How Milton Friedman recanted from monetarism towards the end of his life

Thanks to Mithun Dutta (FTI member)’s blog post I’m pleased to learn that even Milton Friedman finally recanted from his faith in central banks (and thus active monetarism, which is centralised ‘fine tuning’ of the economy by the central bank, something I now seriously question).

Friedman expresses his opposition to central banking at the very end of this short talk. (I’d like to see the full talk and any writings of his on this subject.)

Here’s Mithun’s full blog post (from his blog, which is linked here). I’m really pleased that liberals like Mithun have joined FTI. Today, in my view, FTI brings some of the very best Indian thinkers together. It is moving in the right direction.

August 4, 2012

Confusions of Milton Friedman

I am a great fan of Milton Friedman. He is still a great inspiration. I love his views on freedom and liberty.  No doubt those are absolute truths.

Milton Friedman went wrong on several occasions where it mattered. He was bad with money.

Rothbard’s law, which is that people tend to specialize in what they are worst at. Henry George, for example, is great on everything but land, so therefore he writes about land 90% of the time. Friedman is great except on money, so he concentrates on money. Mises, however, and Kirzner too, always did what they were best at.

Here is Friedman explaining the great depression and says that the Federal Reserve was supposed to act as lender of last resort and provide liquidity for banks that didn’t have the funds to meet all the demands on the deposits…and when they didn’t, a lot of banks failed, causing the money supply to shrink by a third from 1929-1933 which was at least in large part what he argued was a source for much of the misery of the Great Depression.

Milton Friedman explains role of gold in Great Depression.

However towards the end he did suggest to abolish the FED.

Milton Friedman – Abolish the FED

This is a problem for most statist’s on how to justify the role of the state and explain its functioning to various aspects of the society. Somewhere down the line everyone knows that the state is evil and useless. Anyone when reasoned to justify the states existence tend to get confused and provide real life evidences when they attempt to justify it. Same happened with Friedman, he should have simply stuck to the fact that Central Banks are unnecessary. Also he expresses concerns over the danger that people will ask for bigger government in the future which we find at present to be true. I find it is extremely surprising that how could he find Bernanke good when he knew Bernanke was a Keynesian.  He had been a critic for Keynesian most of his life. Finally he maintained that FED had to go. This is where it becomes necessary to say that when it comes to money do not follow Milton Friedman.

His son David Friedman however feels that the state is completely unnecessary.

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