Monday, June 11, 2012

Milton Friedman and the Famous Helicopter Money Drop

The next time we have a depression, we should print a lot of money to stabilize prices and prevent deflation. Fiscal stimulus - in which the FDR New Deal famously hired people to build dams and schools, etc... -  actually prolonged the depression.

At least that's what University of Chicago professor Milton Friedman theorized.

This is his book-length retort to Keynesian/New Deal fiscal stimulus: Monetary History of the United States. 

All Milton Friedman books here.

Published in 1963, Friedman's economics eventually carried the day in academe. Fed Chairman Ben Bernanke explicitly makes this clear and later quoted Friedman's own words about throwing money out of a helicopter to stimulate growth.

It is important to point out that Friedman wrote after the Great Depression and that his theories were never actually tried during the Depression. In addition, the modern world's electronic money, the expansion of credit, and derivatives may mean that theory and reality are once again, two different animals.  

So understand the difference between fiscal and monetary stimulus.

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