the power of the state to enforce their policies. Without state-licensed fiat money, the public would be in control. The Establishment will not tolerate this.

Friedman was the main apologist for fiat money in the free market camp. He believed in free market liberty, but not where it is really important: education (vouchers based on state-confiscated money) and money itself (central banking based on a grant of state power: a monopoly). Murray Rothbard challenged both ideas. He therefore remains a pariah to the Establishment.


  1. Great, a chance to comment on North!
    1. Great concealed quantification: Establishment economists. Ever heard of methodological individualism? Exactly Keynes referring to the "classical" economists.
    2. Moronic reading of charts. This is why Austrians get ridiculed. They see a chart and draw a conclusion without thinking. There is actually a plausible paper that seems to demonstrate that the Fed was not responsible for the crisis ( And who was it refuted by? None other than the despicable Selgin! And in the sancrosanct pages of Mises Daily no less! ( See, scholars see beyond just a simple chart and consider all the implications.
    3a. Misrepresenting Friedman's views. Friedman said explicitly in Free to Choose and elsewhere that he preferred complete abolition of state education. He proposed vouchers as a SECOND-BEST solution. As for money, he came to OPPOSE ALL government control. (Documented by none other than - wait for it - George Selgin! at He merely wrote in the context of the existence of a central bank. Given a central bank, was the question, what should monetary policy be?
    3b. "Making the state more efficent" may be either bad or good depending on the specific circumstances. See, Friedman saw that the central bank wasn't going to be abolished anytime soon, so he laid out how he thought they could minimize the damage done. Rothbard on the other hand, didn't care about actual monetary policy. He just wanted to have the Fed gone the next day. But you gotta live with what you got. Second-bests are similar. You know who else recommended some second-best policies? Mises! The pragmatic scholar as opposed to the insistence on complete unwavering adherence to all the policies one wants (exemplified by Rothbard).

  2. There are many people out here like me, people who are not economists and never will be, of any kind, Austrian or otherwise. I just don't have the time to self-educate myself even to the degree of becoming a "lay" Austrian economist. But I know that central economic planning of any kind does not work and never has worked, anywhere. If there is a demand out there, it will be supplied by someone, if it is economically feasible to do so. I love this post and North's article because it reminds me of the numerous missives of the late great Harry Browne, who had a knack for reducing to their essence complex or misunderstood government policies, as well as their unintended (and counterproductive) consequences: Government Doesn't Work. I like to think of myself as a product of Harry Browne's life work. Whenever anyone says they have discovered a government policy prescription to fix some problem, I ask myself "what is the government doing to cause this problem?" I don't think Friedman ever took this observation to heart. And I just can't understand why someone who was such a staunch advocate of freedom and personal choice could ever embrace a fiat currency, given all the harm the government does with it.

  3. Bob,

    I know that Rothbard advocated 100% reserve banking and I know that most Austrians in Mises circle consider this to be axiomatic.

    Was wondering what your thoughts were on this paper:

    It proposes that FRB is not a problem per se, when the fraction of reserves (demand vs. time deposits) is determined by each individual depositing money at the bank.

    Your thoughts?

  4. Yes, let the record reflect just whom it was, (and is), in Austrian circles that has been saying what is going to occur to ours, and the worlds, economy and compare it to rest of the pack. The Austrians stand head and shoulders above the rest. This is an undeniable, indisputable fact.

    I will openly admit that I am not an economist by profession, but I can read and the Austrians, IMHO, are not being given a fair hearing. Now why is that?

  5. Austrian theory is apparently irrefutable. According to our opponents, Rothbardian influence is the only thing holding back Bernanke from doing the right thing but not a single opponent can demonstrate even the slightest familiarity with basic Austrian concepts. EVER.

    None of them gets it. EVER. Simply amazing.

  6. Check out this interview of Friedman on Charlie Rose (Dec. 2005). Starting at the 1:50 mark in part 3 on YouTube he claims Allen Greenspan as the greatest Fed Chairman,Bernanke as an able man and praised the current economy. He didn't see it coming. It is because of this interview I have lost interest in him and gain interest in the Austrian view.

  7. You may be interested in my comment over at Cafe Hayek:

    I think in some way Gary North captures a libertarian perspective on Friedman that is hard to refute:

    ” Friedman … believed in free market liberty, but not where it is really important: education (vouchers based on state-confiscated money) and money itself (central banking based on a grant of state power: a monopoly).”

    I would add the following.

    Favouring more liberty doesn’t automatically render someone a libertarian, particularly given the current size of the state.

    Arguing for elimination of rent control or the minimum wage doesn’t require that you be a libertarian either, simply a good economist.

    Advocating the end of that form of slavery known as the military draft likewise doesn’t prove that you are libertarian, just that you recognize that humans aren’t livestock.

    The difficulty from a libertarian perspective is that it is state control of the money supply which has enabled the expansion of the state to its modern scope. Arguing piece-meal against this or that policy is not bad but it really is like rearranging the deck chairs on the Titanic or closing the barn door after the horses have bolted (insert your favourite cliché here). It’s a losing proposition. You may, after years of effort, defeat one or two programs but the state will just grow some new appendages to replace those you’ve hacked off.

    As someone who has been exposed to Austrianish ideas only after many years as a mainstreamer, one thing that strikes me, and I’m sure many others, is the extent of professional price paid by Mises, Hayek and their followers such as Rothbard, as a result of their views of economics and liberty. Some of this may have been due to bad economics, but let’s be honest, most was due to ideology and their defiance of the prevailing orthodoxy. It lends them, in the eyes of many and legitimately so in my view, something of an heroic character. My impression is that Friedman did not pay such a professional price for his views.

    Friedman may well have been the better monetary economist. To be honest, the obsession of some Austrians with 100% reserves makes absolutely no sense to me. However, it doesn’t make any more sense to me when James Buchanan argues for it either, as he recently did. No one’s calling Buchanan a Rothbardian. I also vaguely recall at one point in the deep distant past Friedman supporting the idea of 100% reserves. Further, Friedman failed to appreciate fully (or at all?) the negative real effects (via malinvestment) of excess money supply even though he may have appreciated the consequences of monetary disequilibrium in the opposite direction. That’s strikes me as a pretty fundamental flaw. Aside from monetary economics, Rothbard seems to have had the broader range, including not only theory but the history of economic thought.

    The attack on Friedman was silly and needlessly provocative perhaps. But how many silly, vicious and uninformed attacks on Austrians have there been over the last 60 years? Which is particularly odd, given that many “modern” innovations in mainstream economics were present in Austrian economics many decades ago. Of course, few, if any, have given the Austrians any credit for that.

    While Milton may have been the greater economist, Murray was perhaps the greater libertarian. In the long run, what will matter more in securing liberty and improving people’s lives? I throw in my lot with Murray.

  8. It is amazing to me how stupid and infantile "scholars" will support the terrorist state...They are not unintelligent but they are incredibly stupid. The first thing they do to you in any University "Humanities" curriculum is beat the reason, logic, and manhood out of you.

    Statist twits are murdering us all.

  9. Anyone who believes that making The State more efficient is an admirable goal is no friend of liberty. It just means that the trains to the concentration camps run on time.

    At one time I would have supported vouchers, but then I realized that it would be trading one naked State master for a cleverly concealed one.

    Monopoly in any form inevitably begats tyranny, and The State is the ultimate monopolistic tyrant.

    I suggest that the first poster study the Somalian Xeer for an idea of how a stateless society can be self-organized.

  10. Hey Anonymous 0853:
    1. Why don't you list several of the establishment economists who called the crash of '07-'08 in advance, in writing. Don't bother, it's a short list
    2. A "plausible" paper that "seems" to demonstrate. I am underwhelmed.
    3a. Government vouchers will come with intense government regulation, making voucher-funded private schools a lot like government schools. It's nothing more than lipstick on a pig. Also, the question isn't what should monetary policy be, the question is should there be a government monetary policy at all. Look around fucko, the Fed is nothing more than an enabler of irresponsible government deficits on the one hand, and an enabler of Wall Street recklessness on the other (with us little guys paying for it all). Moral hazard: ever hear of it?
    3b. The reason Rothbard wanted the Fed GONE, not more "efficient," is because he saw what you and Friedman can't: The Fed we have is as good as it gets, it's ruining us, and it CAN'T be fixed. IT IS DOING PRECISELY WHAT IT WAS CREATED TO DO. Enabling irresponsible behavior and creating moral hazard is in its DNA, dummy. "You gotta live with what you got?" No, not for much longer actually.

  11. Let's not forget that Milton Friedman also advocated the so-called negative income tax, or guaranteed income, which, if successfully passed by the Nixon administration, would have been the most disastrous socialist program in our history. Although Friedman did eloquently argue in favor of many free-market ideas, when it counted, he always worked towards greater statism -- feigning great reluctance all the while, of course. Also don't forget that Friedman and his disciples disastrously predicted a Great Depression to occur in 1984.

  12. It is important to note what was posted early on in the comments section. The Austrians predicted the exact mess we are in, complete with housing collapse and gold exploding, while the other schools did not.

    Why did I send every Austrian predicting this, while the Chicago school was left scratching their heads? I won't even get into how wrong the Keynesians are.

  13. I started my interest in economics by reading Smith, Bastiat, Say, Ricardo, Mill, etc. I got through the classics and then started reading Fisher, Keynes, Samuelson, Friedman, etc. All of this time I had never even heard of Austrian economics until about 4 years ago (Ron Paul mentioned it), so I began reading Mises, Menger, Hayek, you know, the regulars. But, it was not until I started reading Rothbard that it really sank in.

    Of course the establishment economists and media will attempt to make Rothbard fall into a memory hole. Not only did he write in an extremely straight-forward and easy to understand language, but he also covered a wide range of sciences and topics (economics, political theory, history...). And, as it just so happens, a lot of people are beginning to read his work these days.

    The establishment is merely trying to nip this one in the bud. They see Rothbard (and, Austrian econ in general) getting a resurgence, so the only way for them to combat this trend is to talk trash about it. They know, just as most Austrians do, that it is extremely hard to go back to being a statist after having read a few of Rothbard's books. Trust me, the last thing that they want is to have a bunch of ancaps running around, we might end their gravy train.

  14. "But you gotta live with what you got"

    I bet slaveowners in 1850 Georgia told "their" slaves this as well.

  15. I recently read Irving Fisher's 100% Money and the Public Debt, where he basically says the fractional reserve nature of our banking system is responsible for the business cycle. He may have ripped off Mises, but he still said it. I believe he still advocated state-controlled money though.

  16. Debasing the currency is morally wrong. It's a form of theft, and I don't care how many snot-nosed intellectuals try to rationalize it. I think we should reinstate criminal penalties for currency debasement.

  17. @Jaffi Joe,

    Imagine that!

  18. Ooooohhhhh, the anon@853AM got PWNED!

    Great comments from all involved on this post, succinctly and eloquently pointing out the Anons dumbassery!!! Kudos to all of you.

  19. The first responder at 8:53 did in fact get owned!

  20. Our author says that 100% reserves makes absolutely no sense to him. This means that counterfeiting makes sense to him.


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