Bob Murphy directed me to a Brad DeLong post bashing Milton Friedman:
In A Monetary History of the United States, published in 1963, Friedman and Anna Jacobson Schwartz famously argued that the Great Depression was due solely and completely to the failure of the US Federal Reserve to expand the country’s monetary base and thereby keep the economy on a path of stable growth. Had there been no decline in the money stock, their argument goes, there would have been no Great Depression.
I can’t understand how a brilliant economic historian like DeLong could make such a totally erroneous statement. Milton Friedman and Anna Schwartz clearly documented the fact that the Fed increased the monetary base sharply during the Great Depression. They discussed the Fed’s QE policy of 1932. So the preceding statement is flat out wrong.
And indeed the entire post is confused. DeLong argues that the Great Recession was partly caused by the influence of Friedman’s ideas. Actually, one could argue that the Great Recession happened because we did not pay enough attention to Milton Friedman. Indeed this Friedman insight from 1998 was totally ignored in late 2008 by all but a tiny band of market monetarists:
Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.
. . .
After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.
In early 2009 I wrote a piece sharply criticizing DeLong for claiming that monetary policy was ineffective at the zero bound and that we therefore needed fiscal stimulus. He finally got the message, and a few years later he was bashing the Fed for letting NGDP growth plunge. Now he’s back to claiming there was nothing the Fed could do at the zero bound.
When I was in grad school in the 1970s, anyone claiming a fiat money central bank would be unable to debase its currency would have been laughed at. As recently as the early 2000s mainstream economists like Mishkin, Bernanke, Svensson, etc., were still scoffing at that idea. It’s a sad comment on modern macro that this bizarre theory has suddenly become mainstream without a single shred of evidence in support. Even worse, most macroeconomists don’t even seem to know what evidence in support of this theory would look like.
PS. Bob Murphy also has a post on the same topic. David Glasner criticizes the DeLong post for other reasons.
PPS. I strongly believe that if the FOMC had been composed of 12 Brad DeLongs, the Great Recession would have been considerably milder. Which means Brad is wrong. 