Question about Milton Friedman/Great Depression?

[Odin]

For those who know more about economics than I do, I saw a video of Milton Friedman discussing the Great Depression and the Federal Reserve's role in it, and he was saying that it is not the proper job of the Federal Reserve to control interest rates, but it is the Fed's job to control the supply of money, and that when people rushed the banks and they couldn't give people their money, that the Fed should have expanded the money supply so that people would see that they could get their money, and if people saw that they could get their money, then no one would have have tried to take it and there would be no rush.

It doesn't sound quite right, and I've heard Ron Paul and other Austrian economists says that the Federal Reserve shouldn't control the money supply either. Would someone mind clarifying for me?

[CaptUSA]

Freidman was a monetarist. I believe he started to come around later in life, though.

[Travlyr]

Whoever controls the money supply controls the people. In a free society each individual controls his/her own money supply. In a tyrannical society the money supply is controlled by rulers who adjust the money supply to benefit themselves and their pet projects.

[Paul Or Nothing II]

For those who know more about economics than I do, I saw a video of Milton Friedman discussing the Great Depression and the Federal Reserve's role in it, and he was saying that it is not the proper job of the Federal Reserve to control interest rates, but it is the Fed's job to control the supply of money, and that when people rushed the banks and they couldn't give people their money, that the Fed should have expanded the money supply so that people would see that they could get their money, and if people saw that they could get their money, then no one would have have tried to take it and there would be no rush.

It doesn't sound quite right, and I've heard Ron Paul and other Austrian economists says that the Federal Reserve shouldn't control the money supply either. Would someone mind clarifying for me?

Yes, that's what he believes they "should have" done to deal with the Depression but that doesn't mean he supported Fed as it existed then or as it exists today. In fact, he wanted to get rid of discretionary powers of Fed/government to control moneysupply, instead he preferred that moneysupply be increased at a steady rate irrespective of prevailing economic conditions in order to obtain a stable economy - http://en.wikipedia.org/wiki/Friedman's_k-percent_rule

So he diverges from the Austrian view that moneysupply needn't grow to support a growing economy, he shared the more mainstream view that it does need to grow. On the other hand, he did agree with Austrian view of the role of FRB (fractional-reserve-banking) as a destabiliser of the economy & cause of Business Cycles of booms & busts & that discretionary central-banking only aggravates the issue.

So far as Austrians are concerned, there's little doubt that moneysupply doesn't need any controlling or growth for a continually growing economy because growth of the economy depends on utilization of economic resources like land, labor & capital being free to be utilized under a free market system. Giving government any power to control & increase moneysupply will only result in them trying to benefit themselves from it, & in that sense, like many other proponents of free markets who believe in coercive government, Friedman comes off as hypocritical in recognizing the problems & corruption that government leads to in other areas & yet insisting on allowing government to continue to have the power to issue money.
There was some speculation that he was coming around to gold-standard near the twilight of his life.

Just as we don't need central-planning in agriculture or industry, we don't need central-planning in money, markets will take care of it. As the purchasing-power of gold increases as it demand goes up, digging up more gold at a faster rate will become more profitable & supply will increase accordingly. If gold somehow turns out not to be the best form of money or other better forms of money emerge on the market then they will be voluntarily chosen by people, based on merit.

[Odin]

Yes, that's what he believes they "should have" done to deal with the Depression but that doesn't mean he supported Fed as it existed then or as it exists today. In fact, he wanted to get rid of discretionary powers of Fed/government to control moneysupply, instead he preferred that moneysupply be increased at a steady rate irrespective of prevailing economic conditions in order to obtain a stable economy - http://en.wikipedia.org/wiki/Friedman's_k-percent_rule

So he diverges from the Austrian view that moneysupply needn't grow to support a growing economy, he shared the more mainstream view that it does need to grow. On the other hand, he did agree with Austrian view of the role of FRB (fractional-reserve-banking) as a destabiliser of the economy & cause of Business Cycles of booms & busts & that discretionary central-banking only aggravates the issue.

So far as Austrians are concerned, there's little doubt that moneysupply doesn't need any controlling or growth for a continually growing economy because growth of the economy depends on utilization of economic resources like land, labor & capital being free to be utilized under a free market system. Giving government any power to control & increase moneysupply will only result in them trying to benefit themselves from it, & in that sense, like many other proponents of free markets who believe in coercive government, Friedman comes off as hypocritical in recognizing the problems & corruption that government leads to in other areas & yet insisting on allowing government to continue to have the power to issue money.
There was some speculation that he was coming around to gold-standard near the twilight of his life.

Just as we don't need central-planning in agriculture or industry, we don't need central-planning in money, markets will take care of it. As the purchasing-power of gold increases as it demand goes up, digging up more gold at a faster rate will become more profitable & supply will increase accordingly. If gold somehow turns out not to be the best form of money or other better forms of money emerge on the market then they will be voluntarily chosen by people, based on merit.

Ok that makes a lot of sense, thanks.

[Occam's Banana]

I saw a video of Milton Friedman discussing the Great Depression and the Federal Reserve's role in it, and he was saying that it is not the proper job of the Federal Reserve to control interest rates, but it is the Fed's job to control the supply of money

One problem with this is that the Fed can't really do the one thing without also doing the other.

Other things being equal: the "looser" the supply of money, the lower interest rates will be - the "tighter" the supply of money, the higher interest rates will be.

[Aratus]

a tough call! methinks hayek or keynes are very correct or perhaps
hayek and keynes are correct and the divvil is in the proverbial details.

[Steven Douglas]

Yes, that's what he believes they "should have" done to deal with the Depression but that doesn't mean he supported Fed as it existed then or as it exists today. In fact, he wanted to get rid of discretionary powers of Fed/government to control moneysupply, instead he preferred that moneysupply be increased at a steady rate irrespective of prevailing economic conditions in order to obtain a stable economy - http://en.wikipedia.org/wiki/Friedman's_k-percent_rule

There is absolutely no escaping the fact that even the very decision to have centralized control over a centralized monetary supply, which is then "increased at a steady rate irrespective of prevailing economic conditions" is in itself an exercise of "discretionary powers" (of the Fed/government) with regard to a FIAT money supply. Somewhere along the line, someone other than the billions of individuals in the market itself, is in a position to decide (CENTRALLY) what that "steady rate of increase" ought to be.

Friedman was a statist and a monetarist in the same way that I'm a socialist whenever I live in China; not by principled belief, but only by acquiescence, or acceptance of a playing field that neither of us advocated nor designed. Friedman did not believe that "money supply" was something that ought to be centralized, and centrally controlled, so much as he accepted that it would be anyway. When in Rome... He didn't argue against the Fed's existence, so much as its "proper role", which he felt was being misused, improperly applied, or abused.

Friedman said, "I regard a return to a gold standard as neither desirable nor feasible—with the one exception that it might become feasible if the doomsday predictions of hyperinflation under our present system should prove correct."

It is for that reason that I view Friedman as a pragmatist. He was not so much in favor of a Fed, or fiat currency, or centralized control over a money supply, so much as a realist. The only reason he did not regard a return to a gold standard as desirable or feasible had nothing to do with gold, and everything to do with his firm belief that "there is essentially no government in the world that is willing to surrender control over its domestic monetary policy.". So you could have a "gold standard" all you want -- that will not prevent it from being debauched, debased, with an economy that is distorted anyway as a result. So Friedman accepted—even surrendered—to central statist/monetarist monetary policy control paradigm as the prevailing reality that must be addressed, since it would not go away.

In essence, Friedman was saying, "If you are all going to insist on centrally fucking with the money supply, as I believe you always will anyway, at least do it in a manner that is reasonable, consistent, and not subject to political or economic whims."

[Seraphim]

In a nut shell.

Simplicity in teaching is awesome. Concise.

Whoever controls the money supply controls the people. In a free society each individual controls his/her own money supply. In a tyrannical society the money supply is controlled by rulers who adjust the money supply to benefit themselves and their pet projects.

[Occam's Banana]

In essence, Friedman was saying, "If you are all going to insist on centrally fucking with the money supply, as I believe you always will anyway, at least do it in a manner that is reasonable, consistent, and not subject to political or economic whims."

I've always marvelled at the ability of intelligent & perceptive "realists" like Friedman to be so selective (read: half-assed) in the application of "realism."

If your characterization of Friedman's position is accurate (and I don't dispute that it is), it amount to this: Friedman is "realistic" enough to understand that "[they] are all going to insist on centrally fucking with the money supply."

But granting that, what in world induces such a "realist" to imagine or expect that "they" would (or even could) do so "in a manner that is reasonable [and] consistent" - let alone in manner that is "not subject to political or economic whims" ... ?

That's what I've never been able to figure out. Friedman was NOT a stupid man. So why was he so obtuse on this point?

I think he meant well and was a good man, and a friend of liberty. But "realists" who indulge such fancies (however implicit they may be) have no business criticizing others for being "impractical" - which Friedman was wont to do.