Milton Friedman and monetarism

 Keynesian solution of ,Government playing God to rescue people from crisis was loved by politicians. Free market proponents were not encouraged. Starting 1950s, the fightback to Keynesian school was spearheaded by Milton Friedman . He argued by tuning the money supply in the economy you can have stable system, rather than Government intervention which is known as Monetarism.

 

Inflation is a monetary(money) phenomenon everywhere ,he declared. He cited an example, of American civil war, where inflation in the south was 4% a month . One fine day, the Northern army ran over the money printing press of the south . It took 2 weeks to relocate the money printing press and start printing again. In 2 weeks , inflation came to a halt in the south. Sustained inflation has only one cause,  money supply outpaced the production of goods and services. He argued for increasing money supply at constant rate for stable economy.

 

Milton Friedman was an anti-Government crusader. 'The biggest mistake people make is to judge policies by their intentions, rather than by their outcomes', he opined. There are four ways to spend money.

You spend for yourself - Here you need to get optimal price and get more value of the product you buy.

You spend for others , like gifts - Here price should be less, quality of product is of less importance

Others spend money on you - Here the price is immaterial but quality of purchased product is important.

You spend others money on others -> Here you can buy at any price and get anything bad. Government spends  a larger portion of our income in this way. So Govt spending needs to be reduced, was his argument.

 

He hated anything being controlled or managed by Government, be it education or healthcare. He was against unions and minimum wages. He portrayed, Pilots union was the most successful union in keeping the wages high.  Second successful in his view was American Medical Association. He pointed out unions were powerful where the jobs were few in number and members were well paid and unions tend to minimize the number of available jobs(say, by seeking a limit through licensing).He argued unions were good for people who were in the unions, not for general public.

 

Friedman was a persuasive speaker too. In one meeting one audience accused him of not understanding poverty, as he was not poor. Friedman replied ,' Gentleman, if you are suffering from cancer, will you find a doctor who also suffers from cancer so that he can sympathize with you, or will you find a doctor who can cure cancer?'

 

He advised Reagan in US and Thatcher in England. He was instrumental in deregulations in US. Even today bank crisis, inequality will be traced back to Reagan administration by liberal economists. Friedman died in 2006, just 2 years before Great Recession, when Govt intervention was  necessary. World missed a great economist and a different perspective.