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Foreign Policy Analysis
Milton Friedman [ANIMATED] Gold & Monetary Policy Book Summary

Milton Friedman [ANIMATED] Gold & Monetary Policy Book Summary


Capitalism is unstable. Government must help get people back to
work. The economy needs to be stimulated. Slogans are misleading. “The fact is most periods of severe
unemployment were produced by the government’s mismanagement rather than by any inherent instability of capitalism. For example in the Great
Depression the Federal Reserve System exercised responsibilities so ineptly as
the turn what otherwise would have been a moderate contraction to a major
catastrophe.” That’s how Milton Friedman starts his
chapter on monetary policy in his book Capitalism and Freedom. Monetary policy
is about who controls the supply of money or who actually prints the Dollar
bills, Euros, Yen or some other currency. Or if the money supply is a
commodity like gold or silver. Most people don’t know or care what monetary
policy is, but they should because it has a drastic effect on the economy and
their livelihoods. Friedman says the goal should be to have
a stable monetary policy; as stability enables people to grow the economy. But
the question becomes how do you go about achieving a stable monetary policy. Well typically there is 1 of 2
answers. One is to use gold and silver as money and the second answer is I have
some experts help direct the economy by turning different knobs and dials. Milton Friedman says both of these
answers suck and here’s why. The first option, a gold and silver
system, in theory works great. The total amount of money is determined
by how much gold is mined and once its refined into coins people can spend it. The system is simple and straightforward
has the least amount of middleman and so preserves the max amount of individual
freedom. Historically though, it has never really worked
like this. Even when gold and silver are used as money there’s always some kind
of paper currency also. For example let’s say a society starts off with 100% gold
and sivler as money. Pretty soon afterward someone whether it be a
private business or the government will basically create a piece of paper that
says, “I know this is just a piece of paper but it represents actual gold that
I have in a vault.” Inevitably the government gets involved to both prevent people
from fraud and others by creating pieces of paper from cold that doesn’t actually
exist in a vault. And eventually so they can have the irresistible power being
able to print money to themselves. Thus in practice almost all gold standards
have become mixed with both paper currency and actual metal. And while some people may look back to
when America was on a gold standard as the good old days of monetary policy we have
to remember that to the Americans at the time the system clearly didn’t work. There were financial crisis he’s in 1873, 1884, 1890, 1893. William Jennings Bryan
infamous cross of gold speech was given in 1896. The panic of 1907 finally
crystallized this ill-feeling into action and six years later the Federal Reserve would
be established. Milton Friedman’s conclusion is that an, “automatic commodity
standard or gold and silver standard is neither feasible nor a desirable
solution.” But if we thought a gold standard had its issues just wait until
the experts get their hands on things. The second option is an independent
central bank which also works great in theory. Advocates will often say that due
to how unstable a capitalist economy is we need to be able to adapt to
unforeseen circumstances. Therefore we need a group of experts given various
powers to turn different knobs and dials to keep the economy moving along
smoothly. While this sounds great in theory in practice the results have been
pretty terrible. Before the Federal Reserve the U S had panic’s and resessions, but nothing like the severe depressions after its establishment. “Even when you give the Federal Reserve
the benefit of the doubt,” says Milton Friedman “on the basis of extensive study
of the historical evidence” they undoubtedly screwed things up even more. Just to prove his point Milton Friedman dives into how badly the Federal Reserve
just completely messed things up during the Great Depression. Firstly he says
most people think the Great Depression started with the stock market crash of
1929. And while the crash makes for a great opening scene to a movie with
stockbrokers jumping out of windows hanging or shooting themselves it’s not
really when it started. Really it started just a little prior to the crash and
while the crash certainly didn’t help things there is nothing that signaled
that this crash will be the beginning of a major depression. The proverbial crap only started to hit
the fan once the bank failures started. Due to the nature of how banks are
interconnected when one bank failed it made it more likely that other banks
would fail. Which in turn made it more likely that
other banks would fail. This domino effect started the economy going downhill and
people started to panic. Back then if your bank failed you lost
all the money you had in the bank. This panic caused people to withdraw their
money which caused more banks to fail which intensified the downturn. This was
the moment the moment the Federal Reserve was meant for built for designed
for and they dropped the ball. In December of 1930 when they
should have done something they did nothing. In the middle of 1931 when more
bank failures began the Federal Reserve decided to still do nothing. Later in 1931 the Federal Reserve
decided to do something they promptly responded to requests of people wanting
their gold, which only intensified the downturn. Finally in 1932 the Federal
Reserve bought some government bonds which kinda helped, a bit. The collapse resumed shortly thereafter
finally culminating in FDR’s banking holiday of 1933. But all this didn’t stop the Federal
Reserve Board members from high-fiving each other and writing in their annual
report of 1933 what a great job they did helping to avert something really bad. Cue the Great Depression. Now current proponents of the Federal
Reserve will usually respond with something to the effect of, “Yes yes we
know the Fed failed during the Great Depression, but we got real experts in
charge now. They got all these equations and stuff. They know what they’re doing.” To that Milton Friedman has one more thing to say, “The Great Depression is a
testament to how much harm can be done by mistakes on the part of a few men
when they wield such fast powers over monetary system. Any system which gives so much power to a few men whose mistakes, excusable or not, can have such far-reaching effects is a bad system. So if neither a gold standard or central
bank works then what’s Milton Friedman’s end game here. What is his solution. Well good old Milton proposes a simple one. Essentially we need to go back to one of our founding ideals of being a nation of
laws and not men. Rather than have some group of experts be in charge of stuff. Simply create a rule that makes the stock of money increase every year by
certain percentage. Creating a rule would drastically reduce the amount of power
any experts have in the economy and would preserve the maximum amount of freedom for the individual. That is the solution according to Milton Friedman. Thanks for watching this video. If you
haven’t read Capitalism & Freedom I really recommend it. In it Milton Friedman
covers this topic much more detail than I ever could have
hoped to do in this video, but also topics including poverty, discrimination,
social welfare and a lot more and how they relate to Capitalism and Freedom (obviously the title of the book). So if you like this summary you can purchase
the book from Amazon. If you use the Amazon link on my website I get a little
kick back which helps me make more videos like this one. Simply go to TheNickWright.com . If you want to be emailed when I released a new video then sign-up at TheNickWright.com/email Thanks.

18 comments on “Milton Friedman [ANIMATED] Gold & Monetary Policy Book Summary

  1. How about using only gold and silver as money ? not using gold standard, but using gold itself as money.

    Respect for Milton Friedman, but by increasing stock of money every year (or certain time period) will only end up the same as the system we have now. Whether its the goverment or the federal reserve who printed the money, the result will still the same.

    As we know that, each time money is printed, money that people have in society is decreased in value.
    Money that I have 5 years ago that can buy a goat, let's say that I saved the money and didn't use it., but now today the same money can only buy a chicken. I could say that raising stock of money is just same as stealing people's money. And whether its 3%-5% every year. It still decreased value of money.

    I dont want the system where I can't store my money safely and keep stealing the value of my sweat and hardwork over certain period of time.

  2. Gold works great as money. But when dragons come along nothing works. Let us focus on how to fight the dragons and economy will take care of itself. Now I would suggest we need some heroes.

  3. Now talk about the view against Milton's from the Austrian economists: https://www.youtube.com/watch?v=V1rVXbAxLsE

  4. Great video, great job…perhaps even mention when which book came out at the start… due to our fast changing time. And at the end, one can even say that the sound gold/currency money and concept are still applicable today and even more so, 2017, 45 years later. Lastly, MF's solution is similar to world gold production rate. Even bitcoin is modeled on it. I won't be surprised if Satoshi Nakamoto has read this book. :). Cheers

  5. what happened to most of the banks that failed? oh right, didnt the FED buy them….? hence why they LET them fail. Absolute power corrupts absolutely.

  6. That's a tenth reason why Powell's politics about the dereserve atoxicity of subtitute monetary by the reserve next pro-Nexon, pro-RBS or pro-Goldman stocks had to apression next -2,9% oil & pallad crude responsing in 12.500 leftside target.

  7. Milton proposal is great he nailed it there where we can leave both gold and the FED'S. This guy is so great that he predicted that Bitcoin is coming…..

  8. read it. the back end of it was so difficult to keep up with. Still im happy I read it and I have a greater understanding of capitalism and freedom.

  9. Thanks for this good video. My view is that gold works perfectly well and it is government that messes it up. Over the last 1000 years the amount of gold stock has increased about 2-3% per year, in line with global real GDP growth, which is one reason it works well with stable prices. From 1713-1913, England had 0% net inflation. One ounce of gold bought a toga and a pair of nice leather sandals in 300BC and buys a nice suit and pair of leather shoes now. Gold is a constant. It does what Milton wants government to do, set the money supply increase by X percent per year. But why does Milton think that the same government that prints money beyond the gold supply level would suddenly not do the same thing with his artificial monetary expansion? Of course it would! So his goal is as much as pipe dream as a gold standard, and for the same reason; government.

  10. Gold is real money but it means nothing if someone can fractionally reserve the money supply.  It's the same as the power to print, except temporary money is created and then evaporates.  So get rid of BOTH fiat currency AND fractional reserve banking (call it what it is, counterfeiting) and then you will never have another financial panic again.

  11. It's not a mistake!!  If a criminal is trying to con you out of your wealth and they succeed, was it a mistake?? A failure of any kind? Nooooooooooooo!  It was mission accomplished.  Why can't people see this obvious truth?  They do it on purpose.  Fake money is the pump and dump system by which the elite transfer wealth from the poor to the rich.

  12. So MF’s solution opposed to the gold standard is to essentially recreate the gold standard in an inflexible manner? How does that make any sense. What do you call the mining of gold that adapts to the price of gold relative to the price of other goods and services? Well, you can’t call it increasing the stock of actual money, not currency. I think you are either misrepresenting or misunderstanding something.

  13. The problem is the government's monopoly on currency. Because currencies cannot compete with one another, they are not held accountable. In the digital age, there is no reason not to have wealth diversified into a multitude of currencies, which collectively, should offer the greatest stability.

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