When Milton Friedman Opened Pandora's Box...

Tyler Durden's picture

When Professor Friedman Opened Pandora’s Box: Open Market Operations

At the end of the day, Friedman jettisoned the gold standard for a remarkable statist reason. Just as Keynes had been, he was afflicted with the economist’s ambition to prescribe the route to higher national income and prosperity and the intervention tools and recipes that would deliver it. The only difference was that Keynes was originally and primarily a fiscalist, whereas Friedman had seized upon open market operations by the central bank as the route to optimum aggregate demand and national income.

There were massive and multiple ironies in that stance. It put the central bank in the proactive and morally sanctioned business of buying the government’s debt in the conduct of its open market operations. Friedman said, of course, that the FOMC should buy bonds and bills at a rate no greater than 3 percent per annum, but that limit was a thin reed.

Indeed, it cannot be said that it was Professor Friedman, the scourge of Big Government, who showed the way for Republican central bankers to foster that very thing. Under their auspices, the Fed was soon gorging on the Treasury’s debt emissions, thereby alleviating the inconvenience of funding more government with more taxes.

Friedman also said democracy would thrive better under a régime of free markets, and he was entirely correct. Yet his preferred tool of prosperity promotion, Fed management of the money supply, was far more anti-democratic than Keynes’s methods. Fiscal policy activism was at least subject to the deliberations of the legislature and, in some vague sense, electoral review by the citizenry.

By contrast, the twelve-member FOMC is about as close to an unelected politburo as is obtainable under American governance. When in the fullness of time, the FOMC lined up squarely on the side of debtors, real estate owners, and leveraged financial speculators—and against savers, wage earners, and equity financed businessmen—the latter had no recourse from its policy actions.

The greatest untoward consequence of the closet statism implicit in Friedman’s monetary theories, however, is that it put him squarely in opposition to the vision of the Fed’s founders. As has been seen, Carter Glass and Professor Willis assigned to the Federal Reserve System the humble mission of passively liquefying the good collateral of commercial banks when they presented it.

Consequently, the difference between a “banker’s bank” running a discount window service and a central bank engaged in continuous open market operations was fundamental and monumental, not merely a question of technique. By facilitating a better alignment of liquidity between the asset and liability side of the balance sheets of fractional reserve deposit banks, the original “reserve banks” of the 1913 act would, arguably, improve banking efficiency, stability, and utilization of systemwide reserves.

Yet any impact of these discount window operations on the systemwide banking aggregates of money and credit, especially if the borrowing rate were properly set at a penalty spread above the free market interest rate, would have been purely incidental and derivative, not an object of policy. Obviously, such a discount window-based system could have no pretensions at all as to managing the macroeconomic aggregates such as production, spending, and employment.

In short, under the original discount window model, national employment, production prices, and GDP were a bottoms-up outcome on the free market, not an artifact of state policy. By contrast, open market operations inherently lead to national economic planning and targeting of GDP and other macroeconomic aggregates. The truth is, there is no other reason to control M1 than to steer demand, production, and employment from Washington.

Why did the libertarian professor, who was so hostile to all of the projects and works of government, wish to empower what even he could have recognized as an incipient monetary politburo with such vast powers to plan and manage the national economy, even if by means of the remote and seemingly unobtrusive steering gear of M1? There is but one answer: 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.

Yet the historical evidence is unambiguous; there was no liquidity shortage and no failure by the Fed to do its job as a banker’s bank. Indeed, the six thousand member banks of the Federal Reserve System did not make heavy use of the discount window during this period and none who presented good collateral were denied access to borrowed reserves. Consequently, commercial banks were not constrained at all in their ability to make loans or generate demand deposits (M1).

But from the lofty perch of his library at the University of Chicago three decades later, Professor Friedman determined that the banking system should have been flooded with new reserves, anyway. And this post facto academician’s edict went straight to the heart of the open market operations issue.

The discount window was the mechanism by which real world bankers voluntarily drew new reserves into the system in order to accommodate an expansion of loans and deposits. By contrast, open market bond purchases were the mechanism by which the incipient central planners at the Fed forced reserves into the banking system, whether sought by member banks or not.

Friedman thus sided with the central planners, contending that the market of the day was wrong and that thousands of banks that already had excess reserves should have been doused with more and still more reserves, until they started lending and creating deposits in accordance with the dictates of the monetarist gospel. Needless to say, the historic data show this proposition to be essentially farcical, and that the real-world exercise in exactly this kind of bank reserve flooding maneuver conducted by the Bernanke Fed forty years later has been a total failure—a monumental case of “pushing on a string.”

Friedman's Erroneous Critique of the Depression-Era Fed Opened the Door to Monetary Central Planning

The historical truth is that the Fed’s core mission of that era, to rediscount bank loan paper, had been carried out consistently, effectively, and fully by the twelve Federal Reserve banks during the crucial forty-five months between the October 1929 stock market crash and FDR’s inauguration in March 1933. And the documented lack of member bank demand for discount window borrowings was not because the Fed had charged a punishingly high interest rate. In fact, the Fed’s discount rate had been progressively lowered from 6 percent before the crash to 2.5 percent by early 1933.

More crucially, the “excess reserves” in the banking system grew dramatically during this forty-five-month period, implying just the opposite of monetary stringency. Prior to the stock market crash in September 1929, excess reserves in the banking system stood at $35 million, but then rose to $100 million by January 1931 and ultimately to $525 million by January 1933.

In short, the tenfold expansion of excess (i.e., idle) reserves in the banking system was dramatic proof that the banking system had not been parched for liquidity but was actually awash in it. The only mission the Fed failed to perform is one that Professor Friedman assigned to it thirty years after the fact; that is, to maintain an arbitrary level of M1 by forcing reserves into the banking system by means of open market purchases of Uncle Sam’s debt.

As it happened, the money supply (M1) did drop by about 23 percent during the same forty-five-month period in which excess reserves soared tenfold. As a technical matter, this meant that the money multiplier had crashed. As has been seen, however, the big drop in checking account deposits (the bulk of M1) did not represent a squeeze on money. It was merely the arithmetic result of the nearly 50 percent shrinkage of the commercial loan book during that period.

As previously detailed, this extensive liquidation of bad debt was an unavoidable and healthy correction of the previous debt bubble. Bank loans outstanding, in fact, had grown at manic rates during the previous fifteen years, nearly tripling from $14 billion to $42 billion. As in most credit-fueled booms, the vast expansion of lending during the Great War and the Roaring Twenties left banks stuffed with bad loans that could no longer be rolled over when the music stopped in October 1929.

Consequently, during the aftermath of the crash upward of $20 billion of bank loans were liquidated, including billions of write-offs due to business failures and foreclosures. As previously explained, nearly half of the loan contraction was attributable to the $9 billion of stock market margin loans which were called in when the stock market bubble collapsed in 1929.

Likewise, loan balances for working capital borrowings also fell sharply in the face of falling production. Again, this was the passive consequence of the bursting industrial and export sector bubble, not something caused by the Fed’s failure to supply sufficient bank reserves. In short, the liquidation of bank loans was almost exclusively the result of bubbles being punctured in the real economy, not stinginess at the central bank.

In fact, there has never been any wide-scale evidence that bank loans outstanding declined during 1930–1933 on account of banks calling performing loans or denying credit to solvent potential borrowers. Yet unless those things happened, there is simply no case that monetary stringency caused the Great Depression.

Friedman and his followers, including Bernanke, came up with an academic canard to explain away these obvious facts. Since the wholesale price level had fallen sharply during the forty-five months after the crash, they claimed that “real” interest rates were inordinately high after adjusting for deflation.

Yet this is academic pettifoggery. Real-world businessmen confronted with plummeting order books would have eschewed new borrowing for the obvious reason that they had no need for funds, not because they deemed the “deflation-adjusted” interest rate too high.

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. The true causation went the other way: the nation’s stock of money fell sharply during the post-crash period because bank loans are the mother’s milk of bank deposits. So, as bloated loan books were cut down to sustainable size, the stock of deposit money (M1) fell on a parallel basis.

Given this credit collapse and the associated crash of the money multiplier, there was only one way for the Fed to even attempt to reflate the money supply. It would have been required to purchase and monetize nearly every single dime of the $16 billion of US Treasury debt then outstanding.

Today’s incorrigible money printers undoubtedly would say, “No problem.” Yet there is no doubt whatsoever that, given the universal antipathy to monetary inflation at the time, such a move would have triggered sheer panic and bedlam in what remained of the financial markets. Needless to say, Friedman never explained how the Fed was supposed to reignite the drooping money multiplier or, failing that, explain to the financial markets why it was buying up all of the public debt.

Beyond that, Friedman could not prove at the time of his writing A Monetary History of the United States in 1965 that the creation out of thin air of a huge new quantity of bank reserves would have caused the banking system to convert such reserves into an upwelling of new loans and deposits. Indeed, Friedman did not attempt to prove that proposition, either. According to the quantity theory of money, it was an a priori truth.

In actual fact, by the bottom of the depression in 1932, interest rates proved the opposite. Rates on T-bills and commercial paper were one-half percent and 1 percent, respectively, meaning that there was virtually no unsatisfied loan demand from creditworthy borrowers. The dwindling business at the discount windows of the twelve Federal Reserve banks further proved the point. In September 1929 member banks borrowed nearly $1 billion at the discount windows, but by January 1933 this declined to only $280 million. In sum, banks were not lending because they were short of reserves; they weren’t lending because they were short of solvent borrowers and real credit demand.

In any event, Friedman’s entire theory of the Great Depression was thoroughly demolished by Ben S. Bernanke, his most famous disciple, in a real-world experiment after September 2008. The Bernanke Fed undertook massive open market operations in response to the financial crisis, purchasing and monetizing more than $2 trillion of treasury and agency debt.

As is by now transparently evident, the result was a monumental wheel-spinning exercise. The fact that there is now $1.7 trillion of “excess reserves” parked at the Fed (compared to a mere $40 billion before the crisis) meant that nearly all of the new bank reserves resulting from the Fed’s bond-buying sprees have been stillborn.

By staying on deposit at the central bank, they have fueled no growth at all of Main Street bank loans or money supply. There is no reason whatsoever, therefore, to believe that the outcome would have been any different in 1930–1932.

Milton Friedman: Freshwater Keynesian and the Libertarian Professor Who Fathered Big Government

The great irony, then, is that the nation’s most famous modern conservative economist became the father of Big Government, chronic deficits, and national fiscal bankruptcy. It was Friedman who first urged the removal 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 régime which allowed politicians to chronically spend without taxing.

Likewise, it was the free market professor of the Chicago school who also blessed the fundamental Keynesian proposition that Washington must continuously manage and stimulate the national economy. To be sure, Friedman’s “freshwater” proposition, in Paul Krugman’s famous paradigm, was far more modest than the vast “fine-tuning” pretensions of his “saltwater” rivals. The saltwater Keynesians of the 1960s proposed to stimulate the economy until the last billion dollars of potential GDP was realized; that is, they would achieve prosperity by causing the state to do anything that was needed through a multiplicity of fiscal interventions.

By contrast, the freshwater Keynesian, Milton Friedman, thought that capitalism could take care of itself as long as it had precisely the right quantity of money at all times; that is, Friedman would attain prosperity by causing the state to do the one thing that was needed through the single spigot of M1 growth.

But the common predicate is undeniable. As has been seen, Friedman thought that member banks of the Federal Reserve System could not be trusted to keep the economy adequately stocked with money by voluntarily coming to the discount window when they needed reserves to accommodate business activity. Instead, the central bank had to target and deliver a precise quantity of M1 so that the GDP would reflect what economic wise men thought possible, not merely the natural level resulting from the interaction of consumers, producers, and investors on the free market.

For all practical purposes, then, it was Friedman who shifted the foundation of the nation’s money from gold to T-bills. Indeed, in Friedman’s scheme of things central bank purchase of Treasury bonds and bills was the monetary manufacturing process by which prosperity could be managed and delivered.

What Friedman failed to see was that one wise man’s quantity rule for M1 could be supplanted by another wise man’s quantity rule for M2 (a broader measure of money supply that included savings deposits) or still another quantity target for aggregate demand (nominal GDP targeting) or even the quantity of jobs created, such as the target of 200,000 per month recently enunciated by Fed governor Charles Evans. It could even be the quantity of change in the Russell 2000 index of stock prices, as Bernanke has advocated.

Yet it is hard to imagine a world in which any of these alternative “quantities” would not fall short of the “target” level deemed essential to the nation’s economic well-being by their proponents. In short, the committee of twelve wise men and women unshackled by Friedman’s plan for floating paper dollars would always find reasons to buy government debt, thereby laying the foundation for fiscal deficits without tears.

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LetThemEatRand's picture

If Milton Friedmen went global, he would start a firm called MFGlobal.

LetThemEatRand's picture

"One night I asked a cabbie to take me where the action is, he took me to my house."  So I asked the wife for ten and twenty.

Manipuflation's picture

I thought you would be chasing tail by now Fonz;-)

fonzannoon's picture

Hey manipuflation, I'm married. What's tail?

LetThemEatRand's picture

Start by googling "tail risk."

Manipuflation's picture

Sorry Fonz my bad.  I share the same condition with further complications of young children as well.  If I recall correctly regarding tail, it is what I saw the spandex AND a g-string wearing hottie wearing today as she was jogging.  I damned near hit the fiber-optics NSA communications hub on that corner and would have taken out of commission all NSA coms in that locality, and whatever people watch on TV these days, all for looking at some tail.:-)

Gypsyducks's picture

Handcuff pictures:

Aaron Hernandez - 14,312

Honorable Jon Corzine - 0

Skateboarder's picture

That was awesome. Very... encapsulating.

*hi five*

Craxi's picture

This writer explains how Friedman's Monetarism evolved into the democratization of money. Skip to 142 for summary



Charles Nelson Reilly's picture

Fuckin Friedman..... What a fraud 30+ years later.

Anusocracy's picture

The world would be in a lot better shape if not for the world fixers.

Stuck on Zero's picture

Friedman came too early for The Peter Principle.  Just as people rise to positions of greater power and ineptitude so do organizations like the Fed.


NoDebt's picture

Just another guy with a few good ideas and one MASSIVE flaw.  He wanted to control things and thought he could- easily.  As with all mistakes of hubris, they start with small compromises and end with the tail wagging the dog until the beast dies of injuries inflicted by it's own tail.

Every time I see people who believe they can "control" things as complicated as the entire economy, I just shake my head.  Nobody is smart enough to understand all the complex interactions.  Even if they did, the tools they have to affect them are very blunt instruments.  Brain surgery with a hammer and a screwdriver.

Unfortunately, positions of "power and control" attract sociopaths like a magnet.  They just can't resist it.

Turin Turambar's picture

Two words:
Utilitarianism - problem
Rothbard - solution

Friedman is overrated because he was good for a great quote, plus his utilitarianism philosophy made him more palatable to statists because he would compromise as opposed to somebody like Rothbard who refused to compromise his principles and cede a correct position to error.

scrappy's picture

From Liberty Revival


I just read this excellent history of money from a friend on Facebook with the comment, “The only time Jesus lost his temper was with the money changers.” To lose your temper at the bankers is being Christ-like.

The History of the “Money Changers”

The history is concise and is a good overview for beginners. It also reaches the same conclusions that Bill Still, myself, and many others have reached. The writer states that Milton Friedman came up with the same conclusion. That conclusion is that a public debt-free currency like the Greenback is issued by the U.S. Treasury and used to pay off the national debt as fractional reserve banking is ended.


In my research, I have discovered those critics who currently condemn the monetary system almost universally suggest that the only solution is to restore a gold backed currency. I don’t think any readers of this timeline can be in any doubt, that such a system will be open to abuse by those very people who abuse it today. Indeed if we introduced a currency backed by chairs, I believe we would find ourselves with nothing to sit on!

The only monetary system that seems to have worked in history is one which is backed by the goodwill of a government and is debt free, such as President Lincoln’s, “Greenbacks.” Fortunately, the Nobel Peace Prize winning economist, Milton Friedman came up with an ingenious solution of wresting back control of the money supply from the bankers, paying off all outstanding debt, and preventing inflation or deflation whilst this process is completed. I summarize this below.

Using America as the example here, Friedman suggests that debt free United States notes be issued to pay off the United States Bonds (debts) on the open market. In conjunction with this, the reserve requirements of the day to day bank the regular person banks with, be proportionally raised so the mount of money in circulation remains constant.

As those people holding bonds are paid off in United States notes, they will deposit the money in the bank they bank with, thus making available the currency then needed by these banks to increase their reserves. Once all these United States bonds are paid off with United States notes, the banks will be at 100% reserve banking instead of the fractional reserve system and then fractional reserve banking can be outlawed.

If necessary, the remaining liabilities of financial institutions could be assumed or acquired by the United States government in a one-off operation. Therefore these institutions would eventually be paid off with United States notes for the purpose of keeping the total money supply stable.

The Federal Reserve Act of 1913 and the National Banking Act of 1864 must also be repealed and all monetary power transferred back to the Treasury Department. The effects of this will be seen very soon by the average person as their taxes would start to go down as they would no longer be paying interest on debt based money to a handful of central bankers.

A law must be passed to ensure that no banker or any person in any way affiliated with financial institutions, be allowed to regulate banking. Also the United States must withdraw from all international debt based central banking operations ie. the IMF; the BIS; and the World Bank.

If all the countries of the world adopted the conclusions above, then humanity will at last be free of these central bankers and their debt based currency. It’s a lovely idea, but first we have to get it past our corrupt politicians many of whom are quite aware of the scam that plays us on a daily basis, however rather than do the job we have elected them to do, they keep their mouths shut and instead look after themselves and their families, whilst the rest of us continue to be exploited.

– Andrew Hitchcock, “History of the Money Changers”

It was nice to learn that Thomas Jefferson wanted a balanced budget amendment, which banned deficit spending by the issuance of government bonds. I completely agree with that sentiment. It would also be nice to require a super majority vote for the U.S. Congress to engage in deficit spending with inflationary monetary policy. You still want Congress to have that ability in the event of emergency situations. However, just banning the issuance of government bonds removes the special interest of deficit spending for the purpose of extracting wealth from the tax payer through interest on government bonds.

“I wish it were possible to obtain a single amendment to our constitution taking from the Federal Government their power of borrowing.” — Thomas Jefferson

See the related statements by Bill Still on Milton Friedman’s monetary advice.

Obese-Redneck's picture

Wait just a cotton pickin' second!  Milton Friedman was Saint Ronnie Raygun's boy!  He practically tore down the Berlin Wall with his fingers and Saint Ronnie's help I might add.  Now we are getting down on Milton and Ronnie?? What gives Libertardians?  Do as I say not as I do?  So you all don't live in Montana or Alaska a-fightin' Grizzly bears day and night, do tell?

Turin Turambar's picture

Money is a medium of exchange.  It can be anything the market decides.  Fiat currency is fraud.  I just love the hypocrisy of the so-called free-market proponents who back fiat currency whether issued by the treasury department or the Fed.    Last time I checked, an entity (Fed or Treasury) having a monopoly control over a commodity used in half of almost all transactions (dollar) whose use is mandated via coercive force is most certainly NOT free market.  You're free to use fiat currency if you like in a free market, but why is it that I can't use something else if I prefer to?  No thanks, Mr. Statist.

FreedomGuy's picture

Agreed, NoDebt. And the modern Fed is making the same error as the Great Depression. They are realizing that while they can load up bank reserves they cannot create more demand or qualitfied borrowers. Simply put, unemployed people cannot borrow money at any rate.

This bring in the role of government, in general. Governments have the ability and even prociivity to destroy economies no matter what the monetary policy. There is no monetary policy that would make the old Soviet Union prosperous or they would have done it.. So as we move to planned economies with infinite controllers at different levels I think we will see monetary policy have ever smaller effects.

Manipuflation's picture

Mises and Keynes do not mix.

nmewn's picture

Oil & water.

I thought this was an interesting comment...

"Friedman’s monetarism thereby institutionalized a régime which allowed politicians to chronically spend without taxing."

Being a person of influence is one thing, being a person in a position of power & responsibility is another. Politicians have never needed an excuse to spend more of what is not theirs.

Its been going on for thousands of years.

LetThemEatRand's picture

"Its been going on for thousands of years."

Thank you for that.  Long before elections, Republics, Red Teams, Blue Teams, etc.   We the People.

disabledvet's picture

Friedman et al have their eyes on profits...that's why their "analysis" seems so flawed. by monkey hammering rates to zero and providing liquidity "of unlimited quantity" you unleash a tidal wave of expansion which flows directly into Government coffers and ultimately right back to the banks "who were the problem in the first place." of course it's statist. all these clowns went to Chile and hung out with Pinochet for a reason. i don't want to say "get over it" but...get over it. the problem with the theory of course is that there is never enough liquidity. EVER. so sure...you've given everyone just what they wanted...by they only want MOAR. "you've incentivized very powerful interest groups." (the War Machine, the Real Estate Lobby, Wall Street deal makers, property speculators, the newspaper delivery kid) they're now going to turn on the Fed and devour it in my view but we'll see. the fact that QE works is very DANGEROUS too. i find it interesting that the FOMC even tried their "surpise exit strategy"...it obviously has had a momentous impact. they had to know this and the idea that SOMEBODY didn't is totally ridiculous. has it caused enough damage such that once QE is restarted "it's too late because they just nuked a real estate bubble"? hard to tell. but barring any "imperial entanglements" i say treasuries, gold and silver. i mean "panic selling in treasuries, gold and silver"? REALLY?

LetThemEatRand's picture

The ball is under the middle cup.

Charles Wilson's picture

I agree, nmewn.

We have a Monetarist Experiment going on right now, as a matter of fact.

Bitcoin is Digital Monetarism.  Gradual, predictable expansion of the Bitcoin Supply with no BS.  If the wild gyrations of BC Value at the start of this experiment damp down as statistically as they should AND the Thieves that run governments don't shut it down - esp. by a taxation scheme - then Friedman may yet be vindicated.  If not, then the old joke returns: A drunk and an economist fall into a ditch.  The drunk says, "How so we get out of this?"  The Economist says, "It's easy.  First, we assume a ladder..."

I believe that much of the modern criticism of Friedman is misplaced but you can't beat something with nothing and so far, the Statists have shown willingness to co-opt anything that will support the Despots  who are replacing Market decisions with political ones.  No markets, No money, No future.

nmewn's picture

lol...a good old joke.

From everything I've ever read on Friedman, he was not enamored by the Fed...he simply realized its existence and no way of dealing with it then.

Kind like a boxing ring, you know the boundaries as set by others, you operate within them or are disqualified.

Not a defense of Keynes or Friedman by any means, just an understanding of the reality of the time.

Totentänzerlied's picture

Leave to it to a PhD economist to not understand that all it would take is a single Act of Congress to nullify the Federal Reserve Act.

Charles Wilson's picture

I pulled up 2 old tapes (Beta!) that had 2 old Friedman appearances, one on Crossfire and one Wall Street Week, sometime in late '83, probably in early '84.

I'll be happy to put up transcriptions of the questions and answers if anyone cares.

Friedman EXPLICITLY calls for an end to the FED.

He advocates the replacement of the FED with a computer that would expand "The Money Supply" at a constant ("linear") rate of 2% per year, "week to week, month to month, year to year as close as is possible."  You may argue that the "computer" remark is facetious but he is as clear as can be.  I appreciate the criticisms applied to the Deconstructed Friedman these days but to call him a Statist is to miss the point.

The Government is the producer of money and to appeal to this fact as an argument against Uncle Miltie as a Fascist is, I think, misguided. If the argument is that because the Government produces Money (not "Value"), to advocate that Government Regulation of Money Supply is Fascist is to argue against Money as a Medium of Exchange at all.

The Three Pillars of Modern Conservative Economic Theory are the Monetarist Steady State view of Fiat Money, the Supply Side view of Government Interference in the FREE Trade Markets, as seen by Wanniski and P C Roberts (At least the early years) and the Deductive Logic of the Austrians, making a comeback as we speak.  Those Criricisms of Friedman as to why he would act to block Universtiy Appointments of some Austrians may be well founded.  If they are, I have no idea why he would have done those things.

I also acknowledge that these 3 pillars are at times arguing with each other.  The Grand Unification isn't complete yet.

Nonetheless, the current arguments against Friedman appear to me to be less deadly to Monetarism as may appear.  Stockman's book, at the key point of declaring against the ability to monitor an absolute measure of the Growth of Money Supply, changes the wording and argument to argue against the inability of Control of Money....Somethings...and against the strict ability to control with EXACTITUDE.  Friedman, in these 2 programs freely acknowledges both the lack of exactitude and the lack in Fine Tuning ability and in fact USES that fact as an argument FOR making the expansion of the Money Supply linear over large periods of time.

Roberts, in his book _The Supply Side Revolution_, gives a History that any Monetarist could have written.  Roberts' Treasury had a "Gentleman's Agreement" with Volcker to cut the growth in Money Supply over a 3 year period.  Volcker gave the cut in Rate over 6 months, guaranteeing a severe recession, which indeed took place.

Please also see this:  http://www.margaretthatcher.org/document/110796


Charles Wilson's picture

Stockman, _The Great Deformation_:

"As it happened, the Fed's drift into these Wall Street-pleasing policies was temporarily stalled by Volcker's epic campaign against the Great Inflation.  Dousing inflation the hard way, through brutal tightening of money market conditions, Volcker had produced that singular nightmare that Wall Street and thebanking system loathe; namely, a violent and unprecedented inversion of the yield curve..."

Stockman wants it both ways and he can have neither.  Either you can control Money Supply or you cannot.  He argues that Friedmanites could not control M1 or that even if they could, they could not control M2.  Volcker DID control "money market CONDITIONS" but what does that mean? Guess what?

Money Supply.

Stockman still, to this day. does not understand Friedmanite Monetarism.  Friedman, stating the inability of a small group of Politburo Types to [Quote]: "Fine Tune" [Unquote] the economy, saw that as a REASON to commit to a fixed growth standard.



Manipuflation's picture

That was a fun flashback.  Thanks!  Don't forget about these guys though.



ZerOhead's picture

Quality work kid... quality work...

Moon Pie's picture

Good shiznitz Atom....keep that roll comin.

The MARRS reminded me a of late nite/early morning in Spanish Harlem...TMI for here.

otto skorzeny's picture

and so sayeth the Lord- a cheesepope will always lead you in matters of filthy lucre.

Monedas's picture

Nixon and the Gold Standard, Friedman and Big Government and I won't cum in your mouth !  Leftists will always rewrite history .... because the truth doesn't become them !

Bringin It's picture

It's not rocket science.  End the Fed.

Manipuflation's picture

Nice post Atomizer.  I enjoyed it.  Have some Bored of Edukashun.



Atomizer's picture

Please do me a favor. Change your H/T on link. Credit should begin with the original author. That material is then turned into a production piece. I deserve no credit to the hard work process 1 and 2 endured. Thank you.


Personally, I don’t like the limelight. Your cooperation will be appreciated. :)

Dr. No's picture

Fuck Friedman and his tax withholding. Where is friedmans grave, so I can piss on one day.

LetThemEatRand's picture

No grave.  The Bernanke keeps his ashes in the beard.

yogibear's picture

These guys make sure their cremated so people don't piss on them.

John Maynard Keynes


The Fed and the money printers think of this guy as a god. Krugman's idol.

How approprate, let them rot in Hell.

 But his brother (Sir Geoffrey Keynes, an eminent surgeon) was unaware of Keynes' wishes, and the great economist was instead cremated. His ashes were scattered on the Downs at Tilton, in Sussex. (bio by: julia&keld) 




ebworthen's picture

Milton Friedman was utterly confounded.

On the one hand he talked about the benefit of free-markets and the invisible hand.

On the other he talked about the benefits of the FED, centralized planning, and intervention.


It's like a parent that rewards one kid for stealing a lollipop by letting them keep it and smiling and saying "What a creative mind you have" while spanking the other and taking it away and saying "You'll never get anywhere doing that!".

Monedas's picture

To make a really good Ponzi .... you have to start with a robust, prosperous Capitalist economy .... then you proceed to fuck (it) up beyond all recognition (FUBAR) .... then blame it on the inherent flaws of Capitalism .... we floated a Ponzi for 100 years .... Zimbabwe Workers Paradise didn't have as long a run !  I don't think Friedman should be the poster child for this mess .... there's plenty of blame to go around .... but if there is every some wiggle room of doubt .... the libertarian will get the blame .... SOP .... Leftist Think Cloud !

yogibear's picture

Print until your currency dies. Entitlements and bailouts lead to it.

All the baby boomers retiring while adding more illegals and newly amnestied immigrats on the government tit is leading to crushing deficits.