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.
