Daniel Roe
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Poster: Daniel Roe @ Sun Dec 13, 2009 11:46 am
I recently completed Bob Murphy's Politically Incorrect Guide to The New Deal. Subsequently, I found out that the advocates for monetary intervention (eg Krugman, Bernanke, and yes, Milton Friedman) have twisted history and that I had been unwittingly duped by it. They would have you believe that The Fed did essentially nothing to correct the massive monetary contraction at the beginning of the Great Depression. In fact, the Fed of 1929 and the 1930's expanded the money supply more than any American central bank ever (until Greenspan/Bernanke). Krugman, Bernanke, and Friedman basically either deny this or pretend like the actions of the Fed at the time were "too little, too late." The facts, however, speak for themselves.
Though my article about The Great Depression contains this error, I left it in there for simplicity's sake and included this correction as a footnote.
 (excuse this boring personal note) I was extremely lucky to be taught economics by a monetarist. My economics textbook subtly jabbed at Keynesianism throughout the book, and compartmentalized Keynes and his balderdash in a single chapter called "Chapter 11--John Maynard Keynes" (I'm almost positive that was on purpose). At the time, I would chat with my friends, some of whom had taken Econ101 taught by a Keynesian. My Friends were always talking about Aggregate Demand and Animal Spirits. I thought that maybe I'd missed that lecture and always wondered what the heck they were talking about. I later rediscovered economics and chuckled my way though a rundown of Keynes' theories and fallacious supporting arguments.
Unfortunately, monetarism was also wrong in many ways. While being unabashedly free-market in most things, I followed what I was taught for a long time and balked at the idea that the Fed could do any wrong. I was a huge fan of Alan Greenspan and even posted a couple favorable articles on this site about him. I now see these essays as akin to the innocent inhabitants of Russian gulags, convinced that "Uncle Stalin" was unaware of their predicament, sneaking letters out of the camp to him for help, apparently thinking that he loved the people so much he would close the camp immediately if he only knew (when, of course, it was he and his goons that built the gulags put them there in the first place). It was actually a lecture by Tom Woods (an Austrian Economist) I watched in 2008 that floored me and ended up changing my mind.
Nowadays, looking at the world of economics through this new lens, it's actually a lot scarier to think that not even Friedman was truly laissez faire. The only well-known anti-Fed advocate seems to be Ron Paul. Obviously this movement is gaining steam. However, the Federal Reserve is now more powerful than the US Government, and with basically the entire economics profession vying to keep it that way, it seems like it's really going to take something big to even introduce the concept of sound money back into the public mind-set.
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