Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion. … To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection–a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end. …It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.We must not forget that, for the last six or eight years, monetary policy all over the world has followed the advice of the stabilizers. It is high time that their influence, which has already done harm enough, should be overthrown.
June 1932
Introduction to Monetary Theory and the Trade Cycle (PDF, pp. 5-7), from Prices and Production and Other Works.
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They never learn.
It’s like watching a dog chase it’s tail.
I have to wonder if the “non-partisan” Fed is trying to put the worst off until after the election.
Milton Friedman, an interview with Gene Epstein:
http://www.hoover.org/publications/digest/3507421.html
FRIEDMAN: I think the Austrian business-cycle theory has done the world a great deal of harm. If you go back to the 1930s, which is a key point, here you had the Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world. You’ve just got to let it cure itself. You can’t do anything about it. You will only make it worse. You have Rothbard saying it was a great mistake not to let the whole banking system collapse. I think by encouraging that kind of do-nothing policy both in Britain and in the United States, they did harm.
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Comments, anyone?
I understand why Milton Friedman had so much success: he condemns bailout, posing as a champion of free markets and in the same time saying that someone has to do something about the crises. So he is neutral, he is right no matter how you put it. Brilliant!
Umm, this is the Milton Friedman who celebrated the end of the gold standard (what was left of it) and who said that the dawn of the fiat money age would mean the glorious end of inflation and instability. Also, he never did get capital theory, so he never figured out that money expansion does more than just increase prices. His doctrinaire position never permitted him to see the source of the business cycle. For this reason, and for his role in paperizing money, he is partially responsible for the current problems. In fact, Bernanke cites him in defense of the Fed’s current policy. Friedman was great on many things but monetary policy was not one of them.
Do you think the interviewer was rolling his eyes?
“FRIEDMAN … both the Austrians and the Keynesians did a good deal of harm. But both of them, I would say, added to our understanding of business cycles. Only I don’t think there are business cycles.
“EPSTEIN You can’t add too much to your understanding of something that doesn’t exist.”
On the Friedman quote and relating to Jeffrey…I remember a quote, that economists specialize in what they are worst in.
Also, the Austrians were in charge, really?
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