Did Milton Friedman Support the Federal Reserve?

Monetary PolicyMilton Friedman did not support the Federal Reserve if by “support” you mean that he was excited that it existed, and supported its Keynesian macro manipulation of the economy. Friedman did not support the Fed if his view is properly understood.

Let me be clear:  Milton Friedman DID NOT support the Federal Reserve.  Lets look at a quote:

“Any system which gives so much power and so much discretion to a few men, [so] that mistakes — excusable or not– can have far reaching effects is a bad system. It is a bad system to believers in freedom just because it gives a few men such power without and effective check by the body politic —  this is the key political argument against any independent central bank…  To paraphrase Clemenceau:  money is much too serious a matter to be left to the Central Bankers”

Friedman also makes a similar argument in this video at the 4:40 marker:

This quote, and the evidence in this video, does not seem to support the hypothesis that Friedman was a statist in support of the Federal Reserve. If you read enough Friedman or watch enough of his videos you will find him saying he is in favor of abolishing the Federal Reserve. He also mentions many times that when he writes or talks about the Federal Reserve, he is theorizing given that it exists. Furthermore, in his 1968 paper entitled “The Role of Monetary Policy,” published in The American Economic Review, he points out the proper way to conduct monetary policy is a “steady rate of growth in a specified monetary total.” This is exactly what we were doing with the gold standard by mining gold in other countries and bringing it to America. His argument is that historically, the countries with a steady rate of monetary growth have had steady economic activity, while countries with wild swings of growth have had wild swings of economic activity.

Friedman’s argument is very simple, and it is often misrepresented.

 

– JW

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Filed under Chicago School of Economics, Economic Methodology, Monetary Policy, Political Economy

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