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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

voice of the past « Previous | |Next »
December 19, 2004

In Wednesdays Australian Financial Review there was an op ed piece from the US economic liberal Milton Friedman. As I recall Friedman was at the cutting edge of the critique of Keynesian economic management in the 1970s. He was a leading advocate of the monetarist doctrine that money supply and monetary (not fiscal) policy is (almost) all that matters.

Remember all that policy advice that Government's should not attempt to lower unemployment below the natural rate (5%?) since it is costly to maintain and temporary anyway. However, government should attempt to lower inflation which is permanent and relatively costless in the long-run. So governments should disinflate by aiming for an unemployment level higher than the natural rate, to achieve lower rates of inflation. Inflation was the key policy concern.

Now remember that Friedman was also opposed to the welfare state on principle. The free market always yields the best of all possible worlds. The poor unemployed.

So what is the old political warhorse saying today? He says:

"To summarize: after World War 11 opinion was socialist while practice was free market; at present opinion is free market while practice is heavily socialist. We have largely won the battle of ideas (though no such battle is ever won permanently); we have succeeded in stalling the progress of socialism, but we have not succeed in reversing its course. We are still far from bringing practice into conformity with opinion."

At one level this is quaint. Friedman conflates communism, socialism and social democracy into "socialism." Hence, the welfare state, that historic compromse between capital and labour, constructed by social democrats to ensure security and social justice, is the equivalent to the centrally planned socialism of Soviet Russia. Social democracy and socialism are two different forms of social organization.

Now Friedman does draw a distinction between 'welfare' and the traditional socialist belief in public ownership of the means of production, seeing the former growing at the expense of the latter he still uses socialism as a blanket label.This conveniently ignores the areas of the social life where free markets do not work as well as public provision (eg., health, police, law, social security, aged care, punishment ). The implication is that there is one opposing view to Friedman's libertarianism.

John Quiggin has more on this.

At another level Friedman's duality of 'opinion and practice' is a reworking of economics and politics that collapses politics into the economics of free enteprise, self-regulating markets and individualism.

As Friedman says elsewhere his basic long-run objectives are political freedom, economic efficiency and substantial equality of economic power. He reckons that all three objectives can best be realized by relying, as far as possible, on a market mechanism within a competitive order to organize the utilization of economic resources.

These political views are an expression of a libertarian political doctrine that argues for expanding individual freedom by limiting government.

The economics is the arguments about the stability of a market system that adjusts automatically to market-clearing equilibrium. Since the economic system is inherently stable, it is the mistaken policies by monetary authorities and other government agencies that destabilize it.

| Posted by Gary Sauer-Thompson at 10:59 AM | | Comments (0)