The Ghost of Murray Rothbard

Recently by Gary North: Counterfeit Gold Standards


The Economist is the most respected economics magazine in the English-speaking world. It is influential. When an idea is expressed in its pages by an always anonymous author, it has been vetted by an anonymous editor.

Here is a recent post. Free-marketeers and inflation: Missing Milton Friedman.

Tim Lee asks an important question: why are conservatives and libertarians so uniformly hawkish about inflation? Mr Lee (a friend and former colleague) notes that this regularity is far from inevitable. Milton Friedman, a revered figure in right-of-centre circles, famously pinned the severity of the Great Depression on contractionary monetary policy.

Establishment economists all cheer for this — and only this — in Friedman’s career. He argued that the FED did not inflate enough in 1930-33. He wrote this in A Monetary History of the United States (Princeton University Press, 1963).

In that same year, across town (Princeton), another publisher released Murray Rothbard’s America’s Great Depression, which argued that the FED indeed caused the depression . . . by its expansionist policies, 1926-29. The battle on this issue began in 1963. It still goes on. Establishment economists blame too little government, too little monetary inflation. Rothbard blamed too much of both.

Scott Sumner, a professor of economics at Bentley University who identifies himself as a “neo-monetarist”, has argued that Friedman would have supported monetary stimulus.

He may be right. I suspect that he is right. Friedman would have broken with his 3% to 5% annual M1 increase recommendation. When push came to shove, he was a fiat money advocate.

We can see what happened to M1. I have this posted at all times in my site’s free department, Federal Reserve Charts.

And he has argued, on neo-Friedmanite grounds, that tight monetary policy both precipitated and exacerbated our recent recession.

Tight money. Yes. The chart reveals it to anyone who looks hard enough.

The FED pumped up the monetary base from $800 billion in August 2008 to $2.7 trillion today. It was just plain strangulation, according to Dr. Sumner.

Folks, these Ph.D-holding experts have lost their minds . . . or their willingness to look at the charts.

I happen to think Mr Sumner is correct, but his expansionary prescription remains anathema on the right. Why? Mr Lee writes:

I can think of two possible explanations. One is that we’re still having the monetary policy debates of the 1970s, when right-of-center thinkers, following Milton Friedman, argued that the era’s persistently high inflation was the fault of unduly expansionary monetary policy. They were right about this, and a whole generation of free-market intellectuals has been on guard against the threat of inflation ever since. And this is obviously reinforced by the reciprocal trend on the left: because most of the inflation doves are on the left, people who are in the habit of disagreeing with left-wingers are discouraged from adopting their arguments on this issue.

Another likely factor is that American conservatism is a fundamentally populist movement, and the inflation hawks’ position has a simplicity that makes it intuitively appealing, especially to a movement that tends to see all policy issues in terms of virtue. Rhetoric about “printing money,” “debasing the currency,” and so forth are not only intuitively appealing, they also dovetail nicely with broader conservative themes of thrift and self-control. The arguments of inflation doves are more subtle and lack the same kind intuitive appeal.

I think both these factors play a role. I would emphasise the latter, though I think Mr Lee makes too much of the intuitive appeal of common-sense moralising rhetoric about thrift and “debasing the currency”. The influence of this kind of talk has been augmented powerfully by a certain moralising strand of Austrian economics, which is hostile to the very idea of fiat money, and encourages the idea that its entire purpose is to expropriate savings and monetise government debt. This strand of Austrianism also encourages scepticism about the existence of distinctively macro-level economic phenomena. Accordingly, macroeconomics as a discipline is often seen as pseudo-science that exists mainly to justify technocratic social control. Conventional counter-cyclical policy proposals, meant to address putatively macroeconomic phenomena, are thus routinely met with a combination of suspicion and animosity.

There it is: Austrianism! Even worse, that brand of Austrianism promoted by Murray Rothbard.

Although sophisticated Austrian-school monetary economists such as George Selgin and Larry White defend rule-based inflation-targeting policies not all that different from Mr Sumner’s neo-monetarist nominal GDP-targeting rule, the ghost of Murray Rothbard looms much larger on the free-market right.

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July 29, 2011

Gary North [send him mail] is the author of Mises on Money. Visit He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2011 Gary North