Forecasts & Strategies Personal Snapshots
by Mark Skousen
Which famous economist endorses the deficit-spending actions the federal government took during the Great Depression, prefers John Maynard Keynes over Austrian School economist Ludwig von Mises, recommends printing more money as a short-term solution to Japan’s problems, and is strongly opposed to the gold standard? Paul Samuelson? John Kenneth Galbraith? Paul Krugman?
No, believe it or not, it’s Milton Friedman, the Nobel Prize winning “free-market” economist!
Now, I have a lot of respect and admiration for Milton Friedman, the winner of the Nobel Prize for Economics in 1976. For the most part, he is a tireless and eloquent advocate of economic and political liberty. I consider him a good friend.
His magnificent Monetary History of the United States demonstrated conclusively that government bungling, not free enterprise, caused the Great Depression. I highly recommend his books, Capitalism and Freedom and Free to Choose (available through Laissez Faire Books, 800/326-0996).
However, most of us were pretty shocked at the New Orleans conference when Friedman answered my question, “Who is the greater economist, Ludwig von Mises or John Maynard Keynes?” He did not hesitate: “Keynes!”
Friedman has written elsewhere that he regards Keynes as a brilliant economist who contributed much to the profession. He even defends deficit spending, Keynes’s cure for the Great Depression, while attacking Mises’s and Friedrich Hayek’s “non interventionist” approach during the 1930s. Friedman is a critic of the Austrian theory of the business cycle and personally considers Mises “intolerant” and “fanatic” (though he does not feel that way about Hayek).
Does this mean that Friedman, the famed free-market economist, is a closet Keynesian? Frankly, I’m mystified by Friedman’s favorable comments about John Maynard Keynes. The British economist was the prime mover behind the thesis that the free market is inherently unstable and that big government is necessary to stabilize the economy. Keynes was a sharp critic of classical economics–balanced budgets, laissez faire government, the gold standard and the virtue of thrift—and advocated deficit spending, progressive taxation, fiat money and the “socialization of investment.” Lately Friedman, like Keynes, has advocated an activist monetary policy, that Japan should “print more money” as a short-term solution to its problems. Say again? Printing more money is what caused the economic crisis in Japan and Southeast Asia in the first place. What about tax cuts, deregulation of the banking industry, and other “supply side” solutions? He advocates them too, but not as forcefully.
Like Keynes, Friedman is also anti-gold. He prefers paper money without any backing. I’ve had numerous discussions with Friedman on this vital issue. At New Orleans, he told me he can’t understand the ideology of gold and why gold bugs are so passionate about the gold standard.
“Because it’s honest money,” I explained. I pointed out that under the classic gold standard, the U.S. Treasury backed up every U.S. $20 gold certificate with a $20 gold coin. Hence, if the government wanted to issue another $20 banknote, it had to mint another gold coin–at considerable expense. But today there is no backing and the government can print all the currency it wishes for only 3 cents per banknote. As a result, Washington can depreciate the value of its currency at will.
That’s where Ludwig von Mises comes in. The great Austrian economist demonstrated that monetary inflation is beneficial only in the short run, and that it causes a boom/bust cycle that eventually destroys the assets and savings of its citizens.
Near the end of his talk in New Orleans, Milton Friedman said that despite the academic victory of liberty, “government has become larger and more intrusive since the collapse of the Berlin Wall.” And who is the father of big government? Keynes! Who favors smaller government? Mises. In my judgment, a hundred years from now, Mises will be a major figure in all the economics textbooks, and Keynes will be a mere foot-note.
For an introduction to Mises and Austrian economics, get a copy of Planning for Freedom, 4th edition, which contains “The Essential Von Mises,” by Murray Rothbard (available for $9.95 from Laissez Faire Books, 800/326-0996). You might also find my booklet, Austrian Economics for Investors: Ludwig von Mises Goes to Wall Street, ($9.95 from Laissez Faire Books, 800/326-0996 to be helpful.
$16 BILLION DOWN THE DRAIN
Is the drug war worth it? More than 11,000 American inspectors, agents and other officials are deployed along the Mexican border. In 1996 (latest figures) there were 254 million crossings by people, including 75 million cars and 3.5 million trucks and railway cars entering the U.S. Last year the U.S. border inspectors searched slightly more than a million trucks and cars, and guess how many cocaine busts they made? Six! Gen. McCaffrey, the White House director of drug control policy, called the figure “dispiriting.” I’d call it a “bust.” Clearly the benefit doesn’t meet the cost ($16 billion a year in budget funds). (Source: New York Times Sept. 20, 1998)