Milton Friedman and monetary freedom….

George Selgin has a food for (economic) thought piece on Prof. Friedman.

Free markets people esp those in Austrian school camp usually crticise and side from the Chicago School on issues of mon economics. Whereas the A school believes in free banking without a central bank, the stance of ‘C’ school is not as clear. Friedman always favored the central bank using his money supply rule preferably by a computer. So, he was more in favor of central banks which was surprising given his free market thinking on everything else.

Prof. Selgin does not think so. He says Friedman did move towards free banking overtime as well:

Alas, far from being rare, harsh opinions about Friedman are easy to come by among the more uncompromising critics of government intervention in monetary affairs. Ludwig von Mises, another of my monetary economics heroes, may have started the trend when,according to Friedman himself, he stormed out of a debate at the first (1947) Mont Pelerin meeting after calling its other participants, Friedman among them, “socialists.” Some years later, in 1971, Murray Rothbard reached a similar verdict, this time in print, though he substituted “statist” for “socialist.” (That Friedman was more of a statist than Rothbard himself was certainly true. But who, in 1971, wasn’t?) Today more than a few “End the Fed” libertarians still accept Rothbard’s judgement.*

My first personal encounter with Friedmanophobia took place in 1988. Thinking that The Freeman might review it, I had sent a copy of The Theory of Free Banking to the Foundation for Economic Education. But instead of getting a review, I got a terse letter from Hans Sennholz, FEE’s director at the time, who was also a well-known champion of monetary freedom. In the letter Sennholz lashed out at me for having had the brass gall to send him a book that expressed approval for some of Friedman’s ideas, while also offering some (mild) criticisms of “The Master.” (“The Master,” in case you don’t know it, was von Mises.) Of course I was taken aback, and all the more so since I considered myself, back then, much more a Mises than a Friedman fan.

Even now I’m sure I’m as aware as any of Friedman’s toughest critics of the various forms of government intervention in the monetary system he favored at one time or another. Throughout most of his career Friedman categorically favored a managed fiat standard over a gold standard. He also favored (as was only natural given that first preference) flexible over fixed exchange rates. Finally, for much of his career he dismissed free banking as the equivalent of legal counterfeiting. These are all, needless to say, positions that are objectionable, if not obnoxious, to persons who believe that unhindered markets are more capable than governments are of producing orderly and reliable monetary systems.

But there is another side to the ledger that Friedman’s more radically free-market critics seem to overlook. Two items especially deserve notice. Although he favored fiat money, Friedman was an unflinching and relentless opponent of monetary discretion. We also have him (and Anna Schwartz, another of my economist-heroes), to thank for the fact that the Great Depression is no longer considered proof of the inherent instability of free markets.**

Friedman’s more strident critics also seem unaware of how his monetary ideas changed over time, evolving in a way that fans of either the gold standard and free banking ought to commend. Much of this evolution appears to have taken place during the mid-1980s. In various articles written then, Friedman admitted having erred in treating fiat money as a less expensive alternative to gold. He also renounced his previous defense of central banks’ currency monopolies, conceding that there was in fact no good reason for prohibiting commercial banks from issuing their own paper notes. Instead of recommending a constant growth rate for the money stock, as he had in the past, he switched to arguing for a constant or “frozen” monetary base, which was tantamount to recommending that the Fed’s monetary and discount window operations be altogether shut down. Finally, he publicly declared himself in favor of abolishing the Fed on numerous occasions. Think what you will of Friedman’s later opinions, you will go blue in the face trying to convince me that they are those of a “statist.”

How students have been kept away from all these ideas. Amazing.

Prof Selgin says Free Bankers actually owe a lot to Friedman:

Finally, had it not been for Milton Friedman, I and other academic (or formerly academic) proponents of monetary laissez-faire would be an even more pathetically forlorn bunch than has actually been the case. For setting a handful of “Austrian” economists aside, the list of academic economists, including economists working for central banks and other financial regulatory authorities, who have shown a willingness to take free banking ideas seriously, and to treat their authors courteously, even allowing some of their articles to get published in mainstream academic journals, consists overwhelmingly of prominent “Chicago-School” monetary economists, if not of Friedman’s own students. Had it not been for Friedman and his students, in other words, there would almost certainly not be a Modern Free Banking School of any academic standing today.

Interesting bit. Why are all these ideas not taught and debated?

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