Stray thoughts on Milton Friedman

Milton Friedman rather liked the freemarket, so it's a same that he isn't around to see how it has all gone tits up in the years immediately after his demise. Of course, he would have claimed it was nothing to do with the free market and everything to do with 'distortions' caused by unwise meddling in the 'perfect' mechanism of the market. Blame rests with well meaning or cynical politicians, who attempt to control the market or protect the weak and powerless from its more deleterious effects.

Well, quite.

The problems we've seem recently don't lie in the 'distortion' of the market. As I pointed out the other day, the 'distorted' market worked quite well for about 70 years, and blew itself to smithereens in a little over 7 years. The problem is far more fundamental than that, and an irreconcilable (to my - doubtless distorted - mind) contradiction in Freidman's thought.

Friedman almost put his finger on the problem back in 1975, in a letter to General Pinochet: "The major error [was] to believe that it is possible to do good with other people`s money." (1)

Friedman didn't expand this point any further, perhaps because he didn't like the developed implications. Because modern capitalism depends on using other people's money, not their own, through stock ownership. Hence the catastrophe of 2008, where people were happy to recklessly use other people's money into dubious schemes, leading to collapse.

This isn't my own idea, of course. Friedman would have been familiar with the works of Adam Smith, so surely he would have known Smith's opinions on 'joint stock' companies:

... being the managers of other people's money than their own, it can not well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. (2)

Yet he seems to have made a magnificent effort to ignore this in his own economic programs.

It isn't just unwise to attempt to do good with other people's money. Even just trying to make even more money out of it is a dubious project, in the eyes of Mr Smith. Only someone who actually owns the money is likely to minister to its needs with due attention.

Hence, our recent economic history.

1 - From a letter written by Milton Friedman,to Augusto Pinochet, dated 21st of April, 1975.
2 - From An inquiry into the nature and causes of the wealth of nations, Volume III, by Adam Smith.