From The Horses Mouth

by Paul Krugman


SYNOPSIS: Milton Friedman himself has conceded Krugman's point, in his debate with Ben Stein, that Friedman's monetarism was naive, by saying that ""The use of quantity of money as a target has not been a success . . ." Click here to read Krugman's reply to Ben Stein's screed.

Readers of the Unofficial Site may recall that Ben Stein launched a frantic attack on me after my quite innocuous column Missing James Tobin . Among the things that drove him wild was my statement that Milton Friedman's monetarism was a rather "naive" doctrine that has not stood the test of time.

But guess who now concedes the point?

By the way: Friedman did two great things: the permanent income theory of consumption, and the natural rate hypothesis. These do not make him a figure on a level with Keynes, who transformed the way we see the world, and may have saved the market economy. But they're pretty important.

Monetarism, on the other hand, was a misguided doctrine. Friedman was looking for a magic way to exclude judgement and discretion from economic policy; he didn't find it. And my own work on the liquidity trap has convinced me that his biggest case for monetarism - the attribution of the Great Depression to monetary contraction - was a huge misinterpretation. Yes, M2 contracted - but it's far from clear that the Fed was in control of M2.

Originally published on the Official Paul Krugman Site, 6.11.03