I’ve heard the 1920s bubble be blamed on Irving Fisher’s influence on Fed Chariman Benjamin Strong; obviously that bubble led to the '29 crash. And in Rothbard’s lecture on Milton Friedman in 1970, Rothbard claims that in the middle of the previous year, the Nixon-era Fed finally stopped expanding the money supply, but the Friedmanites insisted doing so would lead to deflation and insisted that they reopen the money spigot in order to stabilize prices; the Fed did so in 1970. It would seem then that the Friedmanites might have been to blame for the 1970s stagflation. Also the Fisherite/Friedmanite emphasis on price stabilization seems to have been the governing principle of the Fed under Greenspan and Bernanke. The latter, who focused on depressions in his academic career, has explicitly endorsed the Friedman/Schwartz explanation of what went wrong in the Great Depression, and how the Fed ought to have responded (by continuing to expand the money supply, as Bernanke has been doing so in response to the housing crash).
It seems like the three worst economic events of this century have stemmed more from Fisherite/Friedmanite monetary-expansion-for-price-stabilization than Keynesian policy. Of course that doesn’t necessarily make Keynesianism any less wrong; the contrast only perhaps comes from the fact that Keynesianism hasn’t been implemented in policy as much as Fisherism/Friedmanism (perhaps because it is more obviously foolish).
I’m tempted to invoke Hayek here and point out that politicians always call for the opinions of economists and proceed to dimiss and ignore the advice they give. But I think it’s perhaps more important to point out that monetary policy is just one part of government policy, whilst you might be able to make a case that monetarism is worse in this regard I think it should be clear to most Austrians that Keynesian doctrine has been more damaging than monetarism in just about every other area. Consider this, Keynes argued that wages should be pushed up to prop up aggregate demand, however, to the best of my knowledge Friedman made no such claims concerning labour. However, in the recession it’s important far labour (and capital) to be mobile in order to end the depression quickly. In fact, one of the biggest causes of the depth of the great depression were a number of impediments on labour etc. I also don’t think it’s necessarily true that because a school of thought has more destructive consequences it is more wrong in theory. I’d argue that monetarism gets a number of things right that Keynesians get wrong. Keep in mind, Friedman made some insights that complement the ABCT.
As for Stranger’s response. Well, to begin with monetarism is not simply limited to the Friedman variety. Yeager and Skousen could both be considered Austrians and monetarists at the same time (although, Yeager is a far better economist than Skousen). Furthermore, the world simply isn’t limited to Austrians vs. Everybody else.
Monetarism is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over longer periods a****nd that objectives ofmonetary policy are best met by targeting the growth rate of the money supply.[1]
You can also think uncle Miltie for the withholding tax and the school “voucher” idea that probably prevent schools from ever being government/violent union free. The first causing an explosion in the size and expansion of government. The second giving people the absurd notion that stealing money and forcing people into private institutions is somehow is “private” itself or would retain the efficiency or freedom of having voluntarist institutions.
He’s also largely responsible for the separation of micro and macro economics. Especially among very loosely self-identifying libertarians. Wherein people think nothing of utilities, environmental protection, currency, “mergers” (in anti-trust), roads, etc. being managed by something outside of the market. For the benefit of expected market outcomes of course and not the principle of emergence or spontaneity of the market. Which, like superstition, opens the door for pretty much any other arbitrary exception reason or principle (why not fascist healthcare, SWAT teams, military intervention, welfare state, fighting drug crime, wage laws, banks, etc.).
no they want a stable slightly increasing price level. whereas keynesians want what in contrast?
4 who doesnt believe that a vastly varying money supply (i.e one sent on a rollercoaster ride by a hypothetical government) would not effect output in the short or longer run? short run effects lead to long run effect. (i.e. rate of capital accumulation etc)
5 you are probably using a technical definition of active, perhaps just give an example ?
So I offered five differences based on three sentences and you disagree with one of them? Keep in mind, that they want the stable price level for different reasons to Keynes, because AFAIK Keynes didn’t want a stable price level.
As for your last point, look at the difference between the Taylor Rule and the rule advocated by Friedman.
this is simply an argument over categorisation . for me there are significantly keynesian features to monetarism, enough to make it remarkable. the common faults are both poor economics. hence why i wrote what i wrote.
of course keynesianism is not exactly monetarism. which is true for all things that have small or large similarities.
Friedmanites believe that some inflation is good, while Keynesians believe all inflation is good.
Friedman and Keynes are both at fault, and I’m inclined to believe that the former has more to do with our current economic condition. Stop and consider his positions regaurding freely floating exchange rates, the removal of the gold standard, and central planning by benevolent/omniscient bankers. Basically, he’s in favor of price setting, first at the higher stages of production, and then at the lower. Complete monetary control is no different than complete economic control; it’s just more subtle.
Lilburne, I was addressing nir, but this is an interesting question you raise. I don’t think that in Friedman’s conception of a central bank price stabilization is inherently activist. As I mentioned to nir there is a huge different between the Taylor rule and the “Friedman rule”. As Austrian “economists” I’m sure we’d both agree that by their very nature central banks are “activist”. That said, when you look at the policies advocated by Friedman and those advocated by Keynes there is clearly a discernable difference. Keynes literally saw the Fed as a “gift” to mankind that is necessary to boost AD in order to ward of depressions. OTOH, I think one could say that Friedman saw the Fed and central banks in general as necessary evil.
Well perhaps you’re correct from a political point of view. From an economics point of, clearly, there are differences. Even if the majority of those differences are simply empirical (i.e. Friedman saw investment in respect to the interest rate as being relatively elastic, Keynes didn’t). However, given this, the careers of Friedman and Keynes are clearly different. I mean, if you read Butos response to Time and Money he seems to indicate that Keynes knew where he was going but just not how to get there. In the case of Keynes this was government control of the economy, in Friedman’s view this was government leaving the economy alone except in those areas where he believed there was no choice.
Whether or not Austrians wish to admit it, Rothbard was on the fringe. It was far easier for Rothbard to be radical than it was for Friedman. But if you look at Friedman’s career and compare it to that of his contemporaries, he was certainly “radical”, and a top notch economist at that.
Friedman has not been more destructive than Keynes. He was basically a free-marketeer on every issue except money. But even on money, he would not have favoured the actions by the current Fed because he would have disputed that there’s a liquidity problem. Anna Schwartz, his co-author, opposes the Fed’s current actions too, as does David Friedman (Milton’s son).
Keynesians like Krugman, on the other hand, are all in favour of giving the central bank the power to do whatever it likes. Krugman is never suspicious of government, because he implicitly worships it.
By Austro-libertarian standards, Friedman is a “sell-out”. But he’s clearly better than the hardcore social democrats who always give the government the benefit of the doubt.