Both Keynes and Friedman have neglected the effects of changes in the interest rate on the economy’s structure of capital. This sin of omission derives from a common language and apparatus.
FULL ARTICLE by Roger Garrison
Source link: http://archive.mises.org/11547/is-milton-friedman-a-keynesian/
Is Milton Friedman a Keynesian?
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Natural rate of interest? Has there ever been a time when an interest rate determined only by free-market forces wasn’t compromised by government intervention of one sort or another?
Great article by the professor, although a bit difficult for me to absorb in all of the intricacies of the various economists’ interpretations and their respective influences on interest-rate theory. Nevertheless, I come away convinced of the premise that Chicago-school monetarism of Friedman is compromised by adopting the “language and apparatus” that Keynes employed (and, I would add, often invented).
Garrison: “Both Keynes and Friedman have neglected the effects of changes in the interest rate on the economy’s structure of capital. From an Austrian viewpoint, this sin of omission, which derives from a common “language and apparatus,” makes both Keynesianism and monetarism subject to the same Austrian critique.”
Unlike Keynes, I imagine that Friedman was an honest economist. Keynes, in his GENERAL THEORY (I haven’t read his other major works), obviously engaged in deception. For one example, which is critical to his basic premise in writing his GT, Keynes discredited J.B. Say and Say’s law by lifting a restatement of the law completely out of context from an essay by J.S.Mill, and then flailing his contrived straw man to make his *earth-shaking* refutation of the law, which his devoted epigones believe changed the very foundations of economics.
Furthermore, as Garrison indicates and Hazlitt made abundantly clear in his devastating, line-by-line expose of Keynes’ GT bullshit (THE FAILURE OF THE NEW ECONOMICS), interpreting what Keynes said or meant to say in his GT is impossible because of his shifting and conflicting definitions of the same economic phenomena in different chapters of his book.
As a result, Garrison can write:
“Selective readings of what Keynes [in his GT] actually wrote — as well as creative readings of what he may have intended to write — have given rise to conflicting interpretations of Keynes’s message. In many instances, disagreements about Keynesian answers to macroeconomic questions derive from disagreements about what the relevant macroeconomic questions are. Is Keynes asking, How, in particular, do markets actually work? Or is he asking, Why, in general, do they not work well? More specifically, does the interest-inelastic demand for investment funds enter importantly into his theory, or does the instability of investment demand, driven as it is by the “animal spirits” of the business world, swamp any consideration of interest inelasticity? Does the highly interest-elastic demand for money enter importantly into his theory, or does the instability of money demand, based as it is on the “fetish of liquidity,” swamp any consideration of interest elasticity?”
My question is this: Given the imprecision, inconsistencies and obscurantism that pervades Keynes’ magnum opus (GT), why haven’t he and all of his so-called theories been dismissed and buried as irrelevant by all serious economists? Considering Keynes’ economic theories in the context of economic science is akin to citing Bernie Madoff’s investment philosophy in a serious discussion of sound financial planning and management.
“My question is this: Given the imprecision, inconsistencies and obscurantism that pervades Keynes’ magnum opus (GT), why haven’t he and all of his so-called theories been dismissed and buried as irrelevant by all serious economists?”
Because he tells the ruling class what they want to hear.From Mises:
“Governments have always looked askance at private property.
Governments are never liberal from inclination. It is in the nature
of the men handling the apparatus of compulsion and coercion to
overrate its power to work, and to strive at subduing all spheres of
human life to its immediate influence. Etatism is the occupational
disease of rulers, warriors, and civil servants.”
Milton loves to use math in his economics. If he were still alive, he could be a climate scientist. They love models too, and both claim their models are equal to reality.
Milton’s plucking model is a riot. He even specifies a flat board so the rebounds can’t go up over the board which if true would mean that a boom could go higher than the start of the last bust. Hmmmm, looking at his charts, this happens all over the place even though he labels the top as the hypothetical maximum.
Darn that reality! I wonder if we could add some clothespins and baseball cards – then maybe we could explain that one.
The distinction between Austrians and the others (Keynesians and Monetarists) is a rather simple one. For whatever the historical reason that lies behind their ‘theory’ (for example, positivism for Friedman and socialism for Keynes) these ‘economists’ separate macroeconomics from microeconomics. They fool themselves by their own ego-driven interpretation and devise a scheme of ego-driven interventionism to fix the ‘macroeconomy.’
Yes,themselves Keynes and Friedman are both statist variants. And since they make the claim directly and indirectly that there is a separation between macroeconomics and microeconomics they are quacks.
However, along a spectrum from economic knowledge to economic ignorance (or economic perversion in the case of Keynes) Friedman is far superior to Keynes.
The distinction between Austrians and the others (Keynesians and Monetarists) is a rather simple one. For whatever the historical reason that lies behind their ‘theory’ (for example, positivism for Friedman and socialism for Keynes)these ‘economists’ separate macroeconomics from microeconomics. They fool themselves by their own ego-driven interpretation and devise a scheme of ego-driven interventionism to fix the ‘macroeconomy.’
Yes, Keynes and Friedman are both statist variants. And since they themselves make the claim directly and indirectly that there is a separation between macroeconomics and microeconomics they are quacks.
However, along a spectrum from economic knowledge to economic ignorance (or economic perversion in the case of Keynes) Friedman is far superior to Keynes.
Man, I didn’t even read the article. But I was in my kitchen just half an hour ago and I thought of the same thing.
Did anyone ever doubt that Friedman was a Keynsian? How can he believe in printing money to get out of depression? It’s insane.
There are 2 classes in our society: those who have to work for their money and those who get to print it. Guess which one you are.
Wow, have you ever read any of his books?
Milton Friedman wanted to abolish the fed…
He didn’t want them to just print money. Try reading free to choose about his chapter on inflation. He starts by proving that inflation is caused only by governmen’ts printing too much money. He then uses a metaphor of a drunk, and that the government prints money to create a boom and then a bust comes (hangover) and then the government wants to print more money to get out of it (drunk wants to drink his way out of hangover).
I think its funny how you guys talk about milton friedman as if you actually know his arguments.
Try reading what he says…
He only believed in negative income tax as a way to get off of the welfare state to show people that the more libertarian you get the better. He showed in his book that government is not needed in public education. He said he knew that abolishing public school system is politically impossible so a voucher system is a way of increasing liberty and choice which means better education.
Milton Friedman held one set of beliefs back when he started, and then around the time of his death a different set of beliefs. He was increasingly getting convinced about free banking.
But overall, Milton Friedman will be known as the monetarist who wanted a small consistent interest rate as the key to prosperity.
Milton Friedman did say that Feds caused the Great Depression and wanted to abolish the fed, and this may sound like an Austrian position until you actually understand it. What he said was hat Feds caused great depression by not doing their duties properly(just like TSA didn’t due their duties properly by checking for the passport of underwear bomber), and if Feds didn’t exist the great depression wouldn’t have happened(as in if TSA didn’t exist, then market would automatically enforce airport security standards) in the sense that Roaring twenties would have been a bit less roaring but the boom would have never ended.
But that’s really like saying that if IRS didn’t exist then free market companies would collect the taxes on their own and hand it to the government because they want the govt. to provide them with defense and roads. (An Austrian would rather say that if IRS didn’t exist then free market entities would take fees and provide defense and roads to the people, but as you can see where Milton gets it wrong).
You have to read what Friedman says very carefully. His libertarian beliefs are almost right, but his economics is greatly wrong(which causes his misguided libertarian beliefs). Friedman supported Free Banking but that’s because of his libertarian philosophical viewpoint, his economics completely fail to understand how it would work.
Also check my answer to where monetarists get it wrong:
Mises Stackexchange Q&A
Ned Netterville<
Good God, man, how awesome is your analysis? Very, imho. Praise be for intellects as adroit, and egos as reserved. I agree 100%. Keynes, imho (and without reading his own words, at length) was impatient (thus, myopic) and too self-interested (ironically?) to produce accurate economics. Interesting question: Were Keynes able (which, clearly he was NOT) to accurately assess the future consequences of his errant economics, would he have published them nonetheless? (i.e. was Keynes by nature selfish? Or, instead, was he well enough intentioned, but simply got into his own way?)
Mikey,
This portion of what you said is particularly interesting to me: “…It is in the nature of the men handling the apparatus of compulsion and coercion to overrate its power to work, and to strive at subduing all spheres of human life to its immediate influence…”
One of my responses is this…Are we not, as Austrian economists, attempting the very same thing, yet from the precisely opposite direction? iows: Are we not calling upon others to, essentially, act hyper-rationally, when to do so is not in their/human nature?
iows: Are our arguments not, by and large, DESTINED to fall on deaf ears? What, after all, could better explain the lack of positive reaction we Austrians garner? imo it’s simply not normal/average to be capable of consistently rational/clear-headed thought, and thus collectively (as a society) we produce the Keynesian-type mess that we Austrians recognize as so utterly malignant. I’m trying to add something of value here. Does this make sense?
MV=PY –> Y=(a + I)/(1-b) –> MV=P[(a+I)/(1-b)]
Verdict: Friedman is a Keynesian. This truth is also depicted on pg. 136 of Garrison’s “Time and Money”. The Demand Constraint applies to the Monetarism as well. There’s always a positive relationship between C and I in the Monetarist vision, so the market can’t function. They’re all Keynesians!
From Sean:
“Mikey,
This portion of what you said is particularly interesting to me: “…It is in the nature of the men handling the apparatus of compulsion and coercion to overrate its power to work, and to strive at subduing all spheres of human life to its immediate influence…”
You understand I was quoting Mises, I hope.
This tendency to over-rate goverment is also true of
humans in general, and not just the people who control it.
People think that a system that lets them vote for things (rather than earn them) is genuinely feasible. No ambitious statist is going to tell them otherwise.
But does my belief in something that is not true mean that I am not rational?
People used to believe in the “ether”. But this did not mean they were thinking irrationally.
They were explaining the behavior of light based on the best information they had.When they had better
information they discarded this belief in “ether”
Most people have never had a chance to learn basic economic truths, they are are not taught widely enough.They are making rational choices based on the (bad) information they have.
Before I wrote this post, I did a quick reread of Mark Skousens “Vienna & Chicago”.
For anyone interested in the matter of just how much
of a Keynesian Friedman was, this is a worthwhile read….
Keynes went from liberalism to statism, from the Wicksellian framework (a butchered version, but Wicksell nonetheless) to Mercantilism, and for what? For fame obviously–and he got it. I hope it was worth it.
Was it worth it?
Keynes would say, if he could, that this question is now an irrelevancy since in the long run we are all dead, and he, Keynes, being dead, would not care one iota either way.
Of course using Keynesian logic, nothing is worth it. In fact nothing would matter. Keynesianism, Monetarism, Austrian Thinking — none would matter.
But it is worth it, because so long as humans persevere, those humans, who happen to be alive at any given moment, will still have to suffer the consequences of whatever Money System prevails in the era in which THOSE living humans exist.
This is the lesson of the tragedy we are living through.
Austrians know better than any economic theorists that the attendant suffering is completely unnecessary, and pointless. Most painfully, they know that this suffering was completely avoidable. Perhaps this explains the vehemence of the feelings against Keynes’ ideology and theories, though not against the person.
That then is the pain that Austrians have to live with, and most likely what motivates many of them to give even their last breath in an effort to bring enlightenment to those who have created, who maintain, and who defend and nurture a system that so badly serves our human race and her civilizations, throughout human history.
It is as if some of us can see that the next decade will be one where countless lives and hopes are predestined to be crushed, and overturned, as though by some evil Keynesian plough that cuts a furrow through living human soil.
If Shakespeare still lived, what rich fiber he could find in the halls of the Federal Reserve, the Treasury, the Congress, and our leading Western banks. There then would be his modern princes and kings and courts from which he would spin his tragedies and his comic plays.
I recommend Roger Garrison’s Keynesian Splenetics: From Social Philosophy to Macroeconomics, a review of Alan Meltzer’s “Keynes’s Monetary Theory: A Different Interpretation”. It elaborates on some of the topics discussed here.
Mikey,
Well spoken, and I believe you are correct.
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