To this day, Milton Friedman is the most important economist of the last century: a remarkable communicator, a prolific researcher, and a fearless thinker. It has touched almost every area of the economy. As a student at the University of Chicago in the late 1990s, I still felt the influence of Friedman’s intellectual shadow, even though he was no longer present. Chicago was still Chicago at the time, and Friedman had sown the seeds of the long haul through the education of the next generation of Chicago Nobel economists, such as Gary Becker, Robert Lucas, James Heckman, and Edward Prescott.
Was Friedman a microeconomist or a macroeconomist? His early work on the theory of value established the strength of markets and the perverse effects of government intervention. He has written extensively and publicly on the problems of value controls, excessive state interference in education, prohibition and drugs, and corporate social responsibility. , which would be applicable today. But he is also, if not more so, known for founding the monetarist school of economics. And that’s where their prospects for touching the electronic currency Bitcoin begin.
The most common definition of monetarism advocates a continued increase in the money supply. Even when we were college students in Chicago, we joked that if Friedman asked a question in class, a student might reply, “I’m sorry, professor, I didn’t hear the question. But the answer is to increase the supply of cash. In fact, in his 1968 essay, The Role of Monetary Policy, he advocated a “growth rate of 3 to 5% consistent with annual cash plus all advertising. “Bank deposits. “
This has infuriated the Bitcoin community, which defends the timeline in which Bitcoin emissions decrease over time and eventually converge to 0 emissions until 2140. But portraying Friedman as an opponent of Bitcoin for this explanation alone would be a mistake and a misinterpretation. broader framework. There are more basic explanations for why Friedman’s Bitcoin concepts go.
Above all, Friedman emphasized the importance of cash: “All primary inflation has occurred through financial expansion: mainly to meet the primal demands of war, which have forced the creation of cash to supplement particular taxes. Even more famously, “inflation is a financial phenomenon everywhere. “That argument counts today. The current U. S. president and the chairman of the Federal Reserve have denied the role of the cash source in our current inflation, bringing up many other factors, such as the limited supply through the pandemic, Russian inflation, the war in Ukraine, the semiconductor shortage, etc.
In fact, they distract from cash. Friedman knew that cash was vital because he had observed that the amount of cash had declined by a third during the Great Depression. In fact, the Federal Reserve’s strength to control currency is cash’s main enemy. freedom. In his essay Monetary Policy for the 1980s, Friedman writes, “I have found that few things are more difficult to accept, even for informed non-experts, than the proposition that 12 (or 19) people sit around a table in Washington, without being subject to elections or elections. Neither dismissal nor close administrative or political control has the force to calculate the amount of cash. This force is too great, too pervasive to be exerted through some other people, no matter how civic they are. -willing.
Thus, Friedman denounces the excessive concentration of force inherent in the fiat system, in which central banks decide at will the source of cash for the entire economy. And why is this problematic? Because the source of cash is too complex for humans to reliably manage. ” We simply don’t know enough to be able to recognize minor shocks when they occur, or to be able to expect what their effects will be, what they should look like, or what financial policy is needed to offset their effects. “
Therefore, Friedman was deeply skeptical of the central force built into central banks and their ability to properly adjust and stabilize the economy. This is where Friedman’s perspectives align with those of Bitcoin, which takes decisions about cash sources out of the hands of Americans who decide at their discretion. and places them in an implemented protocol and across a global network of independent PC nodes.
Writing with his co-author Anna Schwartz in Has Government Any Role in Money?, he says unequivocally: “An inflexible financial rule is preferable to discretionary financial control through the Federal Reserve. Therefore, focusing on a 3-5% expansion is less vital than the fact that this norm is inflexible. Friedman himself acknowledges this. “” I believe that a financial set is the most productive immediate criterion or adviser that can be had in setting a financial policy, and that the selection of the specific set is of much less importance than the one that will be chosen. “In essence, he says Friedman. la rule doesn’t matter, whether it’s 3%, 5%, or even the timing of Bitcoin’s crash today. What is most disputed is that the rule is predictable and immutable.
All of the destructive effects of a bad currency today arise from the discretionary force exerted by a handful of Americans on the Federal Open Market Committee (FOMC). For those reasons, I think Friedman would consider Bitcoin as an option for the existing Federal Reserve regime. We know that it is highly unlikely that the Federal Reserve will engage in a constant rule; that’s why the Taylor rule, which sets the interest rate in a predictable formula based on publicly available macroeconomic indicators, has never been followed since it was invented more than 30 years ago. Given this impossibility, Bitcoin’s predictable and immutable source program is actually greater than the existing discretionary regime.
In a 1999 interview, Friedman asked him about what was most positive for the next century. His response: “The Internet is going to be one of the main forces in reducing the role of government. What’s missing, but soon to be developed, is Reliable E-Cash: a method by which budget can be moved from A to B on the Internet, without A knowing B and B knowing A.
That’s what Friedman calls it, a decade after Bitcoin’s emergence.
Korok Ray, PhD is an associate professor at Mays Business School in Texas A.