Saturday, 17 December 2011

Milton Friedman's "Free To Choose": Part 3

Via "Commonsense Capitalism".


  1. Why did they let the U.S. Bank fail???

    Also; throughout the program, Friedman seems to expound on the fact that the government (Fed) could have prevented the depression by purchasing government bonds and injecting cash into the banks. However, they did not. Then, at the very end of the program, he states that government is the source of instability. Quite a difficult paradox to penetrate.


  2. Derek, I know I answered these points on the phone, but I'm writing them out here because other people are reading...

    As I said, if you watch it carefully Friedman hints at why the bank was allowed to fail. In the first place there was the death of the original chair of the New York branch who would have been in favour of bailing them out as per the purpose of the Fed. In the second place, and it is understandable why Friedman didn't want to stress this too much, there may have been an element of anti-semitism involved. In the third place, there was human error - the Fed failed to recognize the "embeddedness" of those depositors and thus failed to anticipate just how extensive the knock-on effects would be (exacerbated by the psychology of bank runs).

    On your "paradox" - it is only apparent. I find it unlikely that Milton Friedman would have been in favour of a central bank system to begin with, but given that it was already there, he merely describes how it should have operated according to its foundational purpose. I suspect that had he been asked for an opinion, he may have been in agreement with Hayek's paper on currency competition.


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