Milton Friedman vs the Austrian Perspective

Posted on by

So you are a good free market Chicago School guy.  You have rejected Keynesian economics in favor of the free market Chicago school.  You have read Milton Friedman’s “Right to Choose” and you are convinced that the free market is the way to go.

Well, maybe he is not such a free market guy.  He is, in fact, in favor of compulsory taxation, monopoly, price controls, and the welfare state.  Milton Friedman proposed the tyrannical payroll deduction in the United Sates during WW2 and it has stuck with us like a curse ever since.  He is against cartels in most areas except for money.  Though Chicago School has done many positive things in promoting liberty, its faults are glaring and can no longer be ignored after September 2008. The Chicago School was fundamental in popularizing the idea that almost all government regulations are actually lobbied for and constructed by the industries that are to be regulated to push out competition and raise costs for new competitors entering the sector.  This allows large firms to absorb regulatory costs while pushing out small businesses and new upstart companies.  The term popularized by many from the Chicago school is “Cui Bono” or who benefits?.  The Chicago School realized that in almost all cases, the big players in the industries being regulated are almost always the same beneficiaries of such regulations and are also the biggest pushers of regulation (just like today’s health care legislation and insurance companies.)  Chicago School has written hundreds of books on almost every industry when making their case but have somehow missed the elephant in the room, the Federal Reserve. So the largest monopoly of all escapes all scrutiny from the Chicago School.  Chicago School refuses to use this same method of “Cui Bono?” on the banking cartels that exist around the world in the form of Central Banks.  This seems absurd when considering that all the shareholders of central banks are private and have enormous leverage in setting the price for money (the interest rate).  So the Chicago School and Milton are completely inconsistent in their theories when it comes to money.  They are for free competition in all fields except for banking, where the Chicago school supports government sponsered monopoly.

When it comes to methodology, the Chicago School is as bad if not worse than the Keynesians.  The Chicago School and every other school of economic thought besides the Austrian School since the 1930s have viewed human beings as mathematical aggregates.  That is to say, human beings are simply numbers to be put in mathematical formulas.  The Austrian School completely rejects this because human beings are conscious actors that change their behaviors based on conditions. For example if you raise the income tax, some people will likely find other ways to generate income through investment or some other method.  Therefore, human behavior and concious actors will change how much revenue will be brought in.  All other schools of thought pretend that human behavior is for the most part unchanging and can be constructed as part of a mathematical formula. For example, if government action A is taken than B will be the result.  Ludwig Von Mises established in “Human Action” that human behavior cannot be predicted and observed in the same way that hard sciences make predictions. All particles in the universe act in the same predictable way when a force is applied to them. This is not true with human behavior.  When a new variable is applied to human interaction, humans will react in multiple different ways, each to achieve their own desired goals. Since economists can’t possibly know the goals and motives of every single person, it makes human beings almost impossible to predict the same way that chemists or other scientists make predictions with their respective studies.  This puts economics closer to the field of sociology rather than a hard science, i.e. physics, that mainstream economists’ fantasize about making economics into.  Human beings are conscious actors but the Chicago School’s methodology leads to many conclusions that are not logical because they often do not take this into account. Murray Rothbard gives the example of Milton Friedman’s negative income tax or guaranteed annual income.  Rothbard argues that it is precisely because the welfare bureaucracy is so inefficient that the United Sates is not more bankrupt than it is.  Friedman’s plan to make it more efficient by automatically sending out checks to anyone making below a certain income creates a hugely distorted incentive structure that is logically obvious but which Chicago School’s methodology seems unable to grasp.

Lastly if you still think that the Chicago School is free market consider this; Ben Bernanke is a student of the Chicago School, specifically Milton Friedman’s book on the Great Depression. Everything that Ben Bernanke has done has been lock step with what Milton Friedman had suggested should have been done during the Great Depression. Not one major economist from the Chicago School publicly protested against TARP or the mind boggling expansion of the money supply.  The Chicago School has completely capitulated to the Keynesian world view and have shown their true colors. The only school of thought that has not been toppled in the wake of September 2008 has been the Austrian School.

Here Gary North goes into some of the intellectual history of economics. Additionally, Gary North makes the argument that the intervention of 2008 was so massive that it was arguably taken even further than anything that Milton Friedman would have suggested thirty years ago.

Here is another lecture comparing Milton Friedman to the Keynesian paradigm.

Here is an article about how mainstream conservatives and supply siders are Keynesian.

 

1,685 thoughts on “Milton Friedman vs the Austrian Perspective”

  4. Hello, this weekend is nice in favor of me, because
    this moment i am reading this impressive educational piece of writing here at my home.

    My web blog – jdb

    Reply ↓

  6. Hello there! This is kind of off topic but I need some
    advice from an established blog. Is it very difficult to set up your own blog?
    I’m not very techincal but I can figure things out pretty fast.
    I’m thinking about creating my own but I’m not sure where to begin. Do you have any ideas or suggestions?
    Appreciate it

    Reply ↓

  10. I and my guys were taking note of the excellent procedures found on the blog and before long
    developed an awful suspicion I never expressed respect to
    the blog owner for those strategies. Those young
    boys were definitely totally warmed to read all of them and
    have quite simply been making the most of those things.
    Appreciation for indeed being very accommodating as well as for using some wonderful tips millions of individuals are really needing to learn about.

    Our own honest regret for not expressing appreciation to sooner.

    Reply ↓

  14. The other day, while I was at work, my cousin stole my iphone and tested to see if it can survive a
    40 foot drop, just so she can be a youtube sensation. My apple ipad is now broken and she
    has 83 views. I know this is completely off topic but I
    had to share it with someone!

    Reply ↓

  15. After I initially left a comment I seem to have clicked
    on the -Notify me when new comments are added-
    checkbox and now every time a comment is added I recieve four emails with the same comment.
    Perhaps there is a way you can remove me from that service?

    Thanks a lot!

    Reply ↓

  16. It’s a pity you don’t have a donate button! I’d definitely
    donate to this superb blog! I suppose for now i’ll settle for bookmarking
    and adding your RSS feed to my Google account. I look forward to brand new updates and will share this blog with my
    Facebook group. Chat soon!

    Reply ↓

  27. Hey there! Someone in my Myspace group shared this website with us so I
    came to check it out. I’m definitely enjoying the information. I’m book-marking and will be tweeting this to my followers!
    Wonderful blog and excellent style and design.

    Reply ↓

  29. Hello there! I know this is kinda off topic but I’d figured I’d ask.
    Would you be interested in exchanging links or maybe
    guest writing a blog article or vice-versa? My website discusses a lot of the same subjects as yours and I believe we could greatly
    benefit from each other. If you happen to be interested feel free to send me an email.
    I look forward to hearing from you! Wonderful blog by the way!

    Visit my web site – Keto Aurora Review

    Reply ↓

  35. Hello there! I could have sworn I’ve been to this blog
    before but after reading through some of the
    post I realized it’s new to me. Anyways, I’m definitely delighted I found it and I’ll be book-marking and
    checking back often!

    Reply ↓

  37. Do you have a spam issue on this blog; I also
    am a blogger, and I was wondering your situation; many
    of us have created some nice methods and we are looking to swap strategies with others, why not shoot me an e-mail if interested.

    Reply ↓

  43. Amazing blog! Is your theme custom made or did you download it from somewhere?
    A theme like yours with a few simple adjustements would
    really make my blog shine. Please let me know where you got your theme.

    Bless you

    Reply ↓

  45. My programmer is trying to convince me to move to .net from PHP.
    I have always disliked the idea because of the expenses.
    But he’s tryiong none the less. I’ve been using Movable-type on numerous websites for about a year and am worried about switching to another
    platform. I have heard fantastic things about blogengine.net.
    Is there a way I can transfer all my wordpress content into it?
    Any kind of help would be really appreciated!

    Reply ↓

Leave a Reply

Your email address will not be published. Required fields are marked *