# Milton Friedman **URL:** \ **Category:** Great Debates\ **Created:** [November 17, 2006, 5:35am UTC](https://boards.straightdope.com/t/milton-friedman/380798 "2006-11-17T05:35:59Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![pantom](https://avatars.discourse-cdn.com/v4/letter/p/34f0e0/32.png) [@pantom](https://boards.straightdope.com/u/pantom)\ **Post date:** [November 19, 2006, 2:40am UTC](https://boards.straightdope.com/t/milton-friedman/380798/41 "2006-11-19T02:40:05Z")
From the just prior preceding footnote in that same chapter: > [@](#): > > 1. [According to the view of the subject here set forth, if the three employers each spend £100 in wages and materials, and profits are at first 5 per cent. and then rise to 10 per cent., the finished commodity must rise from £331 0s. 3d. to £364 2s., while if, on the other hand, the wages rise from £100 to £105, the commodity will only rise to £347 11s. 3d. It is assumed either that profits mean profits on turn-over and not on capital per annum, or else that the employers each have their capital turned over once a year. But even when one or other of these assumptions is granted, it is clear that the ‘simple interest’ may easily be greater than the ‘compound’. In the examples just given we doubled profits, but only added one-twentieth to wages. If we double wages and leave profits at 5 per cent., the commodity should rise from £331 0s. 3d. to £662 0s. 6d.] I will admit that the terms here used are a bit weird to us (I can’t remember the last time I used a shilling, myself), so let’s reduce this to a unit we’ll call Simoleons, and figure this out. BTW, I quoted the whole thing so as to demonstrate that an honest person honestly arguing without any bias would grant the second part of that note’s veracity as well as the first part. But getting to our Friedman beef, let’s say that at first at each stage, from raw material miner to component maker to assembler, some widget is priced at a cost of 100 at each value-added stage, and that each company is seeking a 5% profit, and so prices its product to the next stage up the chain accordingly. Thus, the total price at the end would be 100+(100\*.05)=105, first, then 105+100+((105+100)_.05), or 215.25, and finally 215.25+100+((215.25+100)_.05), or 331.0125. Now increase the wage cost such that the all-in cost at each stage rises by 5 simoleons, thereby increasing the all-in cost at each stage by 5%. So, you get 105+(105_0.05)=110.25, then 110.25+105+((110.25+105)0.05)=226.0125, and finally 226.0125+105+((226.0125+105).05)=347.56313. Increase profit by 5% to 10%, however, while leaving the cost at each stage at 100, and things work out quite differently: 100+(100_.1)=110, first, then 110+100+((110+100)_.1), or 231, and finally 231+100+((231+100)_.1), or 364.10. That’s the difference between an arithmetic and a geometric increase in price, and the difference in effect between (assuming that entire cost of 100 was wages) a 5% increase given to labor, as opposed to capital deciding it needed to raise its rate of return from 5% to 10%. Finally, as a general observation, the rate of return demanded by capital tends to rise and fall with interest rates. As interest rates fall, so too does the rate of return demanded on risk capital, which will always be, in the US, the Treasury rate for the time horizon in question plus some premium. Vice versa as interest rates rise. So, generally, rates of return rise and fall at different stages of processing together, which gives rise to the compounding effect you see above. Labor is not nearly as educated about getting a return on its investment in sweat and artifice, and even if it were it wouldn’t really be capable, except under the most extreme conditions, of demanding that its rate of return rise and fall with the general rate of interest, or inflation, or anything else. Thus, in real life, the miners might get a raise, but the manufacturing workers working on the components to our widgets won’t, or those workers will, but the final assemblers won’t. So in the above two examples, it’s far more likely that the general rate of return demanded by capital will rise at all stages of the value-added process than that labor at all stages will demand a similar increase in its return. Of course the reverse is also true. ---
**Author:** ![Apos](https://avatars.discourse-cdn.com/v4/letter/a/838e76/32.png) [@Apos](https://boards.straightdope.com/u/Apos)\ **Post date:** [November 19, 2006, 4:27am UTC](https://boards.straightdope.com/t/milton-friedman/380798/42 "2006-11-19T04:27:05Z")
[QUOTE=Sam Stone] I guess if following the logic and science of economics equates to ‘religious worship’, then I’m ready to be baptized. He did have a Nobel prize, you know. He was essentially right on just about everything he ever formally said. [/QUOTE] While I think he was a great man and a great advocate of the free market, I think your final claim does have a whiff of the religious worship angle. The fact is, his greatest formal academic claims was the famous “inflation is always and everywhere a monetary phenomenon” which is a claim that he basically backed off on, and which no major monetary institution anywhere in the world that I know of still bases its inflation-fighting policies on. Pure monetarism was pretty much a giant failure everywhere it was tried, not a success. Regardless of whether or not the claim is true (and its still hotly debated), it just hasn’t proven to be the practical policy measure he once advocated it being. So, no, I wouldn’t say that he was “essentially right on just about everything he ever formally said.” His biggest unique contribution to economic thought was indeed some great work, and historically important in the development of economics, but its record of being “right” is middling at best. Friedman’s more general belief in free markets were certainly very morally good and very influential in a political sense, but he was very much not alone in them in his day, and not alone in them when he died, and they didn’t begin with him either. He was a great thinker and a true libertarian. Just not a pope. If people think his ideas for eliminating many government agencies are crackpot, then I suggest you at least hear him out. Sadly, many conservatives today parrot an impoverished and dogmatic yet ignorant imitation of his ideas. ---
**Author:** ![Apos](https://avatars.discourse-cdn.com/v4/letter/a/838e76/32.png) [@Apos](https://boards.straightdope.com/u/Apos)\ **Post date:** [November 19, 2006, 4:32am UTC](https://boards.straightdope.com/t/milton-friedman/380798/43 "2006-11-19T04:32:46Z")
Hayek, by the way, wrote what remains to this day an powerful and very convincing book about why centrally planned economies simply cannot function anywhere near as well as capitalism and will inevitably have to become more and more authoritarian to sustain and patch up their cascading market failures. He was a classical liberal, which is not the same thing as a modern conservative (which is why he wrote “Why I Am Not a Conservative”) ---
**Author:** ![Apos](https://avatars.discourse-cdn.com/v4/letter/a/838e76/32.png) [@Apos](https://boards.straightdope.com/u/Apos)\ **Post date:** [November 19, 2006, 4:36am UTC](https://boards.straightdope.com/t/milton-friedman/380798/44 "2006-11-19T04:36:40Z")
This article by Jonathan Rauch is pretty darn good in demonstrating what Hayek was about and why his ideas were not so simple as they might seem (basically, it’s a Hayekian case for gay marriage) > **[Objections to These Unions](https://reason.com/2004/06/01/objections-to-these-unions-2/)** > > What Friedrich Hayek can teach us about gay marriage. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [November 19, 2006, 4:37am UTC](https://boards.straightdope.com/t/milton-friedman/380798/45 "2006-11-19T04:37:29Z")
[QUOTE=Apos] If people think his ideas for eliminating many government agencies are crackpot, then I suggest you at least hear him out. Sadly, many conservatives today parrot an impoverished and dogmatic yet ignorant imitation of his ideas. [/QUOTE] Same thing happened to Marx. Funny how that works. ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [November 19, 2006, 8:07am UTC](https://boards.straightdope.com/t/milton-friedman/380798/46 "2006-11-19T08:07:08Z")
Back in the early 1980’s , I remember seeing a PBS series, hosted by MF-I think it was called “Enterprise”-anyone know if it is available on DVD? ---
**Author:** ![FRDE](https://avatars.discourse-cdn.com/v4/letter/f/e68b1a/32.png) [@FRDE](https://boards.straightdope.com/u/FRDE)\ **Post date:** [November 19, 2006, 12:01pm UTC](https://boards.straightdope.com/t/milton-friedman/380798/47 "2006-11-19T12:01:36Z")
@jr0dy Well I studied Economics at Uni from 1976 - 9, during that period the UK was a basket case and needed sorting out. When it was sorted out, it was excessively brutal, primarily because Mrs Thatcher was following principles expounded by Friedman. Unfortunately our producers of real wealth got slaughtered, which barely affected me, by good fortune I did rather well at the time. I have no particular beef with the ‘Free Market’, but to exist it requires Government intervention, I think you’ll recall Adam Smith’s point about merchants conspiring. In my view the natural state is monopoly - or more likely ‘mafia’. The problem with taking a simplistic approach is well illustrated by Goodhart’s Law which is roughly that: any observable relationship holds true, until it is used as a basis for policy, at which point it breaks down. My reading of The General Theory lead me to conclude that Keynes had a number of good observations, but he had not really pinned them together. Your point about him printing money and people not spotting it is, to my knowledge, a gross misrepresentation - he pointed out that people really hate a decline in Nominal Wages, far more than a decline in Real Wages due to inflation. He also pointed out that having large numbers of people unemployed is a serious waste, and it would be better having them digging up banknotes that had been buried in bottles. There is nothing particularly controversial about that, it was a re-statement of ‘pump priming’. Another thing he pointed out is that interest rates are not really affected by supply and demand, they are set by the biggest player in the market which is the Government. That was true in his day, and is less true nowadays as ‘capital’ is internationally highly mobile. He also did not think that wage cuts were a good idea in times of depression, which was the prevalent approach in his time, and he did not think that the Gold Standard was sensible - as it made the domestic economy extremely vulnerable to overseas events. Nowadays I suspect that he would be suspicious of international capital flows. Keynes lived in times of deflation and depression, inflation was not a problem in his day, also in the UK the Trade Unions were not that much of a menace, the 1926 strike was something of a failure. My understanding of JMK’s views, is that he believed that it was the duty of Government to keep the economy stable, by acting against destabilizing effects. Not at all controversial nowadays, but in his time the Government tended to accentuate destabilization. My beef about Friedman is that he offered a simple solution that was picked up by people as a universal panacea. He was the equivalent of a Mullah. You seem to have no problem in defining ‘money’, actually very few people have a problem doing so, which is why such simplistic approaches are so dangerous. The nearest I can get to defining money is the old saw: ‘Money is what Money does’ - and that opens up a real can of worms. Personally I believe that ‘heavy touch’ Government intervention is a menace, but too little is as bad as too much. I also think that Economists can be dangerous as they often don’t much understanding of the real world. As an illustration, at college we were encouraged to gatecrash post graduate seminars, at one of them Sen, Opie and another don were presiding, they were discussing South American economies. They started pondering how such busineses in such economies functioned at all with hyper inflation. We kept quiet, and finally Sen put them out of their misery - he said: ‘They use US Dollars’ Another time we went to a presentation by Terry Burns who became Thatcher’s guru, he turned up late, slightly flustered and handed out a sheet of paper. It had figures comparing the Government Deficit and the Balance of Payments Deficit, oddly they were similar - which he seemed to consider highly significant. The guy had actually discovered that in the UK, Savings tend to equal Investment. An Eastern European PhD student finally voiced what we were thinking, he said: ‘well that is self evident isn’t it’. A third example was when I went for an interview with the research dept of a major UK bank, it was nicely staffed with PhDs. Basically they were producing glossy booklets, I looked at them and said ‘isn’t this stuff a little simplistic ?’ they replied that the stuff was targeted at businessmen. Economists appear to divide into two groups, the over complifiers who are mis-employed physicists, and the over simplifiers - who get picked up by politicians. I think you’ll also find that Friedman got his Nobel for what is essentially a rehash of Ando and Modigliani’s Life Cycle of Income and Expenditure (Brumberg was also in on it, but he died before it became popular so his credit was left off). ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [November 19, 2006, 6:54pm UTC](https://boards.straightdope.com/t/milton-friedman/380798/48 "2006-11-19T18:54:26Z")
[QUOTE=BrainGlutton] None of which had anything to do with the soundness of his **physics.** [/QUOTE] So where is the problem with Hayek’s economics? > [@](#): > > What wild goose chase? Most of Einstein’s career was spent looking for a unified theory; he largely rejected quantum theory, and of course, turned out to be very, very wrong. > [@](#): > > No, and, as I thought I made clear, I have only the most superficial knowledge of the content of his theories. What makes Hayek a crackpot, and what should disqualify any “scientists” from consideration for a Nobel in any field but mathematics, is his nonempirical, formal, “praxeological” **methodology.** You mean like Albert Einstein? You do know, I assume, that Einstein developed the Special and General Theories of Relativity exactly the same way? Was Albert Einstein a crackpot? There’s a place for both deductive and inductive reasoning in science. That’s especially true of economics, which is a relatively new science, after all. It’s still in the stage where the \*a priori \* truths need to be worked out. Hayek has had a tremendous positive impact on the study of economics, even if you don’t like his poltics. Why, we studied a few socialist/Marxist economists who I am quite happy and willing to say made significant contributions to the field, even though I may disagree with their general position. > [@](#): > > Difficult of precise definition, especially WRT economists. Let us begin with the assumptions that Keynes, while not a socialist in any sense and certainly a believer in the value of markets as such, was not a “free marketer,” and Friedman and Hayek were. Plot a continuum between them. Are there any winners on that list who are closer to Keynes’ position than to Friedman’s? All the ones I listed, except maybe Buchanan, but Buchanan’s work really doesn’t belong on that scale anyway. And that was a cursory examination of the list. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [November 19, 2006, 8:34pm UTC](https://boards.straightdope.com/t/milton-friedman/380798/49 "2006-11-19T20:34:08Z")
[QUOTE=Shalmanese] This is an appeal to authority… [/QUOTE] Which, I’m sure you know, is not a fallacy if the person or group is an actual authority, which is the case here. ---
**Author:** ![tomndebb](https://avatars.discourse-cdn.com/v4/letter/t/b9e5f3/32.png) [@tomndebb](https://boards.straightdope.com/u/tomndebb)\ **Post date:** [November 19, 2006, 8:42pm UTC](https://boards.straightdope.com/t/milton-friedman/380798/50 "2006-11-19T20:42:35Z")
[QUOTE=ralph124c] MF was an advisor to the Chilean government-after their disastrous experiment with Marxism, Chile turned to MF. The results were astounding: an annual growth rate of \>8%, a growing middle class, and a vibrant economy! That’ the best tribute he could have-Marx and Engles are probably responsible for more human misery that Stalin or Hitler! :smack: [/QUOTE] Of course, that “growth rate” was based on a comparison to the artifically destroyed economy engineered by the CIA and a number of banks with a vested interest in destroying Allende. The Chilean economy had never been in serious trouble before Allende’s election–although it was suffering some of the ills that affected the entire world economy in the early 1970s. I have no great respect for absolute socialism, but claiming that Chile became a “wonderful” (if brutal) place to live simply because of Dr. Friedman is, at its very best, disingenuous. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [November 20, 2006, 4:00am UTC](https://boards.straightdope.com/t/milton-friedman/380798/51 "2006-11-20T04:00:20Z")
[QUOTE=BrainGlutton] Friedman might have been an influential figure in history and a true gentleman, but as a political economist . . . Put it this way. Keynes is the economic equivalent of Newton or Einstein. Friedman is a highly important figure of the second rank, like Planck or Bohr. [/QUOTE] With all due respect, someone who knows a lot more about economics than you do begs to differ: > [@](#): > > [The Great Liberator](http://www.nytimes.com/2006/11/19/opinion/19summers.html?ex=1321592400&en=a3bb45a2c8c6792d&ei=5089&partner=rssyahoo&emc=rss) > By LAWRENCE H. SUMMERS > > IF John Maynard Keynes was the most influential economist of the first half of the 20th century, then Milton Friedman was the most influential economist of the second half. > > Not so long ago, we were all Keynesians. (“I am a Keynesian,” Richard Nixon famously said in 1971.) Equally, any honest Democrat will admit that we are now all Friedmanites. Mr. Friedman, who died last week at 94, never held elected office but he has had more influence on economic policy as it is practiced around the world today than any other modern figure. > > I grew up in a family of progressive economists, and Milton Friedman was a devil figure. But over time, as I studied economics myself and as the world evolved, I came to have grudging respect and then great admiration for him and for his ideas. No contemporary economist anywhere on the political spectrum combined Mr. Friedman’s commitment to clarity of thought and argument, to scientifically examining evidence and to identifying policies that will make societies function better. > > _Lawrence H. Summers, a university professor of economics at Harvard, was Treasury secretary in the Clinton administration._ ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [November 20, 2006, 5:12am UTC](https://boards.straightdope.com/t/milton-friedman/380798/52 "2006-11-20T05:12:14Z")
[QUOTE=Lemur866] No, “free market” does not mean “anarcho-capitalism”. That’s just bizarre, like mentally subsituting “communism” when other people say “liberalism”. And to start this debate arguing that people who advocate a capitalist economic system only do so because they’re brainwashed fundamentalists is what’s known as “poisoning the well”. If you think I’m just a brainwashed cultist, then why bother arguing with me? And why should I bother arguing with YOU, when you’ll simply dismiss anything I say as the ravings of a lunatic? In other words, this thread would have been better opened in the pit if that’s what you want to argue about. [/QUOTE] If the Chicago School of Economics is really the intellectual progeny of Milton Friedman, then his version of the “free market” seems pretty darn close. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [November 20, 2006, 5:19am UTC](https://boards.straightdope.com/t/milton-friedman/380798/53 "2006-11-20T05:19:51Z")
[QUOTE=BrainGlutton] Jeez, now you’re talking like Friedman **invented** the market. He didn’t. Friedman provided ideological ammunition for the Reagan Revolution. That is it. That is what he accomplished in life. That is all he will be remembered for; even his Nobel Prize will be forgotten except by economists and historians. Now, if you want to argue the Reagan Revolution was responsible for wealth creation and the improvement of the human condition, we can debate **that.** [/QUOTE] Providing fodder for neoconservative economics is probably the thing that I find most troubling about his legacy. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [November 20, 2006, 5:24am UTC](https://boards.straightdope.com/t/milton-friedman/380798/54 "2006-11-20T05:24:29Z")
[QUOTE=Opus1] Might it be that Nobel Prize winners in economics tend to be “free marketers” for the same reason that Nobel Prize winners in biology tend to be evolutionists? [/QUOTE] There are more than a few that aren’t “chicago school of economics” types (which is what I think we mean when we say free marketers). Samuelson and Hicks come to mind but I would guess that there are more than a few Keynesians on the list. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [November 20, 2006, 5:39am UTC](https://boards.straightdope.com/t/milton-friedman/380798/55 "2006-11-20T05:39:42Z")
[QUOTE=FRDE] @jr0dy Well I studied Economics at Uni from 1976 - 9, …In my view the natural state is monopoly… is that he believed that it was the duty of Government to keep the economy stable, by acting against destabilizing effects. Not at all controversial nowadays, but in his time the Government tended to accentuate destabilization. My beef about Friedman is that he offered a simple solution that was picked up by people as a universal panacea. [/QUOTE] Its the universal panacea effect that bothers me the most. Friedman may have helped get us out of stagflation but imagine what he would have done during the depression. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [November 20, 2006, 5:41am UTC](https://boards.straightdope.com/t/milton-friedman/380798/56 "2006-11-20T05:41:48Z")
[QUOTE=FRDE] @jr0dy As an illustration, at college we were encouraged to gatecrash post graduate seminars, at one of them Sen, Opie and another don were presiding, they were discussing South American economies. They started pondering how such busineses in such economies functioned at all with hyper inflation. We kept quiet, and finally Sen put them out of their misery - he said: ‘They use US Dollars’ [/QUOTE] Oh yeah Sen wasn’t exactly a “free marketer” in the Chicago school sense of the word. ---
**Author:** ![Shalmanese](https://avatars.discourse-cdn.com/v4/letter/s/45deac/32.png) [@Shalmanese](https://boards.straightdope.com/u/Shalmanese)\ **Post date:** [November 20, 2006, 6:24am UTC](https://boards.straightdope.com/t/milton-friedman/380798/57 "2006-11-20T06:24:54Z")
[QUOTE=John Mace] Which, I’m sure you know, is not a fallacy if the person or group is an actual authority, which is the case here. [/QUOTE] The nobel prize is a measure of impact, not of reasoning ability. It’s perfectly coherent to admire Friedman for his insights into economic thought while criticising his theories on how they should be applied in the real world. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [November 20, 2006, 7:19am UTC](https://boards.straightdope.com/t/milton-friedman/380798/58 "2006-11-20T07:19:41Z")
[QUOTE=col\_10022] Providing fodder for neoconservative economics is probably the thing that I find most troubling about his legacy. [/QUOTE] What is “neoconservative economics”? > [@Shalmanese](#): > > The nobel prize is a measure of impact, not of reasoning ability. Cite? It would be hard to imagine someone winning a Nobel prize in field of reasearch who lacked “reasoning ability”. > [@Shalmanese](#): > > It’s perfectly coherent to admire Friedman for his insights into economic thought while criticising his theories on how they should be applied in the real world. Of course it is, but his theories, when applied to the real world, is why we’ve had low inflation for the last 25 years, so I really don’t know what you’re talking about. I don’t think anyone is saying that every word he ever uttered is Gospel, but I don’t understand why you want to dwell so much on issues that may or may not have worked when there are plenty of examples of things he proposed that did and do work. The guy was an intellectual giant, whether you agree with his ideas or not. ---
**Author:** ![FRDE](https://avatars.discourse-cdn.com/v4/letter/f/e68b1a/32.png) [@FRDE](https://boards.straightdope.com/u/FRDE)\ **Post date:** [November 20, 2006, 10:04am UTC](https://boards.straightdope.com/t/milton-friedman/380798/59 "2006-11-20T10:04:32Z")
[QUOTE=John Mace] Of course it is, but his theories, when applied to the real world, is why we’ve had low inflation for the last 25 years, so I really don’t know what you’re talking about. I don’t think anyone is saying that every word he ever uttered is Gospel, but I don’t understand why you want to dwell so much on issues that may or may not have worked when there are plenty of examples of things he proposed that did and do work. The guy was an intellectual giant, whether you agree with his ideas or not. [/QUOTE] Are you sure that the low inflation was down to Friedman - or the following of his policies ? Here in the UK I would say that it was more down to crunching the Unions, more a shift in expectations. Since 1997 the inflation rate has been the objective, ostensibly controlled by the Bank Rate, but craftily manipulated by redefining what is included in the RPI. Oddly that is not so different from the way the economy was nudged before Competition and Credit Control in 1972 - CCC unleashed the banks, which I suspect set off the inflationary spiral. From 1980 to about 1997 the rate of interest was used to ostensibly control the Balance of Payments and/or the Exchange Rate. In the UK the lower inflation rate was probably caused by a change in the structure of the economy, a substantially reduced manufacturing sector, legislation and privitization weakened the unions - possibly also the substitution of machinery for labour. Also from 1980 the unemployment rate was just ignored. I came to the conclusion that Economics actually boils down to mass psychology. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [November 20, 2006, 2:57pm UTC](https://boards.straightdope.com/t/milton-friedman/380798/60 "2006-11-20T14:57:09Z")
> [@FRDE](#): > > Are you sure that the low inflation was down to Friedman - or the following of his policies ? [Moneterism.](http://en.wikipedia.org/wiki/Monetarism) > [@](#): > > The rise of monetarism within mainstream economics dates mostly from Milton Friedman’s 1956 restatement of the quantity theory of money. Friedman argued that the demand for money depended predictably on several major economic variables. Thus, if the money supply were expanded, people would not simply wish to hold the extra money in idle money balances; i.e., if they were in equilibrium before the increase, they were already holding money balances to suit their requirements, and thus after the increase they would have money balances surplus to their requirements. These excess money balances would therefore be spent and hence aggregate demand would rise. Similarly, if the money supply was reduced people would want to replenish their holdings of money by reducing their spending. Thus Friedman challenged the Keynesian assertion that “money does not matter”; he argued that the supply of money does affect the amount of spending in an economy. Thus the word ‘monetarist’ was coined. > > The rise of the popularity of monetarism in political circles accelerated as Keynesian economics seemed unable to explain or cure the seemingly contradictory problems of rising unemployment and inflation in response to the collapse of the Bretton Woods system in 1972 and the oil shocks of 1973. On the one hand, higher unemployment seemed to call for Keynesian reflation, but on the other hand rising inflation seemed to call for Keynesian deflation. The result was a significant disillusionment with Keynesian demand management: a Democratic President Jimmy Carter appointed a monetarist Federal Reserve chief Paul Volcker who made inflation fighting his primary objective, and restricted the money supply to tame inflation in the economy. The result was the most severe recession of the post-war period, but also the creation of the desired price stability. Volker’s successor, Alan Greenspan, also followed the same general policy. [Previous page](https://boards.straightdope.com/t/milton-friedman/380798.md?page=2) [Next page](https://boards.straightdope.com/t/milton-friedman/380798.md?page=4)