Final thoughts on 1931 (pt. 4 of 4)

Before concluding chapter 5, a few comments on a recent post by Mark Thoma, who responds to my previous post on Adam Smith.  First a couple areas where I agree with Thoma:

1.  I shouldn’t have used the term ‘trivial’ to describe the list.  I should have said something like “modest.”

2.  Because I read the post too fast, I did not notice that the list was Viner’s, not Kennedy’s.  That does change things somewhat (and not just because he is a University of Chicago guy.)  In 1928 the Federal government in the US comprised 3% of GDP, as compared to nearly 25% today.  If that was the benchmark for normal, then yes, Smith’s views did not seem all that laissez-faire by comparison to the role of government in 1928.  We weren’t completely laissez-faire in 1928, but we were much closer than today, and hence Viner’s list would have seemed much more impressive back then.

Update: I just noticed the following comment from Thoma:

You say “I did not notice that the list was Viner’s, not Kennedy’s.”

You also don’t seem to realize that the latest points are from Gavin Kennedy, not me. (e.g. “Thoma ends up with this argument…”)

Let’s hope you read Smith with a more comprehension than you’ve demonstrated here.

Touche.  Yes, I did get confused by Thoma’s quotations within quotations.  But that’s my fault, as I know he often uses that format.  In any case scratch Thoma and consider all these comments directed at Kennedy.  Back to the original post:

My point was that the term ‘laissez-faire’ should be viewed in a relative sense.  I’ll bet you could find many liberal economists who agree with Thoma and Kennedy and disagree with me.  And I’ll bet if you asked those liberal economists whether Milton Friedman favored laissez-faire policies, most would say yes.  And yet Milton Friedman favored:

1.  Government subsidized education for everyone.

2.  A minimum annual income for poor people, whether they worked or not.

3.  The Federal Reserve having a monopoly on money creation.

4.  Government patent and copyright laws

5.  Government protection of property rights.

Readers; help me make this list longer—what else did he favor?  Did Friedman favor laws against cartels and price fixing?  How about Federal subsidies for research (I recall my libertarian professors at Chicago did favor those programs, but I arrived after Friedman had left.)  How about laws regulating air pollution and water pollution?  I am sure there are other government policies that Friedman favored.  And I am pretty sure that if you put a complete list together, the average person would say; “That’s no laissez-faire ideologue.”  But it is my impression that most liberal economists regard Friedman as a laissez-faire ideologue.  If I am mistaken, and Friedman is not viewed that way, then I would withdraw my claim for Smith.

BTW, don’t point out that some items on Viner’s list would be opposed by Friedman.  The reverse is also true.  Did Smith favor giving the government to power to produce fiat money, as Friedman did?  How about a guaranteed annual income to able-bodied men who chose not to work?

Thoma (Update: Kennedy) ends up with this argument:

Set against the size of commercial society in 18th-century Britain, the state sector was not ‘trivial’ in any meaningful sense. Nor is it today. On one thing we surely can agree: neither 18th-century Britain with its colonies in North America was not a laissez-faire economy nor are the 21st-century territories that descended from them.

Just to be clear, I never claimed 18th century Britain was a laissez-faire economy.  The government at that time intervened in many ways not on the list of policies favored by Smith.  But in 1928 when Viner composed that list, total US spending at all levels was about 10% of GDP.  That is much lower than even Hong Kong or Singapore.  If I advocated making government that small (and I’m not sure I do) I would probably be viewed as a laissez-faire ideologue.  Indeed I probably am already viewed as a laissez-faire ideologue for favoring a government in the US that is roughly the size of Hong Kong or Singapore’s government.  If liberals are going to henceforth stop calling people like me and Milton Friedman “laissez-faire ideologues” then I’ll gladly withdraw my claim about Smith.  Until then, I say he’s one of us.

My argument here, (which Caplan and Henderson say is related to “Blockism”) is part of what I see as a more general cognitive bias, the tendency to be overly impressed by lists that deviate from orthodoxy.  This is related to my relative optimism about China.  It’s not that I disagree with those who point out all the problems in China, such as politically motivated bank lending, corruption, etc.  Indeed they often leave out even greater problems, like barriers to migration and gender imbalance.  Rather, my point is:

There is a great deal of ruin in a nation.

That is, countries can suffer from all sorts of afflictions, and continue to progress steadily.  BTW, this very wise aphorism was invented by none other than Adam Smith.  Long before Block and I made this sort of argument, it was Smith who warned that one shouldn’t be overly impressed by lists; problems that look scarily large in an absolute sense can appear trivial, I mean modest, when set against the overall economy.  The private economy and the role of government are almost incomprehensibly vast and complex.  We all tend to forget that.

On to the conclusion of Chapter 5.  I include an appendix showing all the NYT headlines from 35 straight days in mid-1931, to give you an idea of just how different news coverage was back then.  Monetary policy was a HUGE issue, understood to be very important.  It is still a huge issue, but our culture no longer understands its importance, as we have regressed to an interest rate-oriented view of monetary policy:

5.h   Summary

To summarize, after a modest upturn in early 1931, the final eight months of the year saw a major recession turn into the Great Contraction.  During this period foreign monetary and financial shocks dominated the news headlines in the NYT.[1] Relative to the post-war era, stock prices were much more volatile, and their movements were much more likely to be obviously linked to headline news stories.  Although the British decision to leave the gold standard received extensive press coverage in the U.S, and undoubtedly impacted U.S. markets, the German crisis received even greater news coverage, and appears to have had a much longer lasting impact on U.S securities markets.  These findings provide circumstantial evidence that foreign monetary shocks were having an important impact on real stock values, and by implication, the real economy.

There were four primary mechanisms by which foreign monetary crises impacted the U.S. economy.  First, these crises led to a sharp increase in private gold hoarding, which then lowered expectations of future money supply growth.  These bearish expectations immediately showed up in falling commodity and equity prices. It is especially interesting to note that the period of close correlation between the price of YPBs and the Dow (mid-1931 to mid-1932) almost exactly coincides with the period of massive private gold hoarding.  In principle, the major central banks held enough gold to offset the impact of private hoarding.  But there was also an increasing “maldistribution” of monetary gold, as fear of further devaluations led central banks within the European gold bloc[2] to sharply increase their gold reserve ratios.  This increase in central bank gold hoarding provides a second mechanism by which exchange rate uncertainty impacted the world price level.

[1] And this is not just my view.  In its yearend review of U.S. stock markets, the NYT did not mention German problems in any of the first five monthly reports; then cited them as a market influence in all of the final seven months of 1931.

[2]  The exact definition of the gold bloc varies, but France, Switzerland and the Netherlands were certainly members.  Belgium and Poland are also usually included, and Italy is occasionally included in this group.

Both the German and the British policy actions were resented by many other countries; and the receding prospects for international policy coordination provides a third mechanism by which the German crisis impacted American policy expectations, and hence aggregate demand.  Not only did these crises result in a near term increase in the world’s gold reserve ratio, but even more importantly they reduced the prospects for international agreements that might have allowed for greater monetary ease in the future.  Nor is this mere speculation, the enthusiastic market response to Hoover’s debt proposal shows that American investors were paying close attention to the issue of policy cooperation.  And one can find numerous other examples of this phenomenon, such as when the Dow responded positively to the French/British monetary agreement of early 1931.

In discussing the failure of the Kreditanstalt and the German banking crisis, Friedman and Schwartz noted that:

“The failure of world-famous financial institutions and the widespread closing of banks in a great country could not but render depositors throughout the world uneasy and enhance the desire of bankers everywhere to strengthen their positions.”  (p. 314)

Their suggestion that the German financial crisis led to an increased demand for currency and bank reserves provides a fourth transmission mechanism, as an increased demand for base money also has a deflationary impact on the economy.  The U.S. banking crises of June and August-October occurred in close proximity to the European financial crisis, and it is unlikely that these events were unrelated.

It was Britain’s aversion to deflation that led it to abandon the gold standard in September 1931.  Because many countries held sterling or dollar assets in addition to their gold reserves, the devaluation of the pound resulted in large capital losses in countries holding sterling assets.  Not surprisingly, fear that the U.S. would also abandon the gold standard led many of the ‘gold bloc’ countries to exchange their dollar assets for gold.  The exchange of paper assets for gold by European central banks, like the hoarding of currency by the public, represented a preference for greater liquidity.  Even so, there is no necessary correlation between a central bank reducing its holdings of foreign assets, and increasing its gold reserve ratio.  Gold bloc countries could have prevented their gold reserve ratios from increasing if they had exchanged their dollar and sterling assets for domestic assets, rather than gold.   Had they done so, prices in the gold bloc would not have been so depressed during 1932.

Temin (p. 75) argued that the British action did not lower the world price level, because [commodity] “Prices fell before Britain went off gold.  They did not fall faster afterward.”  This betrays a misunderstanding of auction-style commodity markets.  Price changes are not serially correlated in efficient markets.  The Great Contraction was not one event, requiring one explanation, but a series of distinct, and unexpected, shocks that continually drove prices and output lower between 1929 and 1932 (excepting early 1931.)  Under a gold standard the expected inflation rate for commodities is roughly zero, not the change that occurred in preceding months.

Nevertheless, I do agree with Temin’s broader point that Britain should not receive “condemnation” for its actions.  Temin is surely right that the greater tragedy is that others did not follow Britain off the gold standard.  Britain can hardly be blamed for being among the first to recognize that gold was merely a “barbarous relic”, a view now almost universally acknowledged.  Britain might deserve some condemnation if other countries had played by the “rules of the game”.  But the primary victims of the British decision (the U.S. and France) were the countries that most flagrantly violated those rules, and hence did the most to put Britain into an untenable position.

With hindsight, the unfortunate events of 1931 may seem almost inevitable. But Ferguson and Temin (2001) showed that Bruening’s sharp turn to the right in March 1931 was not preordained.  They also noted (p. 41) that Bruening’s “reckless pursuit of ‘Mitteleuropa’ destroyed the possibility of French financing for Germany.  Stabilizing Germany by this means was clearly Briand’s policy, and he came heartbreakingly close to bringing it off.”  The behavior of U.S markets during 1931 certainly supports this view.  Equity markets were relatively optimistic during early 1931, but then declined sharply as the German crisis became more severe.  More importantly, these declines were closely correlated with changes in the price of YPBs.  Of course we don’t know for certain that German debt problems impacted the U.S. by increasing the demand for gold, but once the U.S left the gold standard the German debt problem no longer had a major impact on the U.S stock market.

The sharp decline in stock prices amidst the September-October run on the dollar can be interpreted several different ways.  It might have reflected a fear that the gold outflows would cause the Fed to tighten policy.  But there are two reasons to believe that it represented more than just a near term fear of discount rate increases.  First, when those increases did occur the market reacted positively.  And second, we will later see several other examples of the stock market reacting negatively to gold outflows.  And in some of those cases (such as late 1937) there was no realistic prospect of a near-term discount rate increase.  Instead, the most plausible explanation is that the run on the dollar increased the demand for gold (from both private citizens and central banks) and that this directly increased the real value of gold, and reduced the price level.

This does not mean that the critics of the Fed’s actions were completely off base.  The U.S. had massive gold reserves in the early 1930s, and an ambitious attempt to reflate the economy might have worked.  But the market understood that the Fed was not likely to take such a big risk.  A more neutral policy of no discount rate increases and modest open market purchases was more politically feasible, but might well have been counterproductive if led to a loss of confidence and a large gold outflow.  In the next chapter we will see an example of just such a policy failure.

Appendix 5.a:  Gold Hoarding and Aggregate Demand

The model discussed in the preceding section implies that exogenous increases in the monetary gold stock should increase aggregate demand and exogenous increases in the gold ratio and/or banking panics should decrease aggregate demand.  Unfortunately, monthly nominal expenditure data is unavailable for the early 1930s.  If we assume that aggregate demand shocks had a short-run impact on output during the early 1930s, then gold hoarding may also be correlated with monthly changes in industrial production.  Table 5.2 shows the results of a CORC regression of the first difference of the log of the U.S. industrial production (DLIP) on the first difference of the log of the world monetary gold stock (DLG), the log of deposits of failed U.S. banks (LDFB), and the weighted average of the first difference of the log of the gold ratio for seven important industrial countries (DLR), during the period from January 1927 to April 1933.  The weights used to construct DLR are determined according to each country’s share of the world monetary gold stock.  This variable represents a crude proxy for world monetary policy.[1]

Table 5.2.  The Relationship Between U.S. Industrial Production, the Gold Ratio, the World Monetary Gold Stock, and the Deposits of Failed U.S. Banks, Jan. 1927 – April 1933, Monthly.

Dependent Variable – DLIP


Variables                 Coefficient         T-stat

DLR-1 -.242           (-1.50)

DLG-1 1.927           (3.60)

LDFB                       -.0084          (-3.78)

DLIP-1 .4104           (3.60)


Notes:  The adjusted R2 = .408 and the Durbin Watson statistic = 1.57.  The Cochrane-Orcutt procedure was used to correct for serial correlation.  DLR-1, DLG-1, and DLIP-1 are the first lags of each variable.  Because DLG and DLR use end of month figures, the actual lag is only about 15 days.  The regressions included a constant term (not shown.)  The data were derived from various issues of the Federal Reserve Bulletin.

[1]  These include the U.S. (1927 – 1933), Britain (1927 – 1931), France (1928 – 1933), Germany (1927 – 1931), Belgium (1927 – 1933, Holland (1927 – 1933), and Switzerland (1927 – 1933).  These countries possessed 70.1 percent of the world monetary gold stock on December 31, 1929, and 76.8 percent on December 31, 1933.

The signs on the coefficients of each of the independent variables seem consistent with the model discussed in section 2, although the coefficient on the gold ratio is not significant at the 5 percent level.  It should be emphasized, however, that there is a significant identification problem here, and therefore this regression equation should not be viewed as providing a “test” of the model developed in chapter 3.  Instead, it should be viewed as providing some useful descriptive statistics, which can augment other types of evidence.

There has been relatively little study of the causes, magnitude, and consequences of changes in the world gold ratio.[1] One problem with estimating the impact of changes in the gold ratio is that aggregate demand would be expected to respond negatively to exogenous changes in DLR, yet might well be positively correlated with changes in the gold ratio induced by central bank attempts to mitigate the impact of shocks to currency demand.  For instance, the gold ratio typically declined during banking panics.  Because most bank panic-induced increases in currency demand were not fully accommodated, however, these decreases in the gold ratio were associated with falling prices and output.  The inclusion of bank failures (LDFB) should pick up some of these shocks, but can hardly be expected to account for all shocks to (world) currency demand.  Despite the ambiguous findings in Table 5.2, it is certainly noteworthy that the first year of each of the two major interwar depressions was accompanied by a sharp increase in the world gold ratio, and a relatively low level of bank failures.

The identification problem is equally applicable to any study of the relationship between the world monetary gold stock and aggregate demand.  Recall that under a gold standard aggregate demand can be affected by changes in either gold supply or gold demand.  Since there is no theoretical presumption regarding the relative importance of these shocks, it is inappropriate to uncritically accept a quantity theoretic interpretation of a positive correlation between gold stocks and aggregate demand.  For example, the deflation of the early 1930s generated a substantial increase in the rate of gold production.  Thus a negative correlation between DLY and DLG would not necessarily be inconsistent with models in which exogenous increases in monetary gold stocks have an expansionary impact on aggregate demand.  Rather, the positive coefficient on monetary gold stocks should be seen as confirming that, during the period from 1927 to 1933, most high frequency variations in the size of the world monetary gold stock reflected fluctuations in private gold hoarding, not disturbances in the flow of newly-mined gold.

[1] See Hamilton (1987), Sumner (1991), Eichengreen (1992), and Bernanke (1995) for some previous studies of this issue.

Appendix 5.b:  German News and U.S. Stock Prices

The following quotations are from various issues of the New York Times (dated June 20 through July 25, 1931.  Also indicated are the column width of the headlines, selected quotes, and the corresponding movements in the first differences of the logs of the Dow Jones Industrial Average (DLDOW) and the price of Young Plan bonds (DLYPBs.)

1.  6/20 – “HOOVER MOVES FOR RELIEF OF GERMANY” (4 columns)

(announced after the stock market closed on 6/19)

6/20 – DLDOW = + 6.4 percent     DLYPB = + 7.6 percent


(5 columns)         (announced after the stock market closed on 6/20)



6/22 – DLDOW = + 4.9 percent     DLYPB = + 4.1 percent

3.  6/24 – “FRANCE AGAINST ANY DELAY IN YOUNG PLAN PAYMENTS”          (2 columns)

6/23 – DLDOW = – 1.3 percent     DLYPB = – 1.3 percent


6/24 – DLDOW = + 5.2 percent     DLYPB = + 1.0 percent


6/25 – DLDOW = – 0.8 percent     DLYPB = + 0.3 percent

6.  6/27 – “FRANCE’S REPLY IS UNACCEPTABLE TO US” (3 columns)

Stocks declined on “France’s reaction to the debt moratorium”, then rose in the last hour on signs that “Paris was more tractable” (p. 23)

6/26 – DLDOW = + 2.4 percent     DLYPB = + 0.0 percent


6/27 – DLDOW = + 1.9 percent     DLYPB = + 0.0 percent



6/29 – DLDOW = – 2.8 percent     DLYPB = – 1.7 percent

9.   7/1 – “[FRENCH] SENATE SUPPORTS LAVAL, SCORES OUR DEBT ATTITUDE”             (2 columns)

6/30 – DLDOW = – 1.6 percent     DLYPB = – 2.1 percent


7/1 – DLDOW = + 1.7 percent     DLYPB = + 0.3 percent

11.  7/3 – “AGREEMENT WITH FRANCE ON DEBTS NEAR” (3 columns)

7/2 – DLDOW = – 0.8 percent     DLYPB = + 0.3 percent


7/3 – DLDOW = + 2.5 percent     DLYPB = + 3.0 percent




7/6 – DLDOW = – 1.6 percent     DLYPB = + 0.3 percent



7/7 – DLDOW = – 4.6 percent     DLYPB = – 2.7 percent

15.  7/9 – “REICH TO SEEK LARGE LOAN” (2 columns)

7/8 – DLDOW = – 1.4 percent     DLYPB = – 0.5 percent

16. 7/10 – “LOAN OF $400,000,000 IS SOUGHT BY LUTHER IN LONDON

AND PARIS” (1 column)

7/9 – DLDOW = + 0.7 percent     DLYPB = – 3.3 percent


7/10 – DLDOW = + 1.4 percent     DLYPB = + 1.1 percent


7/11 – DLDOW = – 2.1 percent     DLYPB = – 3.8 percent



(4 columns)

7/13 – DLDOW = – 1.0 percent     DLYPB = – 8.1 percent

20. 7/15 – “GERMANS TURN TO SELF AID TO END CRISIS” (3 columns)

7/14 – DLDOW = – 1.1 percent     DLYPB = – 7.4 percent

21. 7/16 – “GERMANY CURBS EXCHANGE” (2 columns)

7/15 – DLDOW = – 2.1 percent     DLYPB = – 1.7 percent


(4 columns)  “Debt Parley Sends Stock and Bonds Up Here”

7/16 – DLDOW = + 3.0 percent     DLYPB = + 10.3 percent

23. 7/18 – “PARLEYS ON REICH START IN PARIS TODAY” (3 columns)

7/17 – DLDOW = + 0.4 percent     DLYPB = + 0.8 percent

24. 7/19 – “PROGRESS MADE IN FRANCO-GERMAN TALK” (3 columns)

7/18 – DLDOW = – 0.1 percent     DLYPB = + 1.9 percent

25. 7/20 – “FRANCE AGREES TO BEFRIEND GERMANY” (4 columns)

7/21 – “NEW HOOVER PLAN TO HELP GERMANY” (3 columns)

7/20 – DLDOW = + 1.4 percent     DLYPB = – 1.1 percent


7/21 – DLDOW = + 1.5 percent     DLYPB = + 0.2 percent


PLAN”  (3 columns)  “Markets Here Drop on London Reports”

“German Radicals Gloating Over ‘Failure’ of the London Parley”

7/22 – DLDOW = – 2.9 percent     DLYPB = – 7.8 percent

28. 7/24 – “HOOVER PLAN VOTED BY LONDON PARLEY” (4 columns)

“French Stand Condemned”  “Germans are Pessimistic”

7/23 – DLDOW = +0.1 percent     DLYPB = -3.8 percent



25 Responses to “Final thoughts on 1931 (pt. 4 of 4)”

  1. Gravatar of Mark Thoma Mark Thoma
    8. March 2010 at 13:45

    You say “I did not notice that the list was Viner’s, not Kennedy’s.”

    You also don’t seem to realize that the latest points are from Gavin Kennedy, not me. (e.g. “Thoma ends up with this argument…”)

    Let’s hope you read Smith with a more comprehension than you’ve demonstrated here.

  2. Gravatar of Rahul Rahul
    8. March 2010 at 17:12

    A very nice post. I am glad you continue to blog.

  3. Gravatar of JimP JimP
    8. March 2010 at 17:52

    Today in an editorial the FT says the following:

    begin quote
    As Mr Wilkes also argues, in today’s exceptional circumstances, the Bank could usefully buttress its inflation target with a medium-term objective for nominal demand. Then, if QE has to be restarted, the Bank could use such a framework to explain why.

    Desperate times need desperate measures. The times are not over. Nor, therefore, are the measures.
    end quote

    now if Bernanke only read the ft!

  4. Gravatar of Lorenzo from Oz Lorenzo from Oz
    8. March 2010 at 17:53

    Adam Tooze, in his excellent The Wages of Destruction makes the point that the Bruning Government engaged in a foreign policy which irritated and annoyed the Western powers and an economic policy that required their support: a disjunct that undermined both policies.

  5. Gravatar of Greg Ransom Greg Ransom
    8. March 2010 at 21:48

    Friedman changed his mind about #3.

  6. Gravatar of al al
    8. March 2010 at 22:36

    “You say “I did not notice that the list was Viner’s, not Kennedy’s.”

    You also don’t seem to realize that the latest points are from Gavin Kennedy, not me. (e.g. “Thoma ends up with this argument…”)

    Let’s hope you read Smith with a more comprehension than you’ve demonstrated here.”

    If Thoma does not endorse the points why does he quote them?
    If he does endorse them then is not Kennedy’s argument also his?
    If he endorses some of them only why does he not say so?

  7. Gravatar of scott sumner scott sumner
    9. March 2010 at 05:33

    Mark, I just put an update in the post, to clarify who it is directed at.

    Thanks Rahul.

    JimP, Thanks. It’s odd that QE is considered fiscal policy. There is nothing more “monetary” than printing money.

    Lorenzo, I agree. Things started to go bad after the Germans formed an economic union with Austria in late March 1931. This especially annoyed the French, who were then less likely to assist Germany once it got into trouble.

    Greg, OK, but did he continue to advocate that the Fed set monetary policy? I recall that as late as the 1990s he was advocating that the Fed target inflation expectations in the TIPS market. BTW, I forgot to mention government deposit insurance, I seem to recall that he favored that as well.

    al, He may well support Kennedy’s the general ideas, but even so I can see why he was annoyed that I attacked specific points made by Kennedy, as if they were his. I got a bit sloppy. Thoma’s blog is different than mine, he present much more information without comment.

    In any case, it is the ideas that matter, not the personalities–I still think my post is valid, once you adjust the names.

  8. Gravatar of Don the libertarian Democrat Don the libertarian Democrat
    9. March 2010 at 10:39

    Milton Friedman advocated the following policies which I agree with, among others:
    1) A Guaranteed income
    2) Universal Health Care
    3) A Progressive Income Tax
    4) Narrow Banking
    5) A Fiscal & Monetary Policy that automatically varies with the state of the economy
    6) QE in an economic downturn
    7) Legalization of Drugs
    8) Vouchers for Schools
    9) A Fed that isn’t Independent ( For Hayek’s view, see Hayek on Hayek page 116 )
    David Henderson pointed out that he grew more libertarian over time, as Greg Ransom has, which seems true, and I’m fine with that.
    Among other things, Hayek supported:
    1) A Guaranteed Income
    2) A State Sponsored Health Care Plan
    3) Govt competing in the economy, if it played by the rules
    He does seem to be unenthusiastic about some of these ideas, simply preferring 1 to take care of people’s basic needs.

    I don’t have any problem with anyone disagreeing with any of these positions. When I’m in a purely theoretical mood, I read David Friedman’s The Machinery of Freedom. Nor is it unfair to point out that they changed their views. My simple question is whether they were libertarians when they held these views? Put another way, are Knight, Viner, and Simons, libertarians? If they aren’t, then neither was Adam Smith or Edmund Burke.

    Milton Friedman distinguished between Utopia and the Real World, and Hayek often talks about the need to see how things actually work out ( Hayek on Hayek p.121 ). Friedman was a Republican, and Hayek was a Burkean Whig. There’s no way to make either man an Ideologue.

    Now, there are people who claim that some or all of these men aren’t libertarians. That’s also fine with me. I’m glad to be called whatever they’re called. But then don’t use them in various forms of the Argument From Authority to buttress your position, without presenting their views in context. For example, from one point of view, a Guaranteed Income can be seen as a form of Minimum Wage.

    Anyone following Burke has to believe at least the following:
    1) Politics is the art of the possible, and compromise is good.
    2) Ideologues and Ideologies are to be avoided. Period.
    3) There’s no a priori way to know how things will turn out.

    I also want to identify myself with Gavin Kennedy’s views on Smith, and I enjoyed his book and still enjoy his blog, as I do this one.

    I would have commented earlier, but I have been looking at bond yields in 1931. I found them very confusing.

  9. Gravatar of scott sumner scott sumner
    10. March 2010 at 09:05

    Don, Thanks for the list, it confirms my view. I have read Kennedy’s work and thus have no complaints about any of his research. But it’s clear that Friedman is viewed by those on the left as a supporter of laissez-faire. I think some on the left sort of use this historical research to argue “See, even your hero Adam Smith didn’t support laissez-faire.” The fact is that almost no one favors absolutely no role for the government. But both Friedman and Smith generally favored free markets. People should either call both of them laissez-faire economists, or neither of them laissez-faire economists. I’d say the same about Hayek and most other Chicago School economists (including myself.)

    Regarding bond yields in 1931, here’s why I think they seem confusing. Normally a weak economy makes T-bond yields fall, but in late 1931 they rose as the economy weakened. I believe this was fear of default. It was a sort of risk premium. In 1933 the US did default, as they refused to honor the gold clause. That’s why French bonds were a much better investment in 1931, France stayed on gold until 1936.

  10. Gravatar of Jimmy Jimmy
    10. March 2010 at 12:00

    Professor Sumner,

    Friedman also believed in countercyclical deficit spending.

    On Freedom and Free Markets

    INTERVIEWER: Why are free markets and freedom inseparable?

    MILTON FRIEDMAN: Freedom requires individuals to be free to use their own resources in their own way, and modern society requires cooperation among a large number of people. The question is, how can you have cooperation without coercion? If you have a central direction you inevitably have coercion. The only way that has ever been discovered to have a lot of people cooperate together voluntarily is through the free market. And that’s why it’s so essential to preserving individual freedom.

    INTERVIEWER: Marxists say that property is theft. Why, in your view, is private property so central to freedom?

    MILTON FRIEDMAN: Because the only way in which you can be free to bring your knowledge to bear in your particular way is by controlling your property. If you don’t control your property, if somebody else controls it, they’re going to decide what to do with it, and you have no possibility of exercising influence on it. The interesting thing is that there’s a lot of knowledge in this society, but, as Friedrich Hayek emphasized so strongly, that knowledge is divided. I have some knowledge; you have some knowledge; he has some knowledge. How do we bring these scattered bits of knowledge back together? And how do we make it in the self-interest of individuals to use that knowledge efficiently? The key to that is private property, because if it belongs to me, you know, there’s an obvious fact. Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property.

    back to top

    The Economic Logic Behind Black Markets

    INTERVIEWER: Tell me why you can see the black market as a positive thing.

    MILTON FRIEDMAN: Well, the black market was a way of getting around government controls. It was a way of enabling the free market to work. It was a way of opening up, enabling people. You want to trade with me, and the law won’t let you. But that trade will be mutually beneficial to both of us. The most important single central fact about a free market is that no exchange takes place unless both parties benefit. The big difference between government coercion and private markets is that government can use coercion to make an exchange in which A benefits and B loses. But in the market, if A and B come to a voluntary agreement, it’s because both of them are better off. And that’s what the black market does, is to get around these artificial government restrictions. Now, obviously you’d like a world in which you obey the law. The fact that the black market involves breaking the law is something against it. It’s an undesirable feature. But this only exists when there are bad laws. And nobody, nobody believes that obeying every law is an ultimate moral principle. There comes a point, if you look back at the history of law obedience — think of conscientious objection during wars — I think you will see that everybody agrees that there is a point at which there is a higher law than the legislative law.

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    On Friedrich Hayek and the Mont Pelerin meeting

    INTERVIEWER: Do you remember reading Hayek’s Road to Serfdom? Did that have an impact on you?

    MILTON FRIEDMAN: Yes, it certainly did have an impact. It was a very clear, definite statement of certain fundamental ideas. It was a passionate plea by a passionate man, and so it was very well written, and for those of us who were concerned about these kinds of issues, I think it had a tremendous impact. In fact, I’ve often gone around and asked people what determined their views. I’ve asked people who were in favor of free markets and free enterprise, people who formerly had been of a different view, what caused them to change their mind. I’m talking particularly not about economists, not about professionals, but generally ordinary people, most of whom had been socialist or in favor of government control at one time and had come over to free markets. And two names have come up over and over again: Hayek on the one hand, The Road to Serfdom from Hayek, and Ayn Rand on the other, Atlas Shrugged and her other books.

    INTERVIEWER: You were invited to Friedrich Hayek’s first Mont Pelerin meeting in 1947. Why?

    MILTON FRIEDMAN: Well, I was invited primarily because of my brother-in-law, Aaron Director. He was an economist teaching [at] the University of Chicago, and when Hayek’s Road to Serfdom was submitted to American publishers, one publisher after another rejected it. He was finally published by the University of Chicago Press, partly because of Aaron Director’s intervention. He wasn’t at Chicago at the time, he was in Washington, but he knew the director of the press, and he also was very close to Frank Knight, who was a professor at Chicago. And so Aaron had a considerable role in getting The Road to Serfdom published.

    Also, he had studied at the London School of Economics and had met Hayek [there] before. One of the people whom Hayek was in touch with when he was exploring the possibilities of having the Mont Pelerin meeting was there. And so Aaron organized a group from the University of Chicago. There was myself, there was George Stigler, there was Frank Knight, and there was Aaron Director.

    INTERVIEWER: What kind of people gathered at Mont Pelerin, and what was the point of the meeting?

    MILTON FRIEDMAN: The point of the meeting was very clear. It was Hayek’s belief, and the belief of other people who joined him there, that freedom was in serious danger. During the war, every country had relied heavily on government to organize the economy, to shift all production toward armaments and military purposes. And you came out of the war with the widespread belief that the war had demonstrated that central planning would work. It reinforced the lesson that had earlier been driven home, supposedly, by Russia. The left in particular, or the intellectuals in general in Britain and the United States, in France, wherever, had interpreted Russia as a successful experiment in central planning. And so there were strong movements everywhere. In Britain a socialist [Clement Attlee] had won the election. In France there was indicative planning that was [in] development. And so everywhere, Hayek and others felt that freedom was very much imperiled, that the world was turning toward planning and that somehow we had to develop an intellectual current that would offset that movement. This was the theme of The Road to Serfdom. Essentially, the Mont Pelerin Society was an attempt to offset The Road to Serfdom, to start a movement, a road to freedom as it were. Now, who were the people who were there? There were economists, historians, mostly economists and historians, but a few journalists and businessmen, people who, despite the general intellectual current moving towards socialism, had retained the belief in free markets and in political and economic freedom. They were those people whom Hayek happened to know, or whom he had met, whom he had run into in the course of his travels.

    INTERVIEWER: What was Hayek’s role at these meetings, and what was he like personally? This must have been the first time you met him.

    MILTON FRIEDMAN: No, I had met him before that. I had met him in Chicago when he was in the United States lecturing on The Road to Serfdom. Hayek’s role? Number one, he was responsible for the meeting. He organized it. He selected the people who were going to be there. He helped to line up some of the money that was used to finance it, though a considerable part of that came from a Swiss source. That’s why it was held in Switzerland. So far as his role at the meetings was concerned, he gave a talk at the opening session which set out what he had in mind. Along with several other people, he set up the agenda and presided over some of the sessions, participated in the debates, and was a very effective participant from beginning to end.

    INTERVIEWER: Some of those debates became very, very heated. I think [Ludwig] von Mises once stormed out.

    MILTON FRIEDMAN: Oh, yes, he did. Yes, in the middle of a debate on the subject of distribution of income, in which you had people who you would hardly call socialist or egalitarian — people like Lionel Robbins, like George Stigler, like Frank Knight, like myself — Mises got up and said, “You’re all a bunch of socialists,” and walked right out of the room. (laughs) But Mises was a person of very strong views and rather intolerant about any differences of opinion.

    INTERVIEWER: What was Hayek’s personal style? What was he like personally?

    MILTON FRIEDMAN: Oh, personally Hayek was a lovely man, a pure intellectual. He was seriously interested in the truth and in understanding. He differed very much in this way from Mises. There was none of that same kind of manner. He accepted disagreement and wanted to argue, wanted to reason about it and discuss it. He was a very cultured and delightful companion on any occasion. … I must say, he undoubtedly was the dominant figure in all of the Mont Pelerin meetings for many, many years.

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    On John Maynard Keynes

    INTERVIEWER: What impact did John Maynard Keynes have on you?

    MILTON FRIEDMAN: Well, I read his book, of course, The General Theory of Employment, Interest, and Money, as everybody else did. I may say I had earlier read a good deal of Keynes. In fact, in my opinion, one of the best books he wrote was published in 1924 I believe, A Tract on Monetary Reform, which I think is really, in the long run, fundamentally better than The General Theory, which came much later. And so I was exposed to Keynes as a graduate student, and his General Theory was in the air. Everybody was talking about it. It was part of the general atmosphere.

    It was when I went back and looked at some memos that I had written while I was working at the Treasury that I discovered how much more Keynesian I was than I thought. (amused) So what was his influence on me? It was, as on everybody else, to emphasize fiscal policy as opposed to monetary policy, and in particular to pay relatively little attention to the quantity of money as opposed to the interest rate.

    INTERVIEWER: On a personal level, what contact did you have with him?

    MILTON FRIEDMAN: With Keynes? The only contact I had with him was to submit an article to the Economic Journal, which he was editor of, which he refused and rejected. I had no personal contact with him other than that.

    INTERVIEWER: What did the rejection say?

    MILTON FRIEDMAN: Well, it was an article that was critical of something that A.C. Pigou, a professor in London and at Cambridge, had written. And Keynes wrote back that he had shown my article to Pigou. Pigou did not agree with the criticism, and so he had decided to reject it. The article was subsequently published by the Quarterly Journal of Economics, and Pigou wrote a rejoinder to it.

    INTERVIEWER: When did you begin to break with Keynes and why? What were the first doubts you had?

    MILTON FRIEDMAN: Very shortly after the war, when I came to the University of Chicago and started working on money and its relation to the economic cycle. I cannot tell you exactly when, but very shortly thereafter, as I studied the facts, they seemed to me to contradict what Keynesian theory would call for.

    INTERVIEWER: What was it that you studied that made you begin to feel that this didn’t add up?

    MILTON FRIEDMAN: Let me emphasize [that] I think Keynes was a great economist. I think his particular theory in The General Theory of Employment, Interest, and Money is a fascinating theory. It’s a right kind of a theory. It’s one which says a lot by using only a little. So it’s a theory that has great potentiality.

    And you know, in all of science, progress comes through people proposing hypotheses which are subject to test and rejected and replaced by better hypotheses. And Keynes’s theory, in my opinion, was one of those very productive hypotheses — a very ingenious one, a very intelligent one. It just turned out to be incompatible with the facts when it was put to the test. So I’m not criticizing Keynes. I am a great admirer of Keynes as an economist, much more than on the political level. On the political level, that’s a different question, but as an economist, he was brilliant and one of the great economists.

    Now the crucial issue is, which is more important in determining the short-run course of the economy? What happens to investment on the one hand, or what happens to the quantity of money on the other hand? What happens to fiscal policy on the one hand, or what happens to monetary policy on the other hand? And the facts that led me to believe that his hypothesis was not correct was that again and again it turned out that what happened to the quantity of money was far more important than what was happening to investments. The essential difference between the Keynesian theory and the pre-Keynesian, or the monetarist theory, as it was developed, is whether what’s important to understanding the short-run movements of the economy is the relation between the flow of investments — the amount of money being spent on new investments, on the one hand, or the flow of money, the quantity of money in the economy and what’s happening to it. By the quantity of money I just mean the cash that people count, carry around in their pockets and the deposits that they have in banks on which they can write checks. That’s the quantity of money. And the quantity of money is controlled by monetary policy. On the investment side the flow of investment is controlled by private individuals, but is also affected by fiscal policy, by government taxing and government spending. The essential Keynesian argument, the basic Keynesian argument, was that the way to affect what happened to the economy as a whole, not to a particular part of it, but to the level of income, of employment and so on, was through fiscal policy, through changing government taxes and spending. The argument from the monetarists’ side was that what was more important was what was happening to the quantity of money, monetary policy on that side. And so, as I examined the facts about these phenomena, it more and more became clear that what was important was the flow of money as compared to the flow of government spending, and when fiscal policy and monetary policy went in the same direction, you couldn’t tell which was more important. But if you looked at those periods when fiscal policy went in one direction and monetary policy went in another direction, invariably it was what happened to monetary policy that determined matters. The public event that changed the opinion of the profession and of people at large was the stagflation of the 1970s, because under the Keynesian view, that was a period in which you had a very expansive fiscal policy, in which you should have had a great expansion in the economy. And instead you had two things at the same time, which under the Keynesian view would have been impossible: You had stagnation in the economy, a high level of unemployment. You had inflation with prices rising rapidly. We had predicted in advance that that would be what happened, and when it happened, it was very effective in leading people to believe that, maybe, there was something to what before had been regarded as utter nonsense.

    INTERVIEWER: Was stagflation the end for Keynesianism?

    MILTON FRIEDMAN: Stagflation was the end of naive Keynesianism. Now obviously the term “Keynesian” can mean anything you want it to mean, and so you have new Keynesianism, but this particular feature was put to an end by the stagflation episode.

    INTERVIEWER: Talking about Keynesian policies, John Kenneth Galbraith, when we talked to him a few days ago, said that World War II “affirmed Keynes and his policies.” Do you agree?

    MILTON FRIEDMAN: No, I don’t agree at all. World War II affirmed what everybody knew for a long time. If you print enough money and spend it you can create an appearance of activity and prosperity. That’s what it confirmed. It did not confirm his theories about how you preserve full employment over a long time.

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    The Great Depression

    INTERVIEWER: You’ve written that what really caused the Depression was mistakes by the government. Looking back now, what in your view was the actual cause?

    MILTON FRIEDMAN: Well, we have to distinguish between the recession of 1929, the early stages, and the conversion of that recession into a major catastrophe. The recession was an ordinary business cycle. We had repeated recessions over hundreds of years, but what converted [this one] into a major depression was bad monetary policy. The Federal Reserve system had been established to prevent what actually happened. It was set up to avoid a situation in which you would have to close down banks, in which you would have a banking crisis. And yet, under the Federal Reserve system, you had the worst banking crisis in the history of the United States. There’s no other example I can think of, of a government measure which produced so clearly the opposite of the results that were intended. And what happened is that [the Federal Reserve] followed policies which led to a decline in the quantity of money by a third. For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing from beginning to end, with millions of people having their savings essentially washed out, that decline was utterly unnecessary. At all times, the Federal Reserve had the power and the knowledge to have stopped that. And there were people at the time who were all the time urging them to do that. So it was, in my opinion, clearly a mistake of policy that led to the Great Depression.

    INTERVIEWER: How did the Depression change your life and your career plans? You started out [with plans] to become an insurance actuary; instead you became an economist.

    MILTON FRIEDMAN: Well, I don’t think that’s very hard to understand. It’s 1932. Twenty-five percent of the American working force is unemployed. My major problem with the world is a problem of scarcity in the midst of plenty … of people starving while there are unused resources … people having skills which are not being used. If you’re a 19-year-old college senior, which is going to be more important to you: figuring out what the right prices ought to be for life insurance, or trying to understand how the world got into that kind of a mess?

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    Why are you not, and why have you never been, a communist?

    INTERVIEWER: A lot of people in the ’30s were drawn to the left. So why are you not and why have you never been a communist?

    MILTON FRIEDMAN: (laughs) No, I’ve not, never been a communist. Never even been a socialist — [though] it may well be that I harbored socialist thoughts at the time when I was an undergraduate. But undoubtedly [the fact that I’m not a communist] is tied in with the accident that I went to the University of Chicago for graduate study and at the department of economics at the University of Chicago, they were classical liberal economists. Classical economics, which begins with Adam Smith, with his book The Wealth of Nations, published in 1776, the same year as the American Revolution and the American Declaration of Independence, emphasizes the individual as the ultimate objective of science. And the question of economic science is how to explain the way in which individuals interact with one another, to use their limited resources to satisfy their alternative ends. The emphasis is on the fact that there are many objectives that people have. There are limited resources to satisfy them. What’s the mechanism whereby you decide which ends are to be satisfied for which people in what way? And the emphasis in the classical liberal economists is on doing that through free markets.

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    Did you support Franklin Roosevelt’s New Deal?

    INTERVIEWER: Now at the time of the Depression, did you personally support New Deal policies?

    MILTON FRIEDMAN: You’re now talking not about the Depression, but the post-Depression. At least the bottom of the Depression was in 1933. You have to distinguish between two classes of New Deal policies. One class of New Deal policies was reform: wage and price control, the Blue Eagle, the national industrial recovery movement. I did not support those. The other part of the new deal policy was relief and recovery… providing relief for the unemployed, providing jobs for the unemployed, and motivating the economy to expand… an expansive monetary policy. Those parts of the New Deal I did support.

    INTERVIEWER: But why did you support those?

    MILTON FRIEDMAN: Because it was a very exceptional circumstance. We’d gotten into an extraordinarily difficult situation, unprecedented in the nation’s history. You had millions of people out of work. Something had to be done; it was intolerable. And it was a case in which, unlike most cases, the short run deserved to dominate.

  11. Gravatar of Jimmy Jimmy
    10. March 2010 at 12:01

    Wow, sorry about that, I only meant to copy that last section about the New Deal, but WordPress doesn’t let me edit posts after they’ve gone through.

  12. Gravatar of Bill Stepp Bill Stepp
    10. March 2010 at 20:11

    As you say, Friedman was in favor of the negative income tax, which means he was in favor of the income tax. I don’t know of any specific taxes that he wanted to abolish.

  13. Gravatar of Doc Merlin Doc Merlin
    10. March 2010 at 23:12

    WRT Countercyclical G.
    If government spending stays constant as a percent of NGDP it will be automatically countercyclical, due to lower tax income during downturns and increased tax income during upturns.

    Also, scott, have you read George Selgin’s new paper.
    He is arguing for central banks being a source of instability.
    He also alludes to a Sumnerial argument about NGDP stability being what is important, and goes on to describe how free banking can achieve it better.

  14. Gravatar of Doc Merlin Doc Merlin
    10. March 2010 at 23:14

    I should clarify my point about cyclicality. Tax income varies with cycles stronger than NGDP does, so If spending is constant relative to NGDP, tax income will be higher during peaks and lower during toughs even as a percent of NGDP.

  15. Gravatar of scott sumner scott sumner
    11. March 2010 at 11:43

    Jimmy, Thanks, That’s another good example.

    Bill, My hunch is that he opposed the corporate income tax, but I don’t know for sure.

    Doc Merlin, Thanks, I have read earlier Selgin papers where he argues that free banking is better able to achieve stable NGDP. I will look at it.

    I agree with your cyclicality argument. I think taxes are enough, we don’t need stimulus on the spending side. We should focus on monetary stimulus.

  16. Gravatar of JimP JimP
    11. March 2010 at 14:17

    Maybe this will wake Obama from his coma.

    March 10, 2010

    The Honorable Timothy Geithner
    United States Department of the Treasury
    1500 Pennsylvania Avenue, NW
    Washington, D.C. 20220

    The Honorable Lawrence Summers
    National Economic Council
    The White House
    1600 Pennsylvania Avenue, NW
    Washington, D.C. 20500

    Dear Secretary Geithner and Director Summers,

    I write to you today to express my concern about the vacancies at the Federal Reserve, both on the Federal Open Market Committee (FOMC) and soon in the Vice Chairman’s office. This is the financial equivalent of leaving open vacancies on the United States Supreme Court, and it is essential that we fill these positions.

    As Chairman of the Senate Banking Committee’s Subcommittee on Economic Policy, with jurisdiction over the Federal Reserve System’s monetary policy functions, I am acutely aware of the importance of monetary policy at the Fed. Both the full Banking Committee and the Economic Policy Subcommittee have examined the causes of the financial crisis and the resulting effects on lending, access to credit, and employment. The evidence presented to the Committee about the role that Fed policy decisions played in the financial crisis and the economic downturn has led me to conclude that the Fed’s monetary policy has focused almost entirely on controlling inflation rather than maximizing employment and that the Fed has too often put banks’ soundness ahead of its other responsibilities. In light of this experience, there are several other important qualifications that I would urge you to consider in selecting the new Vice Chairman and new members of the FOMC:

    1. Recognition of the causes of the financial crisis before it occurred.

    Many economic experts, including some at the Federal Reserve, failed to anticipate the impending economic crisis. However, there were exceptional people who sounded alarms about the rapidly inflating housing bubble, the proliferation of subprime lending, and the packaging, selling, and investing in toxic financial products by Wall Street. Unfortunately, regulators, including the Fed, ignored or attempted to discredit many of these courageous individuals, rather than heeding their warnings. We need economic policy makers who possess the foresight to identify harmful economic trends, the courage to speak out about the necessity of addressing these practices before they inflict lasting damage to our economy, and the wisdom to listen even if their views are challenged.

    2. Demonstrated dedication to protecting consumers and maximizing employment.

    For years, the Federal Reserve’s monetary policy has maintained an almost single-minded focus on inflation. This has been detrimental to the Fed’s other core missions, particularly maximizing employment and protecting consumers. The results of this fixation speak for themselves. The national unemployment rate is more than double the Fed’s statutorily mandated 4 percent unemployment target. The Fed also failed to act on repeated warnings about predatory mortgage lending and credit card abuses. Consumer protection experience is particularly important if the new consumer protection entity were to be housed at the Fed. Our economy will benefit from renewed attention to all of the Fed’s priorities.

    3. Commitment to releasing e-mails related to the Fed’s involvement in the AIG bailout.

    A growing number of experts – including economists, academics, and former regulators – have called upon the Federal Reserve to release all e-mails, internal accounting documents, and financial models related to AIG’s collapse. The American taxpayers now hold the majority of AIG shares, and they have a right to know how their money is being spent. Providing greater detail about the AIG bailout is particularly important because that episode continues to taint the Fed’s reputation. Focusing on candidates committed to full transparency related to this particular economic event would help to restore the Fed’s stature and credibility in the eyes of many Americans.

    The American public has lost a great deal of confidence in the Federal Reserve. Selecting a Vice Chair and FOMC members with the above qualifications will send the message that the Federal Reserve has learned from the financial crisis, and that the Fed’s weaknesses are being addressed with more than just cosmetic changes.

    I would be happy to discuss specific candidates with you at your convenience. Thank you for considering my views, and I look forward to working with you to address these vacancies at the Fed.


    Sherrod Brown
    United States Senator

  17. Gravatar of ssumner ssumner
    12. March 2010 at 07:12

    JimP, Maybe it did, Obama is apparently going to appoint Yellen soon.

  18. Gravatar of TGGP TGGP
    12. March 2010 at 09:52

    Richard Ebeling is publishing some old papers from Ludwig von Mises, revealing him to be often as “practical” as Milton Friedman. We just tend to associate him more with his “timeless” writings on ideal theory:

  19. Gravatar of scott sumner scott sumner
    13. March 2010 at 06:49

    TGGP, Good point. So now we discover that neither Friedman, nor Hayek, nor Mises believed in laissez-faire. So what does it mean to say that Smith didn’t believe in laissez-faire? Apparently that he was like Friedman, Hayek, and Mises.

  20. Gravatar of Doc Merlin Doc Merlin
    13. March 2010 at 08:35

    @Scot, TGGP

    Its all rather silly. It is like pointing at Stalin and saying he believed in freedoms because he didn’t instantly jail every single Russian. Most things are matters of scale and compared to just about anyone in politics Friedman, Hayek, Mises, and Smith are extreme laissez-faire libertarians.

    Yellen? So we should see some higher levels of inflation, soon, then.

  21. Gravatar of Bill Stepp Bill Stepp
    14. March 2010 at 06:26


    Given your refusal to come out in favor of abolishing the Fed, here’s a question:

    It’s 1845, slavery is riding high it the saddle in the southern states, and a group of abolitionists in Boston are calling for its immediate abolition.

    Do you say:

    1.) Abolish it now.
    2.) Abolish it in 100 years, with compensation to the slaveholders (compensated emancipation).
    3.) Don’t abolish it, it’s not politically expedient.


    I say abolish the Fed, now more than ever.

    Bernanke would do less damage merely teaching monetary socialism in a college than presiding over real monetary socialism at one of the most corrupt and criminal institutions extant.

  22. Gravatar of scott sumner scott sumner
    14. March 2010 at 06:42

    Doc Merlin, I agree.

    Bill, Is that a rhetorical question?

  23. Gravatar of Bill Stepp Bill Stepp
    14. March 2010 at 12:31


    No sir, it’s as real as it gets. The Fed is worse than slavery, because it hurts everyone, not just one identifiable group.

    Albert Jay Nock wrote a great book, Our Enemy, the State.
    Time for Our Enemy, the Fed.

  24. Gravatar of scott sumner scott sumner
    14. March 2010 at 14:24

    Bill, Compared to the IRS and INS, the Fed is a bunch of saints.

  25. Gravatar of Bill Stepp Bill Stepp
    14. March 2010 at 17:45

    Well, you got me there Scott, I suppose. But the Fed is a bunch of money monopoly crookopolists.

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