Milton Friedman and the Money Matters Controversy
Escrito por Imprensa, postado em 15 dEurope/London setembro dEurope/London 2008 
By Henry CK Liu
Love is blind and infatuation disguises faults as virtues. As Rudyard Kipling fell in love with the pageantry of colonialism and saw racial exploitation as the “White Man’s Burden”, Nobel economist Friedman fell in love with colonial Hong Kong, seduced by the wine-and-dine hospitality of its colonial masters and elite compradors before China reclaimed sovereignty of it in 1997. Friedman mistook Hong Kong’s colonial economic system as a free market, despite Hong Kong’s long history of highly orchestrated colonial command economic structure. The Hong Kong economy that Friedman loved prospered from Cold War geopolitical tension, not free market principle. The Asian Financial Crisis that broke out in Thailand on July 2, 1997, one day after China took back Hong Kong, put monetarist market fundamentalism in the public opinion dog house in Asia.
The Chicago School, a refuge for snubbed market fundamentalists during the Keynesian era, began to enjoy broad establishment support after the end of the Cold War, when the sole remaining superpower no long needed to win the hearts and minds of the world by reining in systemic exploitation of the weak by the strong. The function of government shifted from protecting the weak from the strong, to freeing the strong to cannibalize the weak under the doctrine that survival of the fittest strengthens the specie.
The Chicago School is strongly identified with monetarism in microeconomics. Central Bankers, many trained by Chicago School monetarists, became blind-sighted by Friedman. Chicago School monetarism enjoyed respectful awe from central bankers because it provided them with a simple formula for handling complex problems, by accepting that inflation is always and everywhere monetary phenomenon, which relieved them from the dilemma of choosing between full employment and price stability. A natural rate of unemployment is structural in a market economy and therefore not the fault of central bankers. Full employment is not even a policy prerogative of the central bank.
Critics have long pointed out that the data behind the Chicago School theories are selectively collected and arranged to support a preconceived ideology, which is more a vertical system of beliefs than the outcome of truly open scientific inquiry. Economics is a complex subject. Any subject, however complex, if looked at in the right way, will become even more complex. On the other hand, if it is looked at in a simplistic way, it can lead to convenient but misleading conclusions. This truth escapes many experts who tend to avoid small errors meticulously while sweeping on to grand fallacy. This was what happened to the Chicago School economists.
The claim of the Chicago School that prosperity will spring from markets left free of government interference is challenged by developing facts. Recurring financial crises appear to have jelled into a pattern of 10-year cycles, as evidenced by the crashes of 1987, 1997 and 2007. By now, after three decades of hegemonic dominance in government policy penchant and private enterprise philosophy, the Chicago School theology can no longer rest on its secure platform of political power disguised as theoretical supremacy. The collapse of market fundamentalism in economies everywhere is putting the Chicago School theology on trial. Its big lie has been exposed by facts on two levels. The Chicago Boys’ claim that helping the rich will also help the poor is not only exposed as not true, it turns out that market fundamentalism hurts not only the poor and the powerless; it hurts everyone, rich and poor, albeit in different ways. When wages are kept low to fight inflation, the low-wage regime causes overcapacity through over investment from excess profit. And monetary easing under such conditions produces hyperinflation that hurts also the rich. The fruits of Friedman test are in – and they are all rotten.
