The Corner

Milton Friedman’s Legacy

A number of the remembrances of Friedman are, oddly, glossing over his main scholarly achievement: changing the accepted explanation for the Great Depression. Anna Schwartz and he persuaded the economics profession that it was the Federal Reserve’s complicity in the reduction of the money supply that made the depression great. The fault lay in a governmental mistake, not the inherent instability of free markets.

Some of today’s op-eds are reducing Friedman’s monetary thought to the banality that in the long run, increases in the money supply cannot increase real economic output, and are implying or outright saying that he would have been among those who, in recent years, have warned of higher inflation. David Beckworth presents the counter-evidence. At the very least it should be remembered that Friedman was as concerned about government policies that undersupplied the medium of exchange as he was about policies that oversupplied it–and it was his illumination of an awful example of the former type of mistake that was his main scholarly claim to fame.

P.S. See also Timothy Lee’s post at Forbes.

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