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A Personal Statement

Milton Friedman and Rose Friedman
Mariner Books, 1990
First Edition: 1980
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9

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Recommendation

Nobel laureate and economist Milton Friedman was a significant influence on the monetarist and free-market move to the right that began in the 1980s. Friedman was a great communicator – able to convince economists, politicians and general readers of the sense of his theories. Decades after its publication and republication, this treatise – written with his wife, economist Rose Friedman – still serves as an accessible handbook for those on the political right. It is ardent, but never heartless; radical, but never blindly ideological. The Friedmans’ monetarist interpretation of the Great Depression proves especially interesting in light of recent history. Would Friedman have approved of quantitative easing? His criticism of the Fed in the 1980s indicates that he would have favored easing in principle, but the question of degree remains: Yes, in favor of easing, but how much? Some of his issues, like inflation, may not apply at the moment, but many of Friedman’s arguments still smolder. While always politically neutral, getAbstract recommends this foundational read – the seminal text of subsequent right-leaning thinkers and their books.

Summary

Deflation in the 1930s

Many economists see the 1930s slump as the ultimate case study of the weaknesses of the capitalist system and as the original justification for Keynesian policies. Further study of the period reveals that the Federal Reserve Board’s inaction contributed to the Great Depression more than previously thought. And, monetary issues added to the Depression’s severity. The Federal Reserve’s failure to address the shrinkage in the number of dollars in circulation in the US economy made the period worse than needed and turned a short recession into a long depression.

The “static” that deflation introduces into the workings of the economy means that monetary shrinkage becomes shrinkage in the real economy. Prices are signals that help firms and individuals understand which actions and activities are profitable. If prices for goods rise, that motivates more activity and production; falling prices slow activity and production.

Actors in the economy may find it hard to distinguish between a fall in their particular prices and a general systemic drop in prices – which is deflation. The monetary collapse prolonged and worsened the Great Depression by ...

About the Authors

The late Nobel Prize winner Milton Friedman was one of the 20th century’s most influential economists. His late wife Rose Friedman taught at the University of Chicago Law School.

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