Monday, January 14, 2008

Milton Friedman and the Federal Reserve Bank

I will ask my business seminar course to read Milton Friedman's 1962 Capitalism and Freedom, which was re-published in a 2002 40th anniversary edition. I was just re-reading it and cannot praise it highly enough. On page 44 Friedman writes:

"It is instructive to compare experience as a whole before and after (the Fed's) establishment--say from just after the Civil War to 1914 and from 1914 to date,to take two periods of roughly equal length.

"The second period was clearly the more unstable economically, whether instability is measured by the fluctuations in the stock of money, in prices, or in outputs...(E)ven if the war and immediate postwar years are omitted, and we consider only the peacetime years from, say, 1920 through 1939 and 1947 to date, the result is the same. The stock of money, prices and output was decidedly more unstable after the establishment of the Reserve System than before...

"...the crude comparison should at least give the reader pause before he takes for granted, as is so often done, that an agency as long established, as powerful, as pervasive as the Federal Reserve System is performing a necessary and desirable fundtion and is contributing to the attainment of the objective for which it was established

Things have recently become worse than they've been in a long time. Perhaps it is time to abolish the Fed. Since the Democrats are asking for change, and an elimination of the Fed's disruptive inflationary cycles would certainly constitute change, this is the year to do it.

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