# Think Tank > Austrian Economics / Economic Theory >  Walter Block on Milton Friedman & Friedrich Hayek

## Sammy



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## Krugminator2

Five minutes in. Says Friedman favored anti-trust laws. I believe he favored them very early in his career and then changed his views. 

Here he is in the 1970s staunchly against them.





Now seven minutes in and he somehow found a way to criticize Friedman's draft position. The sole reason the draft ended begins and ends with Milton Friedman persuading Nixon.

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## r3volution 3.0

Friedman took the position that the effects of the secondary depression were so severe (he was not dumb enough to buy the Keynesian permanent-demand-depresssion-idiciocy) that a central bank, which had invariably _caused_ the cycle, was needed to "fix" it. This would be fitting. https://mises.org/library/2-emergence-communism

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## Krugminator2

> Friedman took the position that the effects of the secondary depression were so severe (he was not dumb enough to buy the Keynesian permanent-demand-depresssion-idiciocy) that a central bank, which had invariably _caused_ the cycle, was needed to "fix" it. This would be fitting. https://mises.org/library/2-emergence-communism


Friedman didn't believe a central bank should exist. Friedman didn't believe a central bank was necessary to end a depression.





Friedman did believe you needed a functional banking system that didn't have mass failures. He believed a private clearing firm like most brokerages have now and was the case before the Federal Reserve would solve the problem of a collapsing money supply.

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## r3volution 3.0

> Friedman didn't believe a central bank should exist. Friedman didn't believe a central bank was necessary to end a depression.
> 
> 
> 
> 
> Friedman did believe you needed a functional banking system that didn't have mass failures. He believed a private clearing firm like most brokerages have now and was the case before the Federal Reserve would solve the problem of a collapsing money supply.


Friedman advocated inflationary monetary policy.

He was a "price stability" guy.

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## Krugminator2

> Friedman advocated inflationary monetary policy.
> 
> He was a "price stability" guy.


The *Friedman rule* is a monetary policy rule proposed by Milton Friedman.[1] Essentially, Friedman advocated setting the nominal interest rate at zero. According to the logic of the Friedman rule, the opportunity cost of holding money faced by private agents should equal the social cost of creating additional fiat money. It is assumed that the marginal cost of creating additional money is zero (or approximated by zero). Therefore, nominal rates of interest should be zero*.

 In practice, this means that the central bank should seek a rate of deflation equal to the real interest rate on government bonds and other safe assets, to make the nominal interest rate zero.
*
*The result of this policy is that those who hold money do not suffer any loss in the value of that money due to inflation.* The rule is motivated by long-run efficiency considerations.

https://en.wikipedia.org/wiki/Friedman_rule

Doesn't seem like he was a big inflation advocate to me.

It is true he wasn't an advocate of letting money increase in value like Rothbard, which makes zero sense to me. Money isn't an investment. It is a medium of exchange. He was for a long run dollar that held its value, which is essentially what a gold standard did. But he believed you could do it more efficiently  by setting the rate of growth in money equal to population growth and productivity growth instead of being left to the whims how much gold is mined out of the Earth. He also believed mining gold was inefficient because of the labor and storage costs.  That said, he wrote a paper in the mid 80's that I can't find where he basically said a gold standard wasn't as bad as he originally thought.

 Here is the title of paper from the 1980s revisiting the gold standard. I can't find the full text. https://www.journals.uchicago.edu/do...ournalCode=jpe

From the abstract. "Monetary economists have generally treated irredeemable paper money as involving negligible real resource costs compared with a commodity currency. To judge from recent experience, that view is clearly false as a result of the decline in long-term price predictability. "

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## Swordsmyth

> It is true he wasn't an advocate of letting money increase in value like Rothbard, which makes zero sense to me. Money isn't an investment. It is a medium of exchange. He was for a long run dollar that held its value, which is essentially what a gold standard did.


Money like every other thing of value belongs to the owner and any increase in value also belongs to the owner, the increase in value doesn't belong to the government or to anyone the government decides to give it to.
The gold standard did allow deflation, the only thing reducing deflation was gold mining which was naturally far less than what could be printed.

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## r3volution 3.0

> The *Friedman rule* is a monetary policy rule proposed by Milton Friedman.[1] Essentially, Friedman advocated setting the nominal interest rate at zero. According to the logic of the Friedman rule, the opportunity cost of holding money faced by private agents should equal the social cost of creating additional fiat money. It is assumed that the marginal cost of creating additional money is zero (or approximated by zero). Therefore, nominal rates of interest should be zero*.
> 
>  In practice, this means that the central bank should seek a rate of deflation equal to the real interest rate on government bonds and other safe assets, to make the nominal interest rate zero.
> *
> *The result of this policy is that those who hold money do not suffer any loss in the value of that money due to inflation.* The rule is motivated by long-run efficiency considerations.
> 
> https://en.wikipedia.org/wiki/Friedman_rule


...which is moronic.




> Doesn't seem like he was a big inflation advocate to me.


If nominal rates weren't already at zero, how would they get to zero?




> It is true he wasn't an advocate of letting money increase in value like Rothbard, which makes zero sense to me. Money isn't an investment. It is a medium of exchange. He was for a long run dollar that held its value, which is essentially what a gold standard did. But he believed you could do it more efficiently  by setting the rate of growth in money equal to population growth and productivity growth instead of being left to the whims how much gold is mined out of the Earth.


Why not set it to the square-root of the number of inches in his waistband...

...makes as much sense.

Austrians aren't trying to make money more valuable; they're trying to make relative prices reflective of actual supply and demand.




> He also believed mining gold was inefficient because of the labor and storage costs.  That said, he wrote a paper in the mid 80's that I can't find where he basically said a gold standard wasn't as bad as he originally thought.


The price of non-gold goods or services in gold terms is simply another relative price which ought to be set by the market. 

Mining gold is no more a waste than mining iron. It will be mined, in a market system, in proportion to its value, like anything else. 




> Here is the title of paper from the 1980s revisiting the gold standard. I can't find the full text. https://www.journals.uchicago.edu/do...ournalCode=jpe
> 
> From the abstract. "Monetary economists have generally treated irredeemable paper money as involving negligible real resource costs compared with a commodity currency. To judge from recent experience, that view is clearly false as a result of the decline in long-term price predictability. "


That's nice, but he appears to be rather missing the point.

This is like arguing against the nationalization of every industry in the country on the grounds that the inter-agency postage would be expensive. 

The point is that inflationary monetary policy, like it's less covert brother tax-and-spend, misallocates resources.

The technical details of gold mining, note printing, etc, are trivial.

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## MontyCello

Hayek was a decent economist, but indeed, as Block points out, he wasn't a good libertarian. Hoppe once summarized it as "Politically, Hayek's indistinguishable from a modern social-democrat". In other words: Freddy was a socialist

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