`Money Mischief: Episodes in Monetary History` by Milton Friedman
Money is what money does. It has been a boiling issue throughout the socio-political-economic saga of mankind. The pages of human history are daubed in bloodshed on issues and conflicts related to money. Money is the crown-jewel of the materialistic civilization of the world impacted by industrial and internet revolutions. The title of the book is most appropriate as it reveals the latent mischievous qualities of money. Money builds as well as it breaks families, social relationships, and understanding between the Nations etc. Therefore, it needs to be handled carefully. It plays the role of the big brother in the socio-economic system of any country. A good chunk of the civil and criminal cases in any court of law are on money-related issues. Money matters pursue an individual from the cradle to the grave and from the womb to the tomb. Milton Friedman won the Nobel Prize for his contribution in the area of ‘money.’ He discusses and tackles the money-issue from the roots. He begins with The Micronesian Yap islands’ coins that were 12 ft. The paper currencies of the modern era carry the guarantee only of the Government of the Nation. World monetary history is as complicated as that of human history, if not more. Money has the special relationship with gold. The gold ore discoveries of the 19th century created deep impact for the better, on US and British monetary system
In the book “Money Mischief: Episodes in Monetary History,” Milton Friedman writes, “From 1899 to 1919 the Caroline Islands, in Micronesia, were a German colony….As their island yields no metal, they have had recourse to stone; stone on which labor is fetching and fashioning has been expended, is as truly a representation of labor as the mined and minted coins of civilization.”(Friedman, 1994, p, 3) As per the thinking of the Economists of the modern era, amongst the four factors of production, land, labor, capital and organization, labor is considered important. For, capital without labor is dead. People of Caroline Islands knew the importance of labor in the eighteenth century, or even earlier! As for the storage of ownership of their currency, their system and beliefs were equally enlightened as that of the modern Central Banks. The author observes, “A noteworthy feature of this stone currency…..is that it is not necessary for its owner to reduce it to possession. After concluding a bargain which involves the price of a fei too large to be conveniently moved, its new owner is quite content to accept the bare acknowledgement of ownership and without so much as a mark to indicate the exchange, the coin remains undisturbed on the former owner’s premises.”(Friedman, p, 4)
The life and achievements of Friedman read like a fairy tale and the beliefs and ideas that he propounds, put the final seal as for this aspect. They are all, however, attainable realities concerned with the economics and politics of a Nation. The money impact is inseparable from the welfare of Nation and the politicians all over the globe, loyalists of any genre of political philosophy, are taking care of the Mischief part of it! The bold views of Friedman may stun the first-time reader of his literature. “To this day, Friedman’s proposals for improving society maintain the same themes: “Dismantle the IMF, eliminate the Federal Reserve, legalize marijuana, abolish Medicare, and get rid of the estate tax…. While the list of goals stretches on, the overarching theme – individual liberty – remains the same.”(A monetary…..)
Freedom and Friedman are inseparable. He passionately advocates that economic and political liberties are co-requisites for the progress of the Nation, and the world at large. The strength of his economic propositions is highly relevant in the materialistic society profoundly impacted by the industrial and internet revolutions. To him politics and economics are the alternative beats of the same heart. The economy of any country reacts and responds to the thinking of the politicians and economic policy framers, for better or worse. Friedman lit the lamp of economic freedom in the 1950s and kept it glowing without intermission, for the next half century. He took his laissez-faire into many platforms of public relevance. Politicians who sought his advice on economic issues were not ordinary individuals or company executives—these names created and profoundly influenced not only the economic policies of America, but also of the entire globe in one way or the other. They are Barry Goldwater, Richard Nixon and Ronald Regan. He carried the ‘Midas Touch” in the areas he moved, and left the ‘footprints on the sands of time.’ He taught at the University of Chicago and won the Nobel Prize. He reached the American people through media, and scripted an award winning television series. He wrote for a nationally syndicated column. He correctly read the pulse of the economy, its inner-workings and arithmetic, and he constantly reminded people about the virtues of freedom, the great utility and opportunity the free market provided to entrepreneurs and those who wished to make mark in their lives. He advised the politicians but did not speak like one! His approach to issues was– dynamism without destruction.
The wise saying goes, “The pen is mightier than the sword.” Turn the pages of political and economic history of a number of important countries. Every syllable of this saying is correct. Some “handful of men, with a claim to fame:” Their weapon of conquest is their power of arguments. They impacted economies; changed the geographical boundaries of the countries. They set class against class, nations against nations, and drenched streets with blood in the name of revolutions, initiated violence—they achieved all these without any operational blueprints of military conquest. Their ideas and economic philosophies did the trick. Karl Marx, Adam Smith, J. M. Keynes—Milton Friedman stands shoulder to shoulder with such personalities. No other economic philosopher has impacted the American thought process and consequently the action process, so much as Friedman has done. He has received the nods of approval on any economic issue for which he tendered his counsel. To criticize Keynesian ideology, it requires guts, insight and thorough knowledge of the intricacies of the web of economics.
You find the perfect match between the American dream and the practical ideas of Friedman. He never falters; never propounds to contradict; never backtracks. That has been the conviction and style of Friedman for the last over five decades. Capitalism, free choice and limited governance-America, what more you want! His individual achievements are nothing short of a miracle. His humble and difficult upbringing has influenced him the least, his liberal outlook helped him to shape into one of the greatest economists of all times. He has influenced the thinking process of both– the politicians dealing in money matters and the theoreticians of the Federal Reserve. He is not afraid to discuss the controversial proposals, and the issues that do not match with his avowed political and economic philosophy. He has converted that opportunity to prove how wrong his adversary was!
The Power of Money:
An expert medical practitioner reads the pulse and tells about the state of health of a patient. For that he needs to possess the expertise to listen and interpret the sounds and regularity of the beats. Such is the power of Friedman to analyze the power of money. He is so confident about his observations and conclusions that sometimes it makes even the expert in money matters wonder whether what he propounds is based on scientific observations, or it is fictional imagination. He once observed, “There’s only two types of money in this world your money and my money.” Nation’s money supply has direct bearing on its prosperity or misery and its side-effects are unemployment, inflation and even political turmoil/change. Several insignificant looking economic activities are the key factors in determining the working of the macro economy! He provides rare insights as for the importance of Federal Reserve to control money supply to check inflation. Today, this principle is applied as a ‘budgetary tool’ to control inflation by Finance Ministers all over the world, under the advice of the Central Bank. When he propounded that inflation was a monetary phenomenon, no one listened to him initially. Today this principle has the willing acceptance of the economists and the framers of the national budgets.
Friedman has also conclusively proved hat changes in the supply of money affects the important economic indicators such as GDP growth. “William Nordhaus, once a member of President Carter’s council of Economic Advisers, notes that the Fed did not learn that it could affect short term interest rates through open market operations until it more or less accidentally observed the effects in practice. The early blunders of the Federal Reserve were ultimately addressed as the Fed came to recognize the truth of Friedman’s observations on the importance of money, which, in turn, lead to Friedman’s development of the quantity theory of money – the impetus of the monetarist movement in economic thought”(A monetary…) Friedman makes more ‘devastating’ observations. According to him the most economic dilemmas that have a telling influence are –and one of them certainly is–to abolish the Fed and have a free system of stable prices. He feels that economy would do much better when this interference is put an end to.
Terms of Exchange
Fixed exchange rates invariably invited the wrath of Friedman. This concept dominated the world economy during the period of Great Depression He was in Paris during World War II as a consultant for the Marshall Plan. His views on the subject proved very correct when many institutions founded on fixed exchange rates collapsed. Gold Standard stood eliminated .Bretton Woods System was another development. The Soviet Bloc collapsed. All these systems have been replaced to pave way for the emergence of international free markets.
He advocates economic freedom with caution, when it comes to forming controlling institutions. He is not favorably disposed of to the creation of the European Monetary Union and its plan for a unified currency. He gives remote chances of its success and lists the impediments. He has taken into account both the economic and political aspects when he avers that a single European currency is not desirable nor it is feasible. According to him, to reach that goal, tough processes are involved. His question is whether it is the collection of separate national currencies on the basis of fixed exchange rates, temporarily though! To achieve the objective of single currency, the creation of one Central Bank would be necessary. That means the present Central Banks of different countries needs to wound up. Banks like Bank of France, Bank of England, and the Bank of Italy etc have to lower their signboards. That one Central Bank must be the total controlling authority. Whether this is feasible politically, is the prime question.
Even though Friedman is an expert economist, his joint reading of economics in combination with politics and the resultant observations have proved to be prophetic. It is in this context that he visualizes the problem as to how a single unit can smoothly function when different political states with different political authorities exist. Political interests and economic interests of different countries are bound to clash as many other factors influence the functioning and growth of a Nation. Abrupt changes may take place in a country at the most unsuspected moment.
The Euro and Friedman:
Total economic freedom is needed, according to Friedman. If it is with restrictions, it can only result in qualified results. Can two walk together except they be totally agreed? When this process is difficult for the two, how more than two can function and achieve single-goal results? Friedman’s concerns about Euro are based on similar apprehensions. It is bound to workout its own breaking system in the next decade or two, according to him. The strength of the materialistic civilization and the fast impact of internet revolution will not allow the experiment of Euro to last long. Apart from the political situations the geographical location of each country is different. The fast changes that are engulfing the world, will affect different countries in different ways. The cart of Euro will be pulled and pressurized from all directions restricting its progress. Controlling diverse economies within a uniform framework is no ordinary task. Friedman sees the consequences and expresses his views that may shock the participating countries. Economics is such a hard subject; union of political minds will have no influence on it. Its laws are governed by many other factors. “He notes the difficulty in tailoring a one-size-fit-all monetary policy to diverse economies. While countries like Ireland stand to benefit from a more restrictive monetary policy, others, like Germany and to some extent France, would enjoy a looser policy. Rather than addressing the needs of each economy, general European monetary policy attempts to straddle the divide, spelling inflation on one side for Ireland and deflation or depression on the other for Germany and France. “The monetary policy that was appropriate for one was not appropriate for the other,” explains Friedman.”(A monetary…)With no historical precedent for this type of economic arrangement, where different countries have used the same fiat money for monetary exchange, Friedman sees no hope for this unwise effort of artificial unification. Political union is a must for the success of economic union. Euro countries can not quote that United States has 50 States. Those are controlled by a single political Union. With Euro countries it is exactly the opposite. Different States have different political authorities, may not be hostile to each other, but not totally friendly altogether.
The Draft and Friedman:
Friedman successfully promoted the concept of freedom even in the military draft area, with wonderful results, even though he faced tough opposition initially from one of the military Generals of the country! That he worked to abolish the military draft, is his greatest and from the point of the essential dignity of American citizens, the proudest public achievement. Friedman’s proposals found tough opposition from General William Westmoreland, the then Commander of U.S. troops in Vietnam. “In his testimony before the commission, Mr. Westmoreland said he did not want to command an army of mercenaries. Mr. Friedman interrupted, ‘General, would you rather command an army of slaves?’ Mr. Westmoreland replied, ‘I don’t like to hear our patriotic draftees referred to as slaves.’ Mr. Friedman then retorted, ‘I don’t like to hear our patriotic volunteers referred to as mercenaries. If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general; we are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher.'”(A monetary…)
Friedman had the capacity to present the political issue in the economic light and vice versa. Draft was one such issue. He showed how the existing policy of draft was costly to the government and it did not give the quality military. The compulsion element in it did not produce able soldiers. But the abolition of the system gave encouraging results. Therefore, you find that the American soldiers in Vietnam and the soldiers in Iraq war are different by temperament. The soldiers in Vietnam were compulsorily drafted and they did not like their stay there. Every soldier in Iraq is doing his duty by choice. So the morale of the soldiers is always high and their level of efficiency is better.
Journalism with a missionary zeal:
Whether he liked it or not, Friedman continued to occupy the centre stage of economics and politics in America. Politicians loved him for his no-nonsense practical approach to any issue. Once he understood the facts related to a subject, he aired his views without fear or favor. He said right things at the right time, and not to please the government in power. He was prevailed upon to write weekly columns for Newsweek. The bold and pragmatic economist got a permanent platform and an opportunity to be the voice of freedom. He began to comment on a wide range of issues and advocated laissez-faire policies. His views on the prohibition policy of the Government proved eye-opener for the Government. . Friedman pointed out that the ban brought forth the opposite of what it intended. “Prohibition,” Friedman wrote, “undermined respect for the law, corrupted the minions of the law, created a decadent moral climate – but did not stop the consumption of alcohol. Despite this tragic object lesson, we seem bent on repeating precisely the same mistake in the handling of drugs.”(A monetary….)
Freidman and social issues:
Freidman mixed freely with the people to gather his facts and understood their problems. In the process of producing the television series, Free to Choose, he met students and teachers in schools, workers and officials in factories, and the bureaucrats. With the firsthand feedback, fertile imagination and rare insight, he began to record his crystallized views. He spoke of varied options available to the people while they perform any duty or buy a product. As for Government regulations and bureaucratic institutions, Friedman’s attitude always remained stern, as he believed that they tend to limit one’s freedom of choice. He had strong reservations of government’s policy of equal resource allocation. To him, such equality was a forced equality, and hence success through those policies was not an attainable reality. He says, “A society that puts… equality of outcome ahead of freedom will end up with neither equality nor freedom. The use of force to achieve equality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of people who use it to promote their own interests. On the other hand, a society that puts freedom first will, as a happy by-product, end up with both greater freedom and greater equality.”(A monetary….) Do it with the best of intentions, and yet government interference is going to harm the interest of the people and in the long run it is dangerous and bound to result in corrupt practices. He has commented on every facet of American life, and he categorically states that wherever government interfered, that area turned contaminated and lost the values of American life. In such a context he observed, America is now a society “of the people, by the bureaucrats, and for the bureaucrats.”
Application of ideas of Friedman in the current context:
Any idea must stand the test of practicability. The concepts of Friedman discussed above relating to any issue are highly practicable and they have been applied with great success by the American Government. Many institutions and commercial organizations have been benefited by the advice tendered by Friedman, on the issues put forth before him. The book under discussion which contains eleven chapters (including the epilogue) beginning from “The Island of Stone Money” to “Monetary Policy in a Fiat World” mainly relates to Economics and governance of the monetary policy. The contents of the book are very special and contain many of the original ideas discussed in detail above their approach is dynamic. Even in his confrontation, an element of conciliation is ingrained. The theme of the later parts of the book is undoubtedly inflation. Friedman demonstrates his claim that inflation is “always and everywhere a monetary phenomenon” (p.104).Friedman writes, “all these adjustments [the negative effects of inflation] are set in motion by changes in the rates of monetary growth and inflation. If monetary growth was high but steady… the economy would adjust to it. … Such inflation would do no great harm” (p.222) .The book contains several useful tables and graphs. Robert Formaini, a senior economist at the Federal Reserve Bank of Dallas, recounts, “On May 9, 2002, Friedman was honored for lifetime achievements by President George W. Bush, who said during the ceremony, ‘He has used a brilliant mind to advance a moral vision – the vision of a society where men and women are free, free to choose, but where government is not as free to override their decisions. That vision has changed America, and it is changing the world.”(Eligah…)
Though a confirmed economist, it is difficult to name an area where Friedman’s influence has not profoundly impacted. In the course of his long and illustrious career, the literary genius in Milton turned out brilliant articles on varied topics. “Dr. Friedman’s most prominent contribution was to create an influential modern formulation of the quantity theory of money, including the short and long-term relationships between money supply, consumption, output, price levels, and inflation. As an outgrowth of his theory, he asserted that the Great Depression was largely caused by government mismanagement instead of any failure of the free-enterprise system.”
(Elijah ….) Friedman’s views relating to economic epistemology and methodology are part of the syllabus of every college economics course in America. The popularity of his ideas is due to their practicability. What is theory after all? It is the practical experience of the other individual/s. He argued that any economic theory must stand the test of tendering practical benefits. The predictions based on such theories need to be accurate. He says that economics should be treated as a science and subjective value judgments must not be at the cost of objectivity.
His passion for education was profound. In 1950s and 1960s he began to advocate the cause of educational choice and educational freedom. As usual, he advocated for minimizing governmental interference, to achieve political and social freedom in the real sense. The new concept introduced by him was the school choice. He was also for compulsory schooling. He argued how the roles of the private schools and the government schools need to be complimentary. Both have positive roles to play, especially in the area of primary education. But he did not favor a centralized system of government school, because such a system can not have personal concern for each child. “The centralization produces deadening uniformity, it destroys the experimentation that is a fundamental source of progress.”(Elijah…) In all such projects, his wife was a tower of strength for him; she participated and contributed intellectually in areas like education. “Throughout their long and distinguished public careers, the Friedmans were steadfastly unassuming, approachable, open-minded, dignified, candid, congenial, principled, analytically rigorous, and intellectually honest. This set of traits that allowed them to be a persuasive catalyst for transcendent, profound, long-term, international societal change.” (Elijah…. .) Numerous private and non-profit organizations have availed the services of Freidman as an adviser, director or a trustee. A simple concept like education is taken almost to the spiritual level when he quotes Justice Louis Brandeis, “”Experience should teach us to be most on our guard to protect liberty when the government’s purposes are beneficial. Men born to freedom are naturally alert to repel invasions of their liberty by evil-minded rulers. The greater dangers to liberty lurk in insidious encroachment by men of zeal, well meaning but without understanding.”(Elijah …)Those who are well versed with the history of government education and the alternative education, are inclined to accept Freidman’s observation.
An era came to an end when on November 16, 2006 Friedman passed away at the age of 94. He died in San Francisco. His intellectual, cultural, economic and political contribution to alternative education and choice education is outstanding. It has impacted the American civilization and the educational system, perhaps for all time to come. He has been the most influential economist of the 20th century. Apart from the Nobel Prize, a galaxy of other awards adorned him. He reached the ivory tower of achievements and fame with hard work and application. They say, some are born great, some achieve greatness and some have greatness thrust upon them. As for Friedman, every syllable of the second option is true. Federal Reserve Chairman Alan Greenspan added, “There are many Nobel Prize winners in economics, but few have achieved the mythical status of Milton Friedman.”
Friedman, Milton Dr. :Money Mischief: Episodes in Monetary History
Paperback: 286 pages
Publisher: Harvest/HBJ Book (March 1994)
A monetary History of the United States coauthored with Anna Jacobson … in which a number of countries have used the same fiat money for monetary exchange.
www.yaleeconomicreview.com/issues/2006_fall/friedman.html -Retrieved on July 29, 2008.
Elijah Award… Framework for Monetary Analysis,” in Milton Friedman’s Monetary Framework: A … Monetarist Economics (1991); Money Mischief: Episodes in Monetary History (1992)…
www.quaqua.org/elijahrec.htm-Retrieved on July 29, 2008