Milton Friedman is said to have mesmerised several countries with a flying visit!?

Milton Friedman visited Australia in 1975. He spoke with government officials and appeared on the  TV show  Monday Conference. Apparently, that was enough for him to take over Australian monetary policy setting for the foreseeable future.


When working at the next desk to the monetary policy section in the late 1980s, I heard not a word of Friedman’s Svengali influence:

  • The market determined interest rates, not the reserve bank was the mantra for several years. Joan Robinson would be proud that her 1975 visit was still holding the reins.
  • Monetary policy was targeting the current account. Read Edwards’ bio of Keating and his extracts from very Keynesian treasury briefings to Keating signed by David Morgan that reminded me of macro101.

See Ed Nelson’s (2005) Monetary Policy Neglect and the Great Inflation in Canada, Australia, and New Zealand who used contemporary news reports from 1970 to the early 1990s to uncover what was and was not ruling monetary policy. For example:

“As late as 1990, the governor of the Reserve Bank rejected central-bank inflation targeting as infeasible in Australia, and cited the need for other tools such as wages policy (AFR, October 18, 1990).”

Bernie Fraser was still sufficiently deprogrammed in 1993 to say that “…I am rather wary of inflation targets.” Easy to then announce one in the same speech when inflation was already 2-3%.


When as a commentator on a Treasury seminar paper in 1986, Peter Boxhall – fresh from the US and 1970s Chicago educated – suggested using monetary policy to reduce the inflation rate quickly to zero, David Morgan and Chris Higgins almost fell off their chairs. They had never heard of such radical ideas.

In their breathless protestations, neither were sufficiently in-tune with their Keynesian educations to remember the role of sticky wages or even the need for the monetary growth reductions to be gradual and, more importantly, credible as per Milton Freidman and as per Tom Sargent’s End of 4 big and two moderate inflations papers.

I was far too junior to point to this gap in their analytical memories about the role of sticky wages, and I was having far too much fun watching the intellectual cream of the Treasury senior management in full flight. At a much later meeting, another high flying deputy secretary was mystified as to why 18% mortgage rates were not reining in the current account in 1989.

Friedman’s Svengali influence did not extend to brainwashing in the monetarist creed that the lags on monetary policy were long and variable. The 1988 or 1989 budget papers put the lag on monetary policy at 1 year, which is short and rapier, if you ask me.


Peter Lyons does not know what monetarism is – the antithesis of discretion, fine tuning

Peter Lyons teaches Economics at St Peter’s College in Epsom and has written several economics texts.

Source: Peter Lyons: Free market doctrine’s bubble about to burst – Economy – NZ Herald News.

Source: Presentation “government intervention 1.What are the views of each on government intervention? self-correct 2.Does the economy self-correct, with no government intervention?”.

Source: Milton Friedman (1984).

Did fiscal austerity in 2010 have credible academic support?


Paul Samuelson on where he disagreed with Milton Friedman on macroeconomic policy

Paul Samuelson on where he disagreed with Milton Friedman

via Samuelson vs. Friedman, David Henderson | EconLog | Library of Economics and Liberty and An Interview With Paul Samuelson, Part One — The Atlantic.

The Reserve Bank of New Zealand is hinting at exchange rate intervention!!

Hayek debunks evidence based policy making


Milton Friedman on the ideal monetary policy


What the Taylor rule has to say about the causes of the great recession


Was this Milton Friedman’s monetary policy dashboard?


I am not so sure the above would be mimicking Milton Friedman’s monetary policy dashboard as claimed.

Milton Friedman advocated a fixed monetary policy growth where the monetary supply would grow at 4% year in, year out no matter what happened in the economy. Towards the end of his career, he advocated replacing the Fed with a computer.

Henry Simons on John Keynes


Joseph Schumpeter on John Keynes


The Shadow Fed – documenting the road not take since 1973

The Shadow Open Market Committee was founded in 1973 by Karl Brunner and Allan Meltzer.

The Committee was founded because many monetarist economists believed the Federal Reserve (The Fed) caused a recession by failing to keep money supply growth steady. Its members were academics and from private organisations.

The original objective was to evaluate the policy choices and actions of the Fed’s Open Market Committee, the arm of the Fed which ran monetary policy in the USA.

The  Shadow Open Market Committee meets semi-annually. A number of papers are prepared by  Shadow Open Market Committee members on macroeconomic and public policy topics.

Based on these papers and the Committee’s deliberations, a policy statement summarises the policy recommendations of the Committee. 

These papers are organised by year and downloadable at ShadowFed | Official Site of the Shadow Open Market Committee.

Old macroeconomic fallacies never die, they just wait for the next recession

Thomas Kuhn’s Structure of Scientific Revolutions showed that sciences do not march onwards and upwards towards the light. Kuhn found that once a central paradigm is selected, there is no testing or sifting, and tests of basic assumptions only take place after accumulated failures and anomalies in the ruling paradigm plunge the science into a crisis.

Scientists do not give up the failing paradigm until a new paradigm arrives, which resolves the failures and anomalies that caused the crisis. It takes a theory to beat a theory.

Murray Rothbard, when discussing Kuhn, pointed to economics is an example of a science which moves in a zigzag fashion, with old fallacies sometimes elbowing aside earlier but sounder paradigms.

Thomas Humphrey wrote an excellent 250-year long literature surveys of both the rules versus discretion debate and the cost-push theories of inflation in the 1998 and 1999 Richmond Fed Quarterly.

Humphrey wrote the reviews to see if economics was a progressive science in the sense that superior new ideas relentlessly supplant inferior old ones.

Humphrey showed that policy rules were popular in good times to contain inflation, and when unemployment was rising, discretionary policies returned to vogue. The policy debate keeps recycling because

  1. people forget the lessons of the past; and
  2. For better or worse, politicians and the public have tended to believe that central banks, the focus of his studies, have the power to boost output, employment, and growth permanently.

Mercantilists, with their fears of hoarding and scarcity of money together with their prescription of cheap (low interest rates) and plentiful cash as a stimulus to real activity, tend to gain the upper hand when unemployment is the dominant problem.

Classicals, chanting their mantra that inflation is always and everywhere a monetary phenomenon, tend to prevail when price stability is the chief policy concern.

Cost-push fallacies about inflation were even more resilient against repeated refutations.

There is nothing new under the sun in macroeconomics. The same issues that divided twentieth-century monetarists and non-monetarists as well as current macroeconomists were discussed by everyone from David Hume (1752) to Knut Wicksell (1898) and in the Bullionist-Anti-Bullionist and the Currency School-Banking School controversies:

  • rules v. discretion,
  • inflation as a monetary v. real cost push phenomenon,
  • direct v. inverse money-to-price causality,
  • central bank-determined v. market demand-determined money stocks,
  • exogenous v. endogenous money, and
  • backing v. supply-and-demand theories of money’s value

Current macroeconomists and monetary economists often unaware of the eighteenth and nineteenth-century origins of the ideas they employ.

Barro (1989) “New Classicals and New Keynesians, or the Good Guys and the Bad Guys”, made the point that Keynesian macroeconomics does not seek out new theoretical results for testing; rather the aim is to provide respectability for the basic viewpoints and policy stances of the old Keynesian models.

Bellante (1992) likewise, noted that the search in Keynesian economics for microeconomic foundations is to blunt criticism, rather than because it is otherwise useful. The analytical apparatus may change, but the policy conclusions remain the same.

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