Why Monetarism?

Although Monetarism, as an interventionist economic policy, clearly isn’t libertarian, people continue to consider it as such. The basic difference between Keynesian Economics and Monetarist Economics is that one favors fiscal policy while the other favors monetary policy as a way for the government to manage the economy through the manipulation of aggregate demand.

And yet many people do consider Monetarism to be more libertarian, to the point where if a spectrum is arranged Monetarism is listed as basically a midpoint between Keynesian and Capitalism.

Considering Keynesian Economics, a reason to consider it as such is because all Keynesians are both Monetarists and Progressives, they believe in both monetary policy and in regulation as ways to manage the economy. A textbook Keynesian is no closer and no farther from libertarian than any Monetarist.

So there is reason to make a spectrum. But why go so far as to insist that instead of being a midpoint between real Keynesian and libertarian Capitalism, Monetarism is so often wrongly lumped with Monetarism?

It would best be described by Rothbard’s Law. "people tend to specialize in what they are worst at. Henry George, for example, is great on everything but land, so therefore he writes about land 90% of the time. Friedman is great except on money, so he concentrates on money." Rothbard went farther to describe Friedman in even harsher terms, saying "And so, as we examine Milton Friedman’s credentials to be the leader of free-market economics, we arrive at the chilling conclusion that it is difficult to consider him a free-market economist at all."

Then perhaps there is one reason left why people would consider Monetarism to be libertarian in any respect. It is because the current center of United States politics is so far devolved towards the regulatory state, with the government enmeshed in so many aspects of the American economy that to embrace textbook Monetarism is to embrace a reduction in the government's role in the economy.

Unfortunately there is a lot of room between slightly decreasing the role of government and actual libertarianism. Being in favor of slightly less regulation, slightly less control, slightly less taxing and spending, does not make one a libertarian.

Against Milton Friedman

Upon seeing "Fear the Boom and Bust”, the Keynes versus Hayek rap video, the following email was sent to the producers of that video:

On Thu, Apr 22, 2010 at 11:39 AM, Ayn R. Key wrote:

Having Keynes versus Hayek was great. Loved the imagery of alcohol and hangover, and the reference to Tim and Ben.

Next, Hayek (or Rothbard or Mises) versus Friedman (or Fisher, where Friedman got all his ideas from) please.

I'm tired of people thinking that Chicago School Monetarists are some sort of libertarians.

The following response was forthcoming:

On Thu, Apr22, 2010 at 9:16 AM, John Papola wrote:

Thanks for the note! Explaining the differences of the two schools of thought is useful and we'll be getting to it in our extended content via interviews. It's a little too nuanced for a rap song.

Have you read Roger Garrison's "Time and Money”? There is much more in common between the Austrian theory of the business cycle and Milton's monetarism than meets the eye. If we can't call Milton a libertarian, we're doomed. I'm not big on libertarian factionalism. Compared with our opponents on the Keynes/Marx statist side, the differences between Hayek and Friedman are inconsequential in my opinion. Friedman was also very successful in moving public opinion and the profession away from Keynes. For that we should all be grateful.

Friedman, Hayek, Mises and Rothbard are all awesome in different ways.

For reasons unknown, Milton Friedman is considered to be a libertarian thinker, especially in matters economic. He is often used as an example of libertarian thinking by those who are not libertarians but wish to reference libertarians to support a point.

The problem is, Milton Friedman was a Monetarist. As pointed out, Monetarism is not the same thing as Capitalism. When compared to Keynesianism then of course it appears to be more libertarian, but that is an awfully low bar to measure against.

There are many critiques libertarians can make against Friedman, such as his relationship to Pinochet or how he instituted income tax withholding, but the most fundamental one is that he, like Irving Fisher, advocated central banking.

If Keynesians are to be considered as saying that two and two make eight, and Austrians are to be considered as saying that two and two make four, then Monetarists try to position themselves as moderates by saying that two and two make six. They may be closer than Keynesians, but they are still quite wrong. Central banking, the defining position of Monetarists, is causing yet another catastrophic collapse, and people actually are calling it libertarian? Calling it so is a gift to the statists that they couldn't even hope for.

Capitalism

There appears to be a debate in some libertarian circles on whether or not libertarians should embrace or reject the word "capitalism."

Those who would reject the word do so on the basis of the baggage that comes with the word. It was first popularized by Marx to describe not just the free market but also economies in which the government interferes in favor of businesses.

Those who would keep the word do so on the basis of there being no better single word. Other terms are less widely known or are more cumbersome. The word itself, they argue, actually describes best the economic system advocated by libertarians in spite of its baggage.

It really is a simple choice, and capitalism is the best word for a free market economic system, but if it is to be used it must be fought for. A simple pronouncement is far insufficient.

People are doing that. Garry Reed, the Libertarian News Examiner, did so recently with the article Corpratism – equally loved by left and right.

Those who would disparage Capitalism are always confusing it with other ideologies, including but not limited to Corporatism, Keynesianism, and Monetarism. Some go so far as to say Monetarism, the economic ideology of Friedman and the Chicago School, is a libertarian economic ideology.

A few moments of honest thought would dispel any confusion over whether or not these other ideologies are included in Capitalism as is meant by libertarians. Monetarism has a central bank. Corporatism has protective tariffs and bailouts. It's not even necessary to describe the many differences between Capitalism and Keynesianism. And yet the myths persist.

That is because detractors want to lay at the feet of Capitalism the faults of the other systems. In Corporatism, failing businesses get bailouts, in Capitalism they do not. Yet if the two are the same then bailouts are a feature of Capitalism. In Monetarism the dollar loses value every year to the point where a 2010 dollar is worth a few cents compared to a 1910 dollar. Yet if the two are the same then an inflationary monetary policy is a feature of Capitalism.

Every fault that detractors name in the real world, as opposed to pure theory, comes from departures from the free market and government interference in the free market. Therefore it is not the fault of the free market. The only way to blame Capitalism is if other ideologies are lumped together with it.

Those who wish to preserve the word "Capitalism" have the right idea, but they must remember that they must fight for it. It's a good word but it has to be defended. The attempts to add baggage to the word are continuous.

Update: It was pointed out that Marx only popularized the term "capitalism", he didn't coin the term. Correction noted.