Monday, July 30, 2012

A Lovefest Between Milton Friedman and J.M. Keynes

Keynesian Nicholas Wapshott writes:
Libertarians worship Milton Friedman, and liberals lionize John Maynard Keynes. But a long-lost essay shows that the champion of small government admired the prince of the New Deal.

July 31 marks the centenary of the birth of the high priest of monetarism, Milton Friedman. Conservatives will be rejoicing at his many achievements, notably his most famous triumph in the mid-1970s, when he almost single-handedly turned back the tide of 30 years of big-government Keynesian economics.

Yet Friedman’s contemporary supporters no less than his critics will be surprised to learn that he was in fact an enormous admirer of John Maynard Keynes—the patron saint of the New Deal—and not at all the absolute opponent of big government he is usually presumed to be.

A key lost document in the story of modern economics is Friedman’s only essay to directly address the legacy of Keynes, written for a German publisher in 1988 as the introduction to a new edition of Keynes’s revolutionary book The General Theory of Employment, Interest, and Money, originally published in 1936. The essay was circulated in English in the obscure quarterly of the Federal Reserve Bank of Richmond. Most monetarists do not know of its existence, and even fewer have read it.

The essay is a revelation. While Friedman spent most of his life insisting that Keynesian measures had led governments to grow too large, in this devastating critique of the American system of government he concedes not only that Keynesianism can work but that big government is not evil so long as it is honestly administered.
Hah, this might be news to Wapshott and fans of Milton Friedman, but Murray Rothbard understood Fiedman's true colors, decades ago. He wrote 4 decades ago (my bold):
Friedmanism can be fully understood only in the context of its historical roots, and these roots are the so-called "Chicago School" of economics of the 1920s and 1930s. Friedman, a professor at the University of Chicago, is now the undisputed head of the modern, or second-generation, Chicago School, which has adherents throughout the profession, with major centers at Chicago, UCLA, and the University of Virginia. 
The members of the original, or first-generation, Chicago School were considered "leftish" in their day, as indeed they were by any sort of genuine free-market criterion. And while Friedman has modified some of their approaches, he remains a Chicago man of the thirties. The political program of the original Chicagoans is best revealed in the egregious work of a founder and major political mentor: Henry C. Simons’s A Positive Program for Laissez Faire.Simons’s political program was laissez faireist only in an unconsciously satiric sense.
It consisted of three key ideas: 
a drastic policy of trust-busting of all business firms and unions down to small blacksmith-shop size, in order to arrive at "perfect" competition and what Simons conceived to be the "free market"; 
a vast scheme of compulsory egalitarianism, equalizing incomes through the income-tax structure; and 
a proto-Keynesian policy of stabilizing the price-level through expansionary fiscal and monetary programs during a recession. 
Extreme trust-busting, egalitarianism, and Keynesianism: the Chicago School contained within itself much of the New Deal program, and, hence, its status within the economics profession of the early 1930s as a leftish fringe.

Here's an audio of Murray on Friedman, mostly on Friedman on free riding:


  1. "Libertarians worship Milton Friedman."

    How, exactly, does Mr. Wapshott define libertarianism?

    Because "Not the Austrians!" (or something to that effect) is my reaction to that statement.

  2. "Libertarians worship Milton Friedman"

    Since WHEN????

    Did I miss the memo or something? Or is everyone right of Lenin a "Libertarian" to this guy?

  3. Libertarians worship Milton Friedman...

    I stopped reading after that....

    Oh, and I wouldn't take my ideas about Glass-Steagall from the Wash Po. I really wouldn't.

    Lots more going on with that.

  4. The Man Who Saved Capitalism

  5. 1) Advocate of central banking
    2) Developed the system for payroll tax withholding
    3) Supported continued and increased government control of education through vouchers.

    Item 1 above is a requirement for any economist desiring to be in the club. I believe item 2 above is what opened the door via blessing from the elite for Friedman to become the "free-market" spokesman in the acceptable dialogue. Creating a model to allow further state encroachment into education through vouchers was just icing on the cake - his position was already secure.

    Central banking and state funded education are the two most important pillars upon which the population is controlled – even more so than income taxes. Friedman was a champion of all three.

    Very libertarian.

    1. Friedman may have at one time been an advocate of a central bank, after all, he began, like Hayek, as a socialist. Later in life, Friedman became much more libertarian.

  6. as soon as I discovered the Austrian school, it was goodby chicago school with no turning back. Friedman was good on trade and capitalism, but not taxes and certainly not on monetary policy!
    I did
    like much of the Free to Choose film series.

    his ultimate hypocrisy having been the architect of WW2's withholding tax, later in life saying:

    "there's nothing as permanent as a temporary government solution."

  7. Not surprised at by this. In 2006, when Friedman died, I watched C-Span replay an interview with Milton Friedman from 1994 (when the 50th anniversary edition of Hayek's "The Road to Serfdom" was released, to which Friedman wrote the introduction). In that interview Friedman says, "Now I believe Keynes, who was a great man, he was a great economist, but I think his theory is wrong."

    Friedman also said Keynes was a liberal in the 19th Century sense. Hm.

    More here:

  8. In the Rothbard video, min. 10: externalities (neighbourhood effects)--Obama's "You Didn't Build That" is totally based in Friedmanism!!

  9. For a simple guy like me who reads a lot about economics & policy and still doesn't understand it much, all I can say is this:
    It is wrong for you to take my stuff without my permission. Therefore it is wrong for a group of you to take my stuff. Therefore it is wrong for your "representative" to take my stuff. Therefore TAXATION IS WRONG. It's theft. And any group whose primary means of finance is theft is a band of thieves.
    The whole argument over one policy of committing fraud (Keynesianism) over another policy of committing a different, slightly skewed version of the same fraud (Chicagoite-ism whatever) is ridiculous. The money was supposed to be gold. It is in the charter of the government. It's not gold. The whole money system is based upon a fraud.
    This is what Rothbard means when he says the government is a band of thieves writ large.
    So to argue this policy over that policy of theft and fraud is to me, a moot point. Freidman and Keynes were just plotters who were helping the thieves get away with their thefts and frauds more efficiently.

  10. "The essay is a revelation. While Friedman spent most of his life insisting that Keynesian measures had led governments to grow too large, in this devastating critique of the American system of government he concedes not only that Keynesianism can work but that big government is not evil so long as it is honestly administered." I am sorry but this article is extremely stupid. First ooff, Friedman admiring an economist for his work in the field does not make him less of a libertarian. Second, Friedman saying "that Keynesianism can work but that big government is not evil so long as it is honestly administered" also does not make him less of a libertarian. Friedman repeatedly said that it is because we do not have "angels" to run our government and economy, keynes' theory would not work. Friedman was implying that if we had these "angels" than society could work Keynes' way.

    1. So if you get mugged on the street and the thief takes your wallet, would you say, "Well, he's not so evil as long as he takes my money and gives it to charity."

    2. "Second, Friedman saying "that Keynesianism can work but that big government is not evil so long as it is honestly administered" also does not make him less of a libertarian."

      Then apparently you do not know what a libertarian is and what it is founded on.

      There is no way to "honestly" administer the initiation of force in a big government, while still claiming to be libertarian. It's not a question of integrity of the violator, or efficiency of the violence, but about the morality of it.
      You can have all the "angels" in the world, it won't make the initiation of force by a monopoly of violence any less evil.

    3. Good Job, Tony!

      I tire of the utilitarian arguments people make, and strongly prefer yours, a moral one. We suffer today because people can't tell right from wrong any more.

      If there is a hell, Friedman is roasting there for helping to engineer tax withholding, turning every employer in the nation into an unpaid tax collector. Without withholding our Leviathan could NEVER have grown to this murderous, mindless Empire of Drones and Redistribution. The blood of millions is on the hands of those who figured out how to let the beast feed at will on the productive in society.

  11. While Friedman's videos on YouTube are a good way to introduce someone to the ideas of Liberty, I never recommend his writings.

    I also make sure to tell the person that Friedman is only half-way to actual free markets, even while every time he extolls how markets solve problems he's correct.

    This does two things: First, it gets the person over the hurdle of questioning the free market itself, into asking "how". Second, now that they're asking "how", they are open to the Austrian analysis of "how" that demonstrates free markets solve problems in better ways than any command and control mechanism.

  12. Wapshott distorts what Friedman actually believed. Love Friedman or hate him, but let's at least get the facts right.

    Don Boudreaux makes short work of Wapshott here:

  13. I would only offer that "conservative" could have been substituted for Libertarian, but is there really that much difference? Libertarians, (large L) as in Libertarian Party, share very little with real libertarians (small l). In fact, (L)ibertartians are far closer to Republicans or conservatives than to purest libertarians, so Mr. Wenzel's opening line should not be misconstrued.

    Friedman was no libertarian, and many of his positions were completely antithetical to liberty in general. Those who quit reading or listening due to the opening statement did not take the time to understand the context of this critique, and that is a shame.

  14. Please erase my previous post. I made a fatal mistake.

    Thank you ... Gary Barnett

  15. @Gary Barnett

    No, I actually agree that Friedman is Keynesian in some respects.
    The point has been made by Sudha Shenoy and others as well.
    But his quotes about Keynes were taken out of context and his monetarism was the best of a bad to speak.

    It would be like calling Ron Paul a murderous neocon hawk because his constitutionalism actually enables a lot of neocon hawks. Enabling because you have no other option if you are to be a player is different from actively forcing through.

    And Murray Rothbard also wanted a central bank and wanted 100 percent reserves and a ban on fully disclosed fractional banking. Does that make him an evil statist?

    Today LRC ran a piece about Rand calling her a socialist. What does that mean? Every ideology has the seeds of its opposite, if you want to look into it. That's why ideology and ideological games like this serve the elites so well.

    Keep playing parlor games, while liberty slips out of your fingers, the major criminals go unprosecuted and wars and famine stalk the globe.

    Keep playing parlor games.

    1. Friedman was Keynesian in more than 'some' respects - he was the front-man for the status quo, and his role was specifically to give non-thinking libertarians a reason to migrate back into the cold embrace of the State: by making Friedman a 'rock star economist' in his day and CALLING him 'libertarian', the American tendency to idolise-without-thinking enabled people who wanted to identify with libertarianism to hang their hat on Friedmanism... which, from the day he started work with Anna Schwartz (if not before) was ALL ABOUT furnishing academic credibility to the notion that a bunch of State-appointed bureaucrats should centrally-plan the short end of the yield curve. (In the same way, and by the same means, as Keynes furnished 'academic cred' to fiscal policy).

      Stripped bare, that is the germ of Friedman's work: otherwise he is an idiot.

      Why do I say this? Well, consider the logical chain of events that WILL happen if bureaucrats control the money supply.

      (1) you start out with Friedman's "targeted money growth" - 3-5% p.a. (note: 5% is 66% greater than 3%... that's some wide policy parameters you got there);
      (2) something bad happens;
      (3) the RULES GET CHANGED (the predictable .gov 'policy reaction function' when their 'hard and fast' rules fail) and bureaucrats are manipulating the short end in an ad-hoc manner.

      And by that very simple chain of events, the Friedmanite "hard rules" descend into Greenspanian monetary chicanery: it has to do with the psychotypes of people who want power.

      So if Friedman was unable to foresee this, he was a nincompoop. The alternative is that he knew full well what the consequences of furnishing a fig-leaf were, and he was OK with it because it paid for a nice brownstone in a pretty part of the world (and probably got him laid plenty).

      It is PRECISELY the same issue as his (feeble) critique of Keynesianism (i.e., that only if politicians were angels could government rule well): only a fool or a bullshitter would fail to predict that central banks will be co-opted (both operationally and at the policy level) by the unscrupulous.

      Likewise, any Keynesian who does not see that even minarchism is a 'gateway drug' to to co-option of the State by the MOST unscrupulous and parasitic (and thence,eventually to WAR and tyranny)... well, they're either idiots or they are pretending that they don't see the logical conclusion of their argument.

      As to Rand - she was a correct line harridan and as much an intellectual as L Ron Hubbard was a theologian. Her work is cartoonish schlock that is derided outside of a very narrow and self-regarding set of US salon-intellectuals. I've read Atlas Shrugged and the Fountainhead, and they're drivel on a par with the Old Testament: they show what happens when someone who's spent their entire lives on self-hagiography tries to imagineer how businesses behave.

  16. Or you could point to the close ties between Murray Rothbard and National Tax Payer's Union, James Dale Davidson (and therefore Agora Inc. Forbes and Richard Mellon Scaife, by less than six degrees separation) and say that that means Rothbard approved of front-running stocks, CIA ops, etc....

    Or I could point out that Rothbard collaborated with Chomsky, allegedly deep cover CIA...

    And I could call Rothbard an evil CIA stooge..

  17. @GT

    You buy this slippery slope argument of small state automatically leads to Hitler.

    I don't. I fail to see how a village panchayat leads to pogroms. They don't. You fail to see anything but the state-nostate binary. But there are hundreds of other factors involved.
    Public culture included. Scores of small banks didn't make bad loans. How come?

    Also you have a language fetish.

    In an entirely private world, if a corporate boss employs the police power, makes centralized decisions, colludes with other bosses so that no other business can start, and gives me the option of "love it or leave it" (when I have no where to go) it is, to be as purist as you, also a state by another name.

    So your Murray Rothbard, from my perspective could well have been shilling for financial fascism.

    Let me give you another analogy.

    Mostly, if you drink poison, you will kill or hurt yourself.
    But poison in small doses is often used to cure (homeopathy) and may in fact be necessary in some cases.

    That's true of most things.
    Nature and complex system seem to work that way. They need more complex thinking than rigid and dishonest ideologues would like to employ.

    The fact is far from getting himself elected, Ron Paul's handlers and backers managed to push him into the arms of the worst possible candidate. That's despite what I recall on this site was hailed as "genius marketing" when it was patently not going anywhere.

    So, besides being losing a lot of respect, the campaign can't be that smart in practice either.

    Paul rode the swell of the whole antiwar movement and the hatred for the NWO. That was not all his doing.

    He had tons of money. Yet he lost.
    Doesn't that seem strange to you.
    It does to me.
    It looks like there was never any intention of winning. I don't blame him necessarily, but I wonder about it.

    And I wonder about sites that seem to live only to promote one person (Rothbard/Paul). And seem to demonize any other position
    That is passing strange and calls attention to itself immediately.

    I began by liking Rothbard (in parts). But the more propaganda surrounds him, the less I am inclined to even bother trying.

    I'm not a Randian by the way. I read her a long while back and have no interest to go back to it, because there are dozens of writers whom I get more from. But I respect her influence and feel she is profoundly mischaracterized by the left..and apparently by the right.

    So much chatter concealing so much contempt for truth.

    It's all empty and as much as a bubble as the housing bubble.