The Crackpot Economist Who Provided Milton Friedman
With His Monetary Theory
by Gary North: Napolitino
vs. Napolitano on Gun Control
In my article
on the hijacking
of Milton Friedman's monetary helicopter, I contrasted him with
Murray Rothbard. This goes back to the battle of their respective
mentors, half a century earlier: Irving Fisher and Ludwig von Mises.
the most influential economic crank in American history. Fisher
offered a simple formula that supposedly enables economists to understand
the complexities of monetary policy and its effects on the price
level: MV=PT. It relies on an intellectual construct, namely, the
price level. This must be created by statisticians and economists.
The formula does not explain cause-and-effect in terms of the transmission
and spread of newly created money throughout the economy. It is
totally an aggregate concept. It ignores individuals who make decisions:
in government, central banks, commercial banks, and specific markets.
Mises' theory of money begins with real central banks, real borrowers,
and the spread of fiat money over time: none of which is considered
by Fisher or Friedman.
in 1929 that he was the most highly educated economic fool in the
went public with two predictions.
may be a recession in stock prices, but not anything in the nature
of a crash." (New York Times, Sept. 5, 1929)
prices have reached what looks like a permanently high plateau.
I do not feel there will be soon if ever a 50 or 60 point break
from present levels, such as (bears) have predicted. I expect
to see the stock market a good deal higher within a few months."
(Oct. 17, 1929)
over the next four years, he lost his own personal fortune. He was
so poor in 1933 that Yale University had to subsidize
housing for him. Yet this consummate fool, whose economic theories
not only led to a catastrophic personal error, but which to a great
extent were responsible for the original monetary policies of the
Federal Reserve, which it pursued in the late 1920s, is now heralded
as some kind of economic genius. Friedman regarded him as "the
greatest economist the United States has ever produced." (Money
Mischief, p. 37).
a crank, and Mises exposed him as a crank within a year of the publication
of Fisher's 1911 book. If you want to get an idea of how different
their theories are, read Mark Thornton's article. Fisher believed
that we can safely trust the government or its central bank to formulate
monetary policy. He opposed the gold coin standard, because he thought
it is inefficient. That was also true Friedman. Neither of them
ever understood that the free market is capable of providing a sufficient
quantity of money, by means of gold mining, for a market economy.
Supply and demand for goods and services are regulated by means
of a private currency system that itself is created by market processes.
Neither Fisher nor Friedman ever believed this. They both believed
that the government must intervene in order to create a reliable
monetary system, so that there can be economic growth, market clearing
processes, and individual liberty. They both believed in the wisdom
and power of the state with respect to the central commodity in
an economy, namely, the money supply.
AND EUGENICS, TOO
was a crank in other areas. He was a great promoter of eugenics.
He wanted the scientific regulation of marriage and birth so as
to promote the influence of the white race. Thomas Leonard in 2005
brought this to the attention of mainstream economists in The
Journal of Economic Perspectives in an
article about the Progressive movement and eugenics. He quoted
Fisher's statement in 1907: "The world consists of two classes
the educated and the ignorant and it is essential
for progress that the former should be allowed to dominate the latter.
. . . [O]nce we admit that it is proper for the instructed classes
to give tuition to the uninstructed, we begin to see an almost boundless
vista for possible human betterment." He cited Fisher's textbook
In the latter
half of the Progressive Era, race-suicide and proposed eugenic
solutions had enough currency to appear in leading textbooks.
In his Elementary Principles, Irving Fisher (1907, p. 715)
declared that "if the vitality or vital capital is impaired
by a breeding of the worst and a cessation of the breeding of
the best, no greater calamity could be imagined." Fortunately,
said Fisher, eugenics offered a means, "by isolation in public
institutions and in some cases by surgical operation," to
prevent the calamity of "inheritable taint."
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North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 31-volume series, An
Economic Commentary on the Bible.
2013 Gary North
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