More Milton Friedman – the power of prices and all the knowledge in a pencil

I get on jags and right now, I’m on a Friedman jag. It won’t last longer than one night, though I bet I’ll return again some other time. The guy is brilliant in how he simplifies certain ideas here, about pricing as an impersonal mechanism that moves markets. Prices contain knowledge in a sense, they rise and fall as conditions change due to activities and desires and necessity. If government stays out of the mix enough to allow people to “voluntarily cooperate” they innovate, and exchange materials and products. He notes how economic liberty is a very important, a crucial, kind of freedom, and how economic liberty and other types of freedom are so important that people will go through tremendous hardship to attain them. I’m still exploring his ideas, and there is a lot to learn. He begins with the ideas of Adam Smith. I remember first hearing of Adam Smith and feeling quite intrigued, as I had not learned about him much in school. We learned Marx, but no Smith. A shame that!

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2 thoughts on “More Milton Friedman – the power of prices and all the knowledge in a pencil

  1. spinoza1111 August 28, 2010 / 7:23 am

    Prices contain as much ignorance as they do knowledge. An example would be pricing a product at a few cents below the next dollar in order to sucker the irrational consumer.

    Friedman is in his own way just as anti-human and immoral as Keynes was said to be. For example, Keynes fancifully suggested that unemployed men be employed by the government to dig holes and fill them, and this is used to show that welfare states always (in a false generalization) create make-work jobs all the time.

    It is not as well known that Friedman suggested that wealthy men drop cash from helicopters on the poor. Of course, in his playbook, the wealthy men would need some motivation, perhaps the prospect of repayment or a government subsidy, which this story paradoxically needs.

    What’s interesting is that most Keynesian “make-work” or “employer of last resort” policies produced useful goods and services: new post offices, WPA guides and the electrification of the Tennessee Valley.

    Whereas the practice of the Friedman theory was in fact the expansion in consumer and mortgage credit of 1980..2008 in which the government, through fiscal manipulation of interest rates, motivates the wealthy to offer credit and then sell the “paper” thus generated to the next fool at a discount because of a built in moral hazard: that some of the loans are known to be bad even when made.

    It is profoundly moral for society to “make work”, for it’s news to me that we didn’t need the cathedrals of the Middle Ages, the aqaeducts of Rome, or the GI bill.

    Whereas the logical consequence of Friedman is evil.

    Ron Paul is wrong on many things, but he sees the hollowness of the Hollow Men like Friedman. For Friedman’s monetarism to work, government ability to intervene, albeit at only one point, is absolutely necessary. The government must be able to control the money supply.

    Whereas the pre-1914 gold standard, in keeping the money supply linked to the physical ownership of gold, makes Friedman the “conservative” just as much as a social engineer as Keynes.

  2. libertywolf August 29, 2010 / 7:17 am

    Friedman actually approved of the WPA during the Great Depression, he mentions this in the interview in black and white that I previously posted. I don’t think he believed this option was ideal, but once conditions were dire, this was certainly an appropriate solution. I believe that he felt that since government had helped to create the depression, that it was only fitting that it helped out at that point. You can play the other interview to view this perspective in his own words.

    “You state: “Whereas the practice of the Friedman theory was in fact the expansion in consumer and mortgage credit of 1980..2008 in which the government, through fiscal manipulation of interest rates, motivates the wealthy to offer credit and then sell the “paper” thus generated to the next fool at a discount because of a built in moral hazard: that some of the loans are known to be bad even when made.”

    I don’t believe Friedman or any free marketeer approved of the government’s interference in the mortgage industry. No doubt, this crisis has been caused by a combination of things, but one of them was the governments incentivizing bad loans through HUD and Fannie and Freddie in order to create a “diversity” in home ownership. And yes, many of those loans should never have been made.

    You state:
    “It is profoundly moral for society to “make work”, for it’s news to me that we didn’t need the cathedrals of the Middle Ages, the aqaeducts of Rome, or the GI bill.

    Whereas the logical consequence of Friedman is evil.”

    Again, in certain situations, even Friedman was not against “make work.” Going back to Rome, a pre-industrial society or to the feudal societies of the MIddle Ages, there’s no doubt that for their times, these types of economic mechanisms from the ruling classes were the best thing going and productive as far as it went. Myself, I like the GI Bill, and personally, I am not against all government aid, particularly to education, and certainly there was no group more deserving than our own veterans from WWII. I don’t know where Friedman stands on that, but I am not saying here that we agree on each and every thing, I am only offering some clips of his perspectives online to elucidate comment and conversation, and maybe, some reflection

    Thanks for your comments! You’re the first one here who is not someone I know. So, that’s nice. While we may disagree, certainly, I appreciate your interest.

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