Monday, October 30, 2017

Behind the Friedman-Rothbard Irreparable Split

Friedman at the South Royalton conference.

By Joseph T. Salerno

As a follow-up to Peter Klein’s post, I want to suggest that Rothbard and Friedman’s relationship may have definitively fractured at the famous Austrian economics conference in South Royalton Vermont in June 1974. 
In the May 1974 issue of the Libertarian Forum, Rothbard published an article entitled “Uncle Miltie Rides Again,” in which he criticized Mllton Friedman for advocating indexation for the U.S. economy, which was then suffering from a painful combination of recession and high inflation.    Indexing both government taxes and business, including labor, contracts, Friedman had argued, would reduce both the government’s incentive to inflate and the iniquities and pain wreaked on the public by inflation.   Among other criticisms, Rothbard argued that
widespread indexation, to the extent that it actually worked, would neutralize growing public pressure to end inflation.  After all, widespread indexation in Brazil, which had inspired Friedman’s indexing scheme, had not made a dent in the extremely high Brazilian inflation rate in the long run.  
In his critique, Rothbard labeled Friedman a “crank,” which he defined as a “man who habitually comes up with a single technocratic gimmick to solve deep and complex economic problems.”  These gimmicks are usually designed to extricate the State from serious problems created by its previous interventions into the free market.  In addition to inflation indexing, Rothbard listed the withholding tax, school vouchers, and the negative income tax as “crank gimmicks” devised by Friedman ”to save the State’s bacon.”
Back to the South Royalton conference.  Curiously, Friedman, whose summer home was nearby, was invited to the conference by the organizers at the last minute to give a few informal remarks at the opening dinner.  Friedman showed up in the late afternoon and was immediately surrounded by an enthusiastic crowd of graduate students, including me, Richard Ebeling, and Don Lavoie.  While we jockeyed feverishly for position to address questions to him, his primary concern was to angrily discourse on the fact that Rothbard had called him a “crank.”  Far from dismissing Rothbard as an economist whose opinion was of little weight, Friedman’s reaction revealed that Rothbard’s critique cut deeply and that he took it quite seriously.  

The above originally appeared at


  1. So, reading over this, I agree with Friedman that indexation of the income tax would be a good thing because it would prevent bracket creep. However, his arguments for indexation of treasury bonds and of private contracts seem to be very much misguided.

    And while Rothbard might have employed a little more tact, his central point is basically correct. Friedman was glossing over the elephant in the room of state monopoly of the monetary system, which, given his credentials as a libertarian and monetary expert, is pretty inexcusable.

    1. Indeed. Friedman's mission seemed to be to make the state work more efficiently. Rothbard's mission was to make the state go away.

  2. Freidman, who was right on government licensing and a number of other issues, gave us the withholding tax and never could tell us why the state should have control of the monetary system.