One chapter of David Stockman’s new book, The Great Deformation: The Corruption of Capitalism in America” that will be of special interest to Austrians is chapter 13 entitled “Milton Friedman’s Folly.” Here are a few snippets:
“Friedman’s single variable-fixed money supply growth rule was basically academic poppycock” (p. 262).
“[B]y unshackling the Fed from the constraints of fixed exchange rates and the redemption of dollar liabilities for gold, Friedman’s monetary doctrine actually handed politicians a stupendous new prize. It rendered trivial by comparison the ills owing to garden variety insults to the free market, such as rent control or the regulation of interstate trucking” (p. 264).
“The very idea that the FOMC would function as faithful monetary eunuchs, keeping their eyes on the M1 guage and deftly adjusting the dial in either direction upon any deviation from the 3 percent target, was sheer fantasy” (p. 265).
“[T]he Greenspan and Bernanke Fed have been wholly preoccupied with manipulation of . . . interest rates, and have relegated Friedman’s entire quantity theory of money to the dustbin of history.”
“Friedman jettisoned the gold standard for a remarkable statist reason” (p. 267).
“Friedman thoroughly misunderstood the Great Depression and concluded erroneously that undue regard for the gold standard rules by the Fed during 1929-1933 had resulted in its failure to conduct aggressive open market purchases of government debt, and hence to prevent the deep slide of M1 during the forty-five months after the crash” (p. 268).
“Friedman thus sided with the central planners” (p. 269).
“At the end of the day, Friedman’s monetary treatise offers no evidence whatsoever and simply asserts false causation; namely, that the passive decline of the money supply was the active cause of the drop in output and spending” (p. 271).
“For all practical purposes, then, it was Friedman who shifted the foundaton of the nation’s money from gold to T-bills” (p. 273).
“It was Friedman who first urged the romoval of the Bretton Woods gold standard restraints on central bank money printing, and then added insult to injury by giving conservative sanction to perpetual open market purchases of government debt by the Fed. Friedman’s monetarism thereby institutionalized a regime which allowed politicians to chronically spend without taxing.”
And on top of this, I might add, it was Milton Friedman who, as a U.S. Treasury Department statistician during World War II, was responsible for the institution of income tax withholding.
I remember being in a conference with Ludwig von Mises in the sixties at FEE [the Foundation for Economic Education]. And I asked him about Friedman and economics. And he waved his hand in the typical Austrian way and he said: “Friedman is not an economist. He’s a statistician.”
Now in describing Friedman in these terms, Mises was not name calling but had a very specific meaning in mind. For Mises (pp. 247-48) a “statistician” was someone “who aim[s] at discovering economic laws from the study of economic experience.” But Mises maintained that statistics is not a method useful for research in economic theory because it deals with historical facts. According to Mises:
Statistics is a method for the presentation of historical facts concerning prices and other relevant data of human action. It is not economics and cannot produce economic theorems and theories. The statistics of prices is economic history. The insight that, ceteris paribus, an increase in demand must result in an increase in prices is not derived from experience. Nobody ever was or ever will be in a position to observe a change in one of the market data ceteris paribus. There is no such thing as quantitative economics. All economic quantities we know about are data of economic history.
Indeed in his magnum opus, A Monetary History of the United States, co-authored with Anna Schwartz, Friedman confirmed the accuracy of Mises’s characterization. In their Preface (p. xxii), Friedman and Schwartz stated that their aim in writing the book was “to provide a prologue and a background for a statistical analysis of the secular and cyclical behavior of money in the United States and to exclude any material not relevant to that purpose.” In the final chapter, entitled “A Summing Up,” the authors (Friedman and Schwartz, p. 676) listed three propositions regarding money that they discovered to be “common” to U.S. monetary history and concluded, “These common elements of monetary experience can be expected to characterize our future as they have our past.” It would be difficult to find a better expression of the statistician’s view of the social world.
Here is chapter 9 of David Stockman’s book Deformation: The New Deal’s True Legacy: Crony Capitalism and Fiscal Demise
David Stockman on the Myths of a New Deal Recovery. Its a free chapter from his book.
Speech by Charles I. Plosser, President and Chief Executive Officer, Federal Reserve Bank of Philadelphia.
Can we end too big to fail? I think we can, but I believe the current efforts may come up short. If we are to end discretionary bailouts and the associated moral hazard problems that they create, we should seek more rule-like methods to resolve failing firms, such as a new Chapter 14 bankruptcy mechanism.
. . . asked Tony Durden at Zero Hedge the other day. His answer: the Treasury Borrowing Advisory Committee to the US Treasury chaired by Matt Zames of J.P. Morgan. Durden discovered the following passage by Friedrich Hayek quoted in the TBAC’s quarterly refunding presentation made at the beginning of May. Here it is as found on p. 86 of the appendix of the slide show presentation:
“There can be no doubt that besides the regular types of the circulating
medium, such as coin, notes and bank deposits, which are generally
recognised to be money or currency, and the quantity of which is
regulated by some central authority or can at least be imagined to be so
regulated, there exist still other forms of media of exchange which
occasionally or permanently do the service of money.
Now while for certain practical purposes we are accustomed to
distinguish these forms of media of exchange from money proper as
being mere substitutes for money, it is clear that, other things equal, any
increase or decrease of these money substitutes will have exactly the
same effects as an increase or decrease of the quantity of money proper,
and should therefore, for the purposes of theoretical analysis, be counted
Friedrich Hayek, Prices and Production 1931 – 1935.37
Durden concluded with the following ruminations:
That’s right: it would appear that the long hand of Austrian economics has penetrated deep into the narrative offered by the JPM and Goldman-chaired TBAC.
But… if that is the case, and if indeed the Treasury’s advisors are fundamentally at heart, Austrian, then that would diametrically change the entire ballgame. Simply because it would mean that whoever wrote the TBAC’s most recent slideshow understand perfectly well that the path the US has set off on is not only not going to have a happy ending . . . but will, naturally, end in tears.
So, one wonders: is that precisely what JPM and Goldman (the two heads of the TBAC) have had in mind all along?
And if so, one also wonders just how they really feel about gold…
Kelefa Sanneh, a music critic and journalist who writes for The New Yorker, has a brief discussion of Murray Rothbard in his article “Paint Bombs” http://www.newyorker.com/arts/critics/atlarge/2013/05/13/130513crat_atlarge_sanneh?currentPage=all He devotes most of the piece to the anthropologist David Graeber, an anarchist but no friend of the free market, and his influence on the Occupy Wall Street movement. James C. Scott, another anthropologist who sympathizes with anarchism, also comes in for attention. Sanneh says that the Occupy movement is not influential in electoral politics, but he finds one anarchist “who could be considered influential in Washington.” This is none other than Murray Rothbard, who is identified as Ron Paul’s intellectual mentor. Sanneh doesn’t say much about Rothbard, but discussions of anarcho-capitalism are hardly a regular feature in The New Yorker. As Samuel Johnson said, “it is not done well, but you are surprised to find it done at all.”
Three of the four largest banks in Sweden continue to phase out the manual handling of cash at their branch offices at a rapid pace, according to recent data reported today in Naringsliv, a leading Swedish Money and Finance newspaper insert. Taken together, Swedbank, Nordea, and SEB, have stopped offering cash services at their branches at the rate of three branches per week since 2010. Thus during the period 2010-2012, cash disappeared from 465 Swedish bank branches. At Swedberg bank, only 75 of its 340 branches still handle cash.
Leif Faithful, Head of Financial Infrastructure at the Swedish Bankers’ Association, believes that eventually all Swedes will need a bank card and sees this development as beneficial to “both consumers and trade.” Odd that he does not mention the great benefit to the banks of revenues generated by the cards and the fact that with few bank branches paying out cash it makes fractional-reserve banks much more secure against bank runs during crises generated by the credit expansion of these same banks. Nor does he mention the obvious benefits from the spread of electronic transactions that will accrue to the Swedish government, which will have much greater ability to snoop into and monitor the private financial dealings of its citizens
Fortunately, one heroic Swedish bank among the largest four, Handelsbanken, has resisted this pernicious trend toward abolishing cash and empowering the government and the fractional-reserve banking cartel at the expense of the public. From early 2010, Handelsbanken has actually increased the number of its branches that handles cash and today all 461 branches do so, but with a limit of $15,000.
HT to Per Bylund.
Volume 16, no. 1 of the Quarterly Journal of Austrian Economics is now available online. Articles are:
Dominick Armentano, 2013 AERC Ludwig von Mises Lecture, “Antitrust Myths: Speak Truth to Power,”
Bernard McSherry and Berry K. Wilson, “Overcertification and the NYCHA’s Clamor for a NYSE Clearinghouse,”
Xavier Méra, “Comparative Advantage and Uncertainty Bearing,”
The Quarterly Journal of Austrian Economics was nominally founded in 1998, but, in terms of its mission and guiding spirit, it is a continuation, in an expanded and improved form, of the first ten volumes of the semi-annual Review of Austrian Economics, whose founding editor was the late Murray N. Rothbard.
The mission now, as it was when it was adopted from Rothbard, is “to promote the development and extension of Austrian economics and to promote the analysis of contemporary issues in the mainstream of economics from an Austrian perspective.”
Walter Block Mark Brandly Paul Cantor John Cochran Paul Cwik Thomas DiLorenzo Douglas French David Gordon Jeffrey Herbener Robert Higgs Hans-Hermann Hoppe Jörg Guido Hülsmann Peter Klein Hunter Lewis Thorsten Polleit Ralph Raico Joseph Salerno Timothy Terrell Mark Thornton Christopher Westley Thomas Woods