Monopoly the Milton Friedman way

Posted: February 21, 2011 by chad98036 in Uncategorized

via the NY Times

Prices shot up, which we all knew, even in that inebriated state, was the consequence of expanding the money supply. (After all, the great economist told us, “Inflation is always and everywhere a monetary phenomenon.”)

The inflation became so extreme that we eventually voted to alter the rules again: we’d cut the money supply. Any money we printed that came back to the bank would be taken out of circulation.

A severe depression kicked in, of course. Prices plummeted and it was a race to liquidate assets. One by one the players quickly went bankrupt, and sometime around 4 that morning the game was over.

Seems like that would be a good demo for a high school economics class.

Comments
  1. Veeshir says:

    So what you’re saying is that the Fed is going to restrict the monetary supply?

  2. chad98036 says:

    Actually what I have read of Friedman doesn’t necessarily say that. My understanding is that he thinks (thought) that the monetary supply has to be constant, so that if money is not circulating (i.e. Banks not lending, Venture capital not flowing etc.) then the Fed has to print more money to keep the supply constant. As the economy recovers the banks should gradually start restricting the supply to prevent deflation and a double dip recession or depression. He believed that the great depression was caused by the poor monetary policy of the Fed at that time. They did restrict the monetary supply and that led to a Depression (or the Great Contraction as Friedman called it) rather than a relatively normal downturn.

    http://www.thefreemanonline.org/featured/the-great-depression-according-to-milton-friedman/#

    Amazon links

    • Veeshir says:

      I was trying to be funny.
      My point was that whatever could make the economy worse is what they’ll do and it seemed to me that your quote said that’s the worst thing they could do.

      Of course, printing more money would probably be worse for the world at large, especially China as the value of what we owe them plummets.
      What happens when the $billions be owe them become worth millions of today’s dollars?

  3. chad98036 says:

    Of course, printing more money would probably be worse for the world at large, especially China as the value of what we owe them plummets.
    What happens when the $billions be owe them become worth millions of today’s dollars?

    In my view, and I am not an economist, it causes a forced realignment of the Chinese economy. Most people don’t remember but this same scenario played out with Japan in the 80’s. I was stationed there when the Yen went from 350 to 400 / USD to around 110. Suddenly people weren’t talking about the coming Japanese domination of America anymore and a lot more American goods started appearing in the Japanese market. Of course a couple years later we had the Oct ’87 crash.

    Look, I am not advocating runaway inflation. Just pointing out that Friedman had a pretty good handle on this and he felt that the risks of inflation were far outweighed by the risks of deflation that could be caused by a sudden tightening of the monetary supply as many are advocating. From what I have seen, and again this is thru layman’s eyes, Bernanke is staying as close to the Friedman playbook as is possible. The area where I have issues is with things like the stimulus package. Those types of programs I think are the worst thing that can be done. Especially when you start talking about things like high speed rail.

  4. Veeshir says:

    My panacea is lowering spending by reducing gov’t and regulations and also lowering taxes. Leave people alone and they work things out pretty well.

    Printing or destroying money appears to be a classroom exercise that can have different effects depending on a bunch of other factors.

  5. chad98036 says:

    I agree with that to a point. If regulations are too lax you end up with situations like Russia before their mid 90’s meltdown. (or to a lesser extent the run-up to the current situation). Too heavy and you stifle innovation and growth. It’s hard to find the balance.

    Having worked in the regulatory compliance field I can tell you that compared to many countries (Taiwan, China, South Africa, Germany etc.) a lot of our regulatory burden is fairly light, but it is focused in different areas. We place a lot more emphasis on worker and environmental issues than China does, but not nearly as much on import regulations (at least from my experience) We don’t place as much emphasis on environmental issues as Germany.

    Again this is my personal experience others working with different classes of products may have different experiences.

  6. Veeshir says:

    I’ve always disagreed with conventional wisdom on the Russian tycoons.

    Maybe they were robber barons, but they were bringing Russia up, much like our own robber barons did in the 19th century.

    Sure Vanderbilt and the rest got mega-rich and took advantage of lax regulations and pliable, bribable pols, but they did stuff on a grand scale that only a gov’t could do today and in doing so, helped everybody else.

    Look at the RRs, they were mostly, if not totally, private enterprise. The trans-continental RR was one of the best things, economically speaking, ever done in America until the national highway started in the 50s and it was a private enterprise operation. Sure the RR tycoons got mega-rich, but what about the guy in New Mexico who could then sell his authentic Indian head-dresses in NY with affordable transport costs?

    The union movement started as a direct result of their excesses and it was needed, but we needed the robber barons to get to that point, and unallied with the gov’t. They were called the masters of industry for a reason.

    In Britain, they were more closely allied with the gov’t, often the very people in the House of Lords, and the working conditions and the generally horrible way they treated their workers went on for centuries. Don’t like working for 12 hours a day, 6 days a week in a smoky building with no air circulation for a pittance while living in tenements we own, paying the rent we set, buying goods at our stores, at prices we set, and having to borrow money from us for same, at interest rates we set? Well, starve. Have a nice day.

    I just got a Martini-Henry and in reading up on it, I found out that at first, their cartridges were hand-rolled by orphans of soldiers. Child labor was rife in the factories and the military, where children were “powder monkeys” for instance, on British warships.

    In Russia, they needed to get things rolling and were until Tsar Putin I stole all their stuff and now Russia is screwed because the gov’t took over.

    I’m not saying no regulations, but I bet there’s a regulation somewhere on whether TP should be hung with the end over the top or from the bottom.

  7. chad98036 says:

    Look at the RRs, they were mostly, if not totally, private enterprise. The trans-continental RR was one of the best things, economically speaking, ever done in America until the national highway started in the 50s and it was a private enterprise operation. Sure the RR tycoons got mega-rich, but what about the guy in New Mexico who could then sell his authentic Indian head-dresses in NY with affordable transport costs?

    Private enterprise with massive government subsidies. I grew up in Montana on the Northern Pacific Right of Way. The government had to give out millions of acres of land in order to get the railroads to build. Then they had to change the homestead act in order to attract settlers to the Eastern Montana Badlands in order to have customers for the railroads. That’s how my mom’s family ended up in Montana.

    The Northern Pacific Railway Company was chartered by Congress on July 2, 1864; it was formed with the goal of connecting the Great Lakes with Puget Sound on the Pacific, opening vast new lands for farming, ranching, lumbering and mining, and linking Washington and Oregon to the rest of the country.[1] It was granted some 47 million acres (190,000 km²) of land in exchange for building rail transportation to an undeveloped territory. Josiah Perham (for whom Perham, Minnesota, is named) was elected its first president on December 7, 1864.[1]

    The only transcontinental railway that wasn’t built with massive public subsidies was the Great Northern.

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