Monday, July 25, 2011

The Murray Rothbard Influence on Ben Bernanke?

W.W. at Economist magazine is out with a rant that could only come from someone who has never looked at money supply data in his life.

He contends that Fed chairman Bernanke is not aggressively expanding money supply because of an indirect Murray Rothbard influence on Bernanke via Ron Paul:
Now, I don't claim that the right, loosely defined, is chock full of Murray Rothbard fanatics. And whatever it is that is keeping Ben Bernanke's Fed from loosening up, it's not the enduring intellectual legacy of Murray Rothbard. At least, not directly. But I do believe elements of Ron Paul's Rothbardian monetary philosophy enjoy a great deal of currency on the grassroots right, and I believe this exerts a considerable gravitational force on the institutional right, such that arguments for zero or very low inflation are accorded more weight than they would were Milton Friedman still in full effect.
"...keeping Ben Bernanke's Fed from loosening up"? What planet does this man measure money supply on? Money supply is exploding. The recent data show 13-week annualized SA M2 money supply growth at 8.2%! At the start of the year 13-week annualized SA M2 money supply growth was half the current rate at 4.2%.

But W.W. wants to bring Milton Friedman back into the picture and his rule-based money printing:
Scott Sumner, a professor of economics at Bentley University who identifies himself as a "neo-monetarist", has argued that Friedman would have supported monetary stimulus. And he has argued, on neo-Friedmanite grounds, that tight monetary policy both precipitated and exacerbated our recent recession. I happen to think Mr Sumner is correct, but his expansionary prescription remains anathema on the right.
He then tells us that:
Although sophisticated Austrian-school monetary economists such as George Selgin and Larry White defend rule-based inflation-targeting policies not all that different from Mr Sumner's neo-monetarist nominal GDP-targeting rule, the ghost of Murray Rothbard looms much larger on the free-market right.
If W.W. had a deep and sophisticated understanding of Austrian economics, he would know that Austrians view the increasing of the money supply as the cause of the business cycle. Thus, what White and Selgin are promoting is not a "sophisticated" Austrian school monetary theory, but a non-Austrian theory, that's sounds a lot more Friedmanite than Austrian.

Indeed, in his rant, W.W. does quote Rothbard on Friedman:
In common with their Keynesian colleagues, the Friedmanites wish to give to the central government absolute control over these macro areas, in order to manipulate the economy for social ends, while maintaining that the micro world can still remain free. In short, Friedmanites as well as Keynesians concede the vital macro sphere to statism as the supposedly necessary framework for the micro-freedom of the free market.

In reality, the macro and micro spheres are integrated and intertwined, as the Austrians have shown. It is impossible to concede the macro sphere to the State while attempting to retain freedom on the micro level.
W.W. though fails to quote Rothbard's analysis of Friedman's view or Rothbard's biting conclusion about Friedman's money policy:
Milton Friedman is, purely and simply, a statist-inflationist, albeit a more moderate inflationist than most of the Keynesians. But that is small consolation indeed, and hardly qualifies Friedman as a free-market economist in this vital area.
In short, it comes as no surprise that Friedman policy prescriptions would fall in line with those of out and out Keynesians. They are different doses of the same prescription. And Friedman is sinking down the memory hole, not becasue he has a more "sophisticated" monetary plan, but because the Keynesians already incorporate his money printing schemes and they don't have any use for his free market views relative to government interventions. He doesn't have a significant role on the anti-interventionist side because when the chips come down, specifically on monetary policy, he is as much of an interventionist as Paul Krugman and that crowd. Who needs him? As an economic theorist, he has a split-personality.

It isn't so surprising that Friedman's legacy is not carried on after his death, but that he was given so much attention when he was alive. This can only be attributed to his argumentative style when he stuck to defending free markets. His style resonated with people, but following his death, when he no longer comments on the issues of the day, he has nothing that causes people to grab on to his thinking. What he had right is done in a more logical form by Ludwig von Mises and Murray Rothbard. What he got wrong is taken to a more extreme degree by the Krugman's Joe Stiglitz's and Robert Reich's of the world, so they don't need nor want his theories.

The split-personality intellectual views of Friedman have no core supporters. The few calling for a rise of Friedmanite thinking have simply not recognized this. They are going to have a long wait, if they think there is going to be a groundswell of support for Friedmanite split thinking.

And if these guys think Bernanke has found Rothbard (while Bernanke is printing money at an 8.2% annual rate) well then, I would like to invite them up to San Francisco to see the awesome fog machine I am selling up there.

Update: A friend tells me that W.W. is most likely Will Wilkerson, a self described libertarian.

Wilkerson writes:
 I uphold libertarian principles and believe wholeheartedly in minimal government, or no government if it would work....
I guess this means liberty with a bankster run central bank.  Yup, that's the forgotten Milton Friedman, alright.


  1. If these guys think Bernanke has found Rothbard then frogs fly in the wind every Tuesday. What a joke.

    Are these people really THAT dense?

  2. I would have to agree with all of this. The idea that Bernanke or anyone in the same room as him has given a moment's thought to Rothbard is preposterous.

  3. I read the article at the economist. Same stuff as always. Austrians are quaint but crazy and should leave the serious money policy to the experts, who all have degrees in economics and know what they're doing. Another lame attempt at marginalizing the Austrians.

  4. In defense of Selgin and White: They are indeed Austrians, just maybe not Hoppean Banker Austrians.

    This was another error by W.W. to suggest that they favor "rule based central banking", and White addressed his error in the comments to the original article.

  5. Spot on as usual Mr. Wenzel. You're analysis of Friedman is one of the best I've ever heard.

  6. I was a fan of Friedman's and still like him on free trade, the morality of Capitalism and ending the drug war, but once I discovered Mises(thanks to Ayn Rand) and the Austrian School of Economics, there was no turning back to the Keyesian Chicago School with it's opposition to the Gold Standard and mathematizing everything so much!

  7. The unfortunate thing about Friedman was he was so wrong on monetary theory, but such a strong champion of the free market every where else.

    He was also one of the best speakers ever in defending the free market. His interview on Donahue and the other where he took on 3 socialists in Iceland are amazing.

    Contrast this to well recognized names in the Austrian crowd, like Ron Paul, Bob Murphy, and Walter Block. Watch their youtube clips as they stumble around and fail to provide a clear image of the free market to viewers. Contrast it to Friedman.

    This is not to say I do not have any respect for the people above, quite the contrary. I myself struggle in speaking debates. My point is that in order for the libertarian movement to be successful, it needs a great orator and so far this person has not stepped forward. For more on this see Leonard Read's essay on leadership.

  8. jmaltman,

    If you call for "inflation targeting", you're not much of an Austrian because:

    1.) Inflation shouldn't be "targeted"
    2.) It is not Austrian to believe it CAN be targeted (Austrians do not believe in "scientific", top down management of the economy, neither as a "could" nor a "should")

    Zach Bush,

    Don't forget Friedman came up with the income tax withholding scheme (horrible, anti-liberty policy) and State-controlled school vouchers. Money and education are the two most disastrous interventions in the economy the government can make. The former because it totally distorts every transaction in the economy and the latter because it ensures a populace that positively agitates for such interventions, and more.

    I wouldn't give Friedman much credit, if any. The guy blew it, big time.