The
Ghost of Murray Rothbard Haunts The Economist
by
Gary North
Recently
by Gary North: Counterfeit
Gold Standards
The Economist
is the most respected economics magazine in the English-speaking
world. It is influential. When an idea is expressed in its pages
by an always anonymous author, it has been vetted by an anonymous
editor.
Here is a
recent post. Free-marketeers and inflation: Missing Milton
Friedman.
Tim Lee
asks an important question: why are conservatives and libertarians
so uniformly hawkish about inflation? Mr Lee (a friend and former
colleague) notes that this regularity is far from inevitable.
Milton Friedman, a revered figure in right-of-centre circles,
famously pinned the severity of the Great Depression on contractionary
monetary policy.
Establishment
economists all cheer for this – and only this – in Friedman's
career. He argued that the FED did not inflate enough in 1930-33.
He wrote this in A
Monetary History of the United States (Princeton University
Press, 1963).
In that same
year, across town (Princeton), another publisher released Murray
Rothbard's America's
Great Depression, which argued that the FED indeed caused
the depression . . . by its expansionist policies, 1926-29. The
battle on this issue began in 1963. It still goes on. Establishment
economists blame too little government, too little monetary inflation.
Rothbard blamed too much of both.
Scott Sumner,
a professor of economics at Bentley University who identifies
himself as a "neo-monetarist", has argued that Friedman
would have supported monetary stimulus.
He may be right.
I suspect that he is right. Friedman would have broken with his
3% to 5% annual M1 increase recommendation. When push came to shove,
he was a fiat money advocate.
We can see
what happened to M1. I have this posted at all times in my site's
free department, Federal
Reserve Charts.
And he has
argued, on neo-Friedmanite grounds, that tight monetary policy
both precipitated and exacerbated our recent recession.
Tight money.
Yes. The chart reveals it to anyone who looks hard enough.
The FED pumped
up the monetary base from $800 billion in August 2008 to $2.7 trillion
today. It was just plain strangulation, according to Dr. Sumner.
Folks,
these Ph.D-holding experts have lost their minds . . . or their
willingness to look at the charts.
I happen
to think Mr Sumner is correct, but his expansionary prescription
remains anathema on the right. Why? Mr Lee writes:
I can
think of two possible explanations. One is that we're still
having the monetary policy debates of the 1970s, when right-of-center
thinkers, following Milton Friedman, argued that the era's persistently
high inflation was the fault of unduly expansionary monetary
policy. They were right about this, and a whole generation of
free-market intellectuals has been on guard against the threat
of inflation ever since. And this is obviously reinforced by
the reciprocal trend on the left: because most of the inflation
doves are on the left, people who are in the habit of disagreeing
with left-wingers are discouraged from adopting their arguments
on this issue.
Another
likely factor is that American conservatism is a fundamentally
populist movement, and the inflation hawks' position has a simplicity
that makes it intuitively appealing, especially to a movement
that tends to see all policy issues in terms of virtue. Rhetoric
about "printing money," "debasing the currency,"
and so forth are not only intuitively appealing, they also dovetail
nicely with broader conservative themes of thrift and self-control.
The arguments of inflation doves are more subtle and lack the
same kind intuitive appeal.
 I
think both these factors play a role. I would emphasise the latter,
though I think Mr Lee makes too much of the intuitive appeal of
common-sense moralising rhetoric about thrift and "debasing
the currency". The influence of this kind of talk has been
augmented powerfully by a certain moralising strand of Austrian
economics, which is hostile to the very idea of fiat money, and
encourages the idea that its entire purpose is to expropriate
savings and monetise government debt. This strand of Austrianism
also encourages scepticism about the existence of distinctively
macro-level economic phenomena. Accordingly, macroeconomics as
a discipline is often seen as pseudo-science that exists mainly
to justify technocratic social control. Conventional counter-cyclical
policy proposals, meant to address putatively macroeconomic phenomena,
are thus routinely met with a combination of suspicion and animosity.
There it is:
Austrianism! Even worse, that brand of Austrianism promoted by Murray
Rothbard.
Although
sophisticated Austrian-school monetary economists such as George
Selgin and Larry White defend rule-based inflation-targeting policies
not all that different from Mr Sumner's neo-monetarist nominal
GDP-targeting rule, the
ghost of Murray Rothbard looms much larger on the free-market
right.
Read
the rest of the article
July
29, 2011
Gary
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
Copyright ©
2011 Gary North
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