Friday, August 17, 2012

Donald Boudreaux: Was Milton Friedman a Secret Admirer of Keynes? -


Mr. Wapshott says that Friedman really was quite sanguine about a large and constitutionally unrestrained state, based on the alleged contents of a supposedly "lost" essay by Friedman. Contrary to the naive Hayek—who worried that power concentrated in big government inevitably corrupts politicians and invites its own misuse—Mr. Wapshott says, the essay (which was originally published in 1989) shows Friedman believed "that big government is not evil so long as it is honestly administered." He adds that the essay "calls into question whether those today who rail against the size of the state are blaming the system when they should be rooting out corrupt politicians and public officials instead."
So Milton Friedman was really a good-government progressive? No.
Friedman's essay, "John Maynard Keynes," was never lost. The original article, first published in German translation in a volume of commentaries on Keynes's "General Theory," was translated and republished in 1997 by the Richmond Federal Reserve Bank in its quarterly magazine, and it is readily available on the bank's website.
The essay shows beyond a shadow of doubt what Friedman really thought about Keynes's views on government: "I conclude that Keynes's political bequest has done far more harm than his economic bequest and this for two reasons. First, whatever the economic analysis, benevolent dictatorship is likely sooner or later to lead to a totalitarian society. Second, Keynes's economic theories appealed to a group far broader than economists primarily because of their link to his political approach."
Friedman here articulates concerns long expressed by Hayek in the latter's 1944 book, "The Road to Serfdom," that big government of the sort that Keynes demanded is poisonous to freedom and prosperity. He saw clearly that Keynes's "political bequest" was so dangerous that no amount of rooting out of corrupt officials would prevent a government armed with unlimited discretionary economic power from becoming tyrannical.
There's an even more egregious misrepresentation of Friedman, this one by Paul Krugman, the economist and New York Times columnist. A few months after Friedman's death in November 2006, Mr. Krugman penned an essay in the New York Review of Books, "Who Was Milton Friedman," accusing him of being "intellectually dishonest." He doubled down on this charge in a letter to the editor of the New York Review responding to critics of the essay.
The dishonesty, in Mr. Krugman's telling, consists in an alleged contradiction. On one hand, Friedman the scholar claimed in his famous "Monetary History of the United States" that the Great Depression was worsened by the Fed's failure to keep the money supply from falling. But, on the other hand, Friedman the public figure claimed that the Depression likely would have been far less severe in the absence of the Fed. "I'm sorry," Mr. Krugman wrote in the letter, "but those are contradictory positions."
Mr. Krugman's charge is silly. Friedman understood that, without the Federal Reserve, private bank-clearinghouse associations—market institutions that were displaced by the Fed—would likely have prevented the money supply from collapsing and, hence, might well have kept the depression from becoming "great." But Friedman also understood that the Fed, having substituted its own technocratic discretion for the market adjustments of clearinghouses, then had a responsibility to manage the money supply properly. It failed to do so. Friedman (and his co-author Anna Schwartz) properly criticized the Fed for this terrible failure.
Friedman's argument here is no more contradictory or dishonest than would be the argument of, say, a physician who, having unsuccessfully warned a patient not to rely for medical care upon a witch doctor, points to the witch doctor's failure to administer appropriate mouth-to-mouth resuscitation as the cause of the patient's death.

No comments: