Milton Friedman on Budget & Economy Libertarian Economist

Capitalism isn't greed; it improves lot of ordinary people

Gov't inefficiency comes from spending other people's money

Inflation is a hidden tax, so governments like it

In this 4th and final stage we experience a debt crisis. Borrowing enough money to fund our military and other programs will become more expensive.

Inflation will then accompany currency debasement. Inflation will make government debt seem smaller by shrinking the value of the dollar. Yet, for individual Americans, inflation will be an insidious hidden tax increase that will make everything you buy more expensive, and everything you own worth less. If our government tries to inflate its way out of a debt crisis, much of your life savings will be wiped out. Milton Friedman put it well: "Inflation has been increasingly attractive to sovereigns because it is a hidden tax that at first appears painless or even pleasant...It is truly taxation without representation."

Government spends somebody else's money on somebody else

"There are 4 ways in which you can spend money.
1. You can spend your own money on yourself. When you do that, why then you really watch out what you're doing, and you try to get the most for your money.
2. You can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I'm not so careful about the content of the present, but I'm very careful about the cost.
3. I can spend someone else's money on myself, then I'm sure going to have a good lunch!
4. Finally, I can spend somebody else's money on somebody else. And if I spend somebody else's money on somebody else, I'm not concerned about how much it is, and I'm not concerned about what I get."

1920s: Federal Reserve monetary expansion caused Depression

Then, as Milton Friedman related in "A Monetary History of the United States," which contributed to his Nobel Prize, the Fed began to expand the money supply in the mid-1920's. Cash poured into equity markets where stocks could be bought on 10 percent margin. The market soared. When the market stalled and stocks began to fall, margin calls went out. Americans ran to the banks to get their savings. Panic ensued. Banks closed by the thousands. Stock prices fell by almost 90 percent. A third of the money supply was wiped out. Thus did the Federal Reserve cause the Depression. Smoot and Hawley were framed.

1965: we are all Keynesians now; and nobody is a Keynesian

(In fact, Nixon didn't actually say this. He said, "I am now a Keynesian.")

By then even a conservative like Nixon had accepted government's ability to keep people employed, to fill in the breach when consumers and businesses did not spend enough. Even this wasn't precisely accurate. In a commentary appearing in the Feb. 4, 1966 edition of Time, Friedman clarified that he had actually said, "In one sense we are all Keynesians now; in another, nobody any longer is a

Every politically free society has a free market

The Great Depression was the fault of the Federal Reserve

Bernanke closed his remarks by directly addressing Friedman: "You're right, we did it. We're very sorry. But thanks to you, we won't do it again."

Money supply needs to expand, to support economic growth

Economic freedom is a component of political freedom

As Nobel laureate Milton Friedman wrote in 1962, "Freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. Economic freedom is also an indispensable means toward the achievement of political freedom."

As other nations turn their constituents into "voluntary" taxpayers by copying us, they will also eliminate the coercive nature of their tax collection system & allow economic freedom to expand throughout the world. More than anything we can think of, that would spread freedom across the globe!

Erratic monetary policy is greatest threat to economy

He was influenced by the economic theories of Professor Milton Friedman, the Nobel laureate from the University of Chicago. Friedman is a strong believer in monetarism, which holds that the level of economic activity is most directly affected by the money supply, or, in institutional terms, but the Federal Reserve. Friedman also believes--in my view, correctly--that erratic monetary policy by the Federal Reserve is perhaps the greatest threat to economic stability and growth. Friedman is a true believer in free markets, that is, markets free of government regulation and interference. Ronald Reagan sympathized with these ideas.

Government's role is only to determine the rules

The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the "rules of the game" and as an umpire to interpret and enforce the rules decided on. What the market does to reduce greatly the range of issues that must be decided through political means and thereby to minimize the extent to which government need participate directly in the game. The characteristic feature of action through political channels is that it tends to require or enforce substantial conformity. The great advantage of the market, on the other hand, is that it permits wide diversity.

Government caused Great Depression, and recessions since

These arguments were particularly potent during and after the Great Depression of the 1930's. These arguments are thoroughly misleading. The fact is that the Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy. A governmentally established agency--the Federal Reserve System--had been assigned responsibility for monetary policy. In 1930 and 1931, it exercised this responsibility so ineptly as to convert what otherwise would have been a moderate contraction into a major catastrophe.

Fed should grow money supply by 3%-5% and nothing else

As matters now stand, while this rule would drastically curtail the discretionary power of the monetary authorities, it would still leave an undesirable amount of discretion in the hands of the Federal Reserve with respect to how to achieve the specific rate of growth.

I should like to emphasize that I do not regard my particular proposal as a be-all and end-all of monetary management, as a rule, which is somehow to be enshrined for all future time. It seems to me to be the rule that offers the greatest promise of achieving a reasonable degree of monetary stability in the light of our present knowledge.

Repeal recession spending once expansion begins

Unfortunately, the balance wheel is unbalanced. Each recession, legislators hasten to enact federal spending programs of one kind or another. Many of the programs do not in fact come into effect until after the recession has passed. The haste with which spending programs are approved is not matched by an equal haste to repeal them or to eliminate others when the recession is passed and expansion is under way. On the contrary, it is then argued that a "healthy "expansion must not be "jeopardized" by cuts in governmental expenditures. The chief harm done by the balance-wheel theory is therefore that it has continuously fostered an expansion in the range of governmental activities at the federal level and prevented a reduction in the burden of federal taxes.