Milton Friedman (July 31, 1912 – November 16, 2006) is revered by the Right as an iconic defender of free enterprise and limited government. This view is entirely misplaced as it fails to acknowledge Friedman’s Nazi philosophy and quack economics.
David Stockman, whom we have followed recently in other postings, continues his analysis of our economic travails by exposing errors of Friedman in his latest book, The Great Deformation, by pointing out the paradox between the Chicago School economist’s philosophy and praxis. To make true sense of Friedman, one has to include Naomi Klein, whose magnificent book, Shock Doctrine, pulls the mask off the Nazi extraordinaire.
Before dealing with Klein’s political analysis, we need to consider the economic sinecures which Friedman offered in consequence to his understanding of the Great Depression which started in late 1928 into 1929 when the Federal Reserve began tightening interest rates after its Chairman Benjamin Strong died unexpectedly in 1928.
In perhaps his magnum opus, A Monetary History of the United States, Friedman argues in essence that the Great Depression was prolonged because of a failure of the Federal Reserve to supply sufficient credit to capital markets. The result was a collapse of demand, or a failure to resuscitate it as is supposedly within the power of the great central private banking concern otherwise known as the Fed.
The evidence for the collapse in demand was falling prices. Thirty years after the depression, deflation and depression became associated in a way in which some people equate electric and chair, or love and marriage. And of course the guilty party was the central bank which failed to energize itself in the coordination of aggregate demand.
If all of this sounds familiar, it should – the great Chairsatan of the Federal Reserve, Benjamin Bernanke, has done all in his power to reignite demand and sustain prices in the aftermath of 2008's economic implosion even if there is no rational basis for the prices in the first place.
But the similarities don’t end there. They actually begin with another equally famous quack, Maynard Keynes, who also argued that price declines are bad and should be equated with depressions. His prescriptions for falling demand was increased government spending through manipulation of the fisc.
So while the newsfakers in the press created the charade of Monetarism vs Keynesianism or Friedman vs Keynes, it was drivel to hide the fact that both men believed in large macro interventions in the economy to maintain demand.
Of course there are several problems with their beliefs and analyses but we shall confine ourselves to two. The first is that falling prices do not equal depression. Frank Hollenbeck, writing in What’s So Scary About Deflation?, cites the study by Atkeson and Kehoe which shows longitudinally over 180 years and transnationally over 17 countries that there is no positive correlation between price levels and economic activity.
In particular, he notes that the majority of the 19th century saw rapid and pronounced economic growth in the United States while prices generally and modestly declined.
Hollenbeck also debunks the falling prices spiral in several ways, but most interestingly by noting that spending is simply recomposed from consumers to capitalists. In other words, demand may fall for consumer production but the increased savings will be channeled into capital goods which will in turn lead to higher productivity and economic activity.
To put a fine point on it, Professor Antal Fekete notes that the greatest purpose of interest is to arbitrate the time preferences between savers and spenders. Thus interest rates must be allowed to fluctuate freely for then they fluctuate little because the regulatory flyweight of interest will restrain the extremes of boom and bust. Central planners have a high preference for inflation because it transfers wealth from the poor to the rich. Prices will take care of themselves and do not need the help of a Politburo.
Returning to Friedman and central banking, Stockman notes that “Carter Glass and Professor Willis assigned to the Federal Reserve System the humble mission of passively liquefying the good collateral of commercial banks when they presented it,” a goal in sharp contrast to the management of macroeconomic aggregates which has no other purpose than central planning in the great style of the Soviet 5 year plans of ill repute.
We note elsewhere that the similarity between policies emanating from Washington is identical to policy which emanated from Moscow because both nations were ruled by the same Nazi cabal, of which Friedman was the economic hand maiden. But we digress.
Another area where Friedman and Keynes saw eye to eye was in their disdain for gold. Indeed it was the monetarist Friedman who advised Nixon to abandon the gold standard in 1971, from which date we can mark all kinds of evils flowing from “competitive” exchange rates, not the least of which is the Gargantua and Pantagruel of the leviathan state and its equally corpulent “public” debt.
Friedman claimed – without evidence – that the strictures of the gold standard prevented the Fed from acting vigorously in the face of falling demand. His prescription, as his acolyte at the Fed today, was the massive intervention in the bond market through open market operations, a euphemism for printing money. Bernanke has elevated this technique to permanent status on a scale unimagined in history. For this, Dr Jim Willie has called for the revocation of his doctorate, a call which i would extend to Friedman.
As such, Friedman had no compunction for recommending to Nixon the repudiation of America’s debt in August of 1971.
Thus Stockman examines Friedman’s myth of a liquidity shortage, and finds it lacking for two reasons. The first is that the 6000 banks of the Federal Reserve System did not make heavy use of the discount window during the period 1929-1932, and that it tapered substantially from 1 billion to less than 250 million during that same period.
Returning to his arguments against Friedman’s liquidity dearth, Stockman also points out that excess reserves at the Fed increased by over 10 fold in the period of 1929-32, proving beyond doubt that the economy had more than abundant credit to extend, if there had been credit-worthy borrowers. But most of America was in the process of deleveraging from the go-go years of the 1920s which was exacerbated in large measure by foolhardy trade policy and the abandonment of the gold exchange system regnant prior to World War 1.
Thus Stockman concludes that there were no widespread cases where solvent borrowers were denied credit or the calling in of loans.
But there is the old canard about real high interest rates, a nostrum which Geroge Gilder repeated in his Wealth and Poverty. The discount rate dropped from 6% to 2.5% by the early 1930s, about which Friedman and Bernanke argued that they should go even lower. Yet 2.5% was very low and should not have been sent lower to penalize savers at the expense spenders. But the real point Stockman makes is that there simply was no demand for capital while deleveraging was in progress. Again, Washington was as much to blame for the antiquation of productive assets as was the Federal Reserve when it raised rates sharply, thus inducing the stock market crash. Politicians and bureaucrats in Washington simply prolonged it.
In any event, “interest rates on T-bills and commercial paper were one-half percent and 1 percent” in the 1932 – rates as close to 0 as practically possible. Yet the depression in the capable malevolent hands of Hoover and Roosevelt lumbered on for 10 more years.
Following through with our mention of Naomi Klein and Friedman’s politics, we start with World War 2 when the future Nobel laureate invented the income withholding tax which confiscated workers’ money so that the government could use it interest free. Klein picks up the story later, though, in Central America where the Chicago School’s influence was used to advance the causes of big business in what Klein calls the Shock Doctrine.
Big government is all about serving big business which rapes and pillages workers, as happened so cruelly in South America where Ford and General Motors operated slave labor camps with Nazi brutality. The School was used to influence government leaders in those countries to accept the temptations of large corporations which entered the countries to rob them of their natural resources.
The approach was to use shock and awe techniques of Friedman’s philosophies in order to ruin the daily order of the people and to impoverish them through the destruction of the middle classes. This happened under the banner of free enterprise.
But in Friedman’s world, free enterprise was only for the peons who had to survive in a dog eat dog world, whereas the plutocrats received favored treatment and munificences of crony capitalism. Freedom from big government and regulation was only for the plutocrats; everyone else was to suffer under its slavery in a two class world of haves and haves-not.
The developments in Chile in 1973, when Kissinger and Nixon ordered the murder of Allende, were a direct consequence of Friedman’s politcal-economic philosophies. Klein describes how this shock doctrine stemmed directly from the works of the CIA, the fount of world wide terrorism. Interestingly, Friedman was sent to Chile to "help" it recover.
The legacy Friedman left in his own country was unlimited government and perpetual debt which hid the need for higher taxes to finance burgeoning government and its endless wars of foreign aggression - one of the great gifts of the Creature from Jekyll Island.
Thus while Friedman spoke grand thoughts about limited government, it was only to limit regulatory interference for his Wall Street cronies. Observing his actions and legacies, rather than his words, we see that Friedman occupied a world of high Nazi intrigue in the suffocation of human freedom and dignity.
ReferencesFrank Hollenbeck , Guest Post: What’s So Scary About Deflation? Zero Hedge, 6/28/2013
David Stockman, When Professor Friedman Opened Pandora’s Box: Open Market Operations, Zero Hedge, 6/28/2013
Copyright 2013 Tony Bonn. All rights reserved.