Yes, Friedman Was A Monetary Keynesian

As all long time readers of this blogg know, I am anything about a fan of Paul Krugman, But he is actually right when he has recently argued, in both his most recent column and in several blog posts, that Milton Friedman on monetary issues was essentially a Keynesian and that he therefore, had he still been alive, would have defended the QE-policies of the Fed and several other central banks.

Both Donald Bourdreaux and Senator Rand Paul disputes this, pointing to how Friedman wrote that in the absence of the Fed, private bank–clearinghouse associations, would have limited secondary monetary deflation (due to bank runs) during the 1930s more than what the Fed did. But the issue of whether the Fed or private bank–clearinghouse associations would have prevented deflation better during the 1930s is not really relevant for whether or not central banks should inflate now or not.

And on that issue, Milton Friedman was very clear. He explicitly advocated massive quantitative easing for Japan in the late 1990s, even though Japan's economy was less depressed than current Western economies. There can therefore be little doubt that he would have favored QE now.

The truth is that Friedman was on monetary issues essentially a Keynesian. He differed from Keynesians only in that he had even greater faith in it than them, believing monetary inflation alone could always revive an economy while Keynesians argued that it should be complemented with "fiscal stimulus" to be most effective. Both Friedman and the Keynesians was in favor of using monetary inflation to revive depressed economies, with the difference being that Friedman saw it as a substitute for fiscal stimulus while Keynesians saw it as a complement to fiscal stimulus.