RIA Novosti — China Daily — Chinese Video – Wiki World Currency — Ron Paul Video — Milton Freeman Interview
Although millions of American have been watching Michael Jackson’s funeral, the new administration has been very busy in Russia and Europe. Heads Up America! There is a new world order taking place and guess what? A new world currency is coming to the US Mint soon. The Socialist/Keynesian economic policies have made their way across the oceans to American shores.
Per the Chinese (See Video Below), these meeting are already taking place. And the American press? They have been busy making money off Michael Jackson and Sarah Palin stories. I noted ABC concluded that the President was not looking at the 16 year old butt. Thank You ABC.
As confirmed by Bloomberg, Russian President Medvedev showed the new world coin today in L’Aquila:
L’AQUILA, July 10 (RIA Novosti) – Russian President Dmitry Medvedev said on Friday he had been given an example coin of a possible global currency at the G8 summit in Italy, adding that all aspects of reserve currencies were under discussion.
“We are discussing both the use of other national currencies, including the ruble, as a reserve currency, as well as supranational currencies,” the Russian leader said at a news conference following the G8 summit.
Medvedev showed reporters an example of a coin of a supranational currency, which he called a “united future world currency.”
“This is a symbol of our unity and our desire to settle such issues jointly,” Medvedev said, adding that the coin had been made in Belgium.
He also expressed the hope that a day would come when something of the kind would be used for payment.
By Wang Jianfen (chinadaily.com.cn) Updated: 2009-07-05 19:54 (Emphasis mine)
The declining US dollar could not play the long term role as the world’s single reserve currency and a more diversified global currency system should be formed, prominent experts said Saturday at a global think tank summit in Beijing, days ahead of the G8 meeting this week.
The US dollar has been under pressure since the US adopted a quantitative easing policy and let its currency devalue significantly to help fight recession. Quantitative easing is a monetary policy tool in which a central bank – like the Federal Reserve – floods the market with cash in an attempt to stimulate an economy in recession and to stave off deflation.
“The US dollar cannot and should not take all the responsibility for the world monetary system. We need a stable and serious transition to new international monetary regime,” argued Jeffrey D. Sachs, director of the Earth Institute of Columbia University in the US. After the transition, “the dollar will gradually depreciate by 20 or 25 percent to rebalance the world system overtime,” Sachs believed. Sachs explained the reason for the transition is that the US size “relative to China and other countries will diminish” and the US “is just simply not big enough”to dominate the global economy any more.
President of the Chinese University of Hong Kong, Lawrence J. Lau, believed that in the future, there may be no single reserve currency in the world and alternatives included, for example, in East Asia, establishing an East Asian bank for international settlement or issuing bonds denominated in local currencies.
A proposal for a new global currency to replace the dollar is likely to be raised at the July 8-10 summit of G8 nations, comprising Britain, Canada, France, Germany, Italy, Japan, Russia and the United States.
“If this issue is raised by leaders during the meeting, it is natural, because we are all discussing how to respond to the international financial crisis and promote recovery,” a deputy Chinese foreign minister, He Yafei, said at a briefing last week.
However, China has no plans to raise this issue but is willing to discuss it, said He. China is attending the meeting in the Italian city of L’Aquila as part of a group of five large developing countries, including Brazil, Mexico, South Africa and India.
Beijing called in March for the creation of a new currency, possibly based on the IMF’s Special Drawing Rights, created in the 1960s and used as the monetary standard for dealings between the fund and member governments.
According to Sachs, the SDR “should be remade to include more currencies including the yuan … SDR should include a broader base of international currencies.” And there is increasing calls for the creation of an Asian currency.
Sachs believed that Asia should “move forward the Asian monetary basket or the Asian monetary currency overtime”. It was also a trend for the Chinese mainland currency to replace the US dollar in East Asia, said Lau.
The Chinese mainland signed a long-awaited agreement with Hong Kong on June 29 to allow bilateral trade to be settled using the yuan, rather than Hong Kong or US currencies. China is also looking at allowing yuan trade settlement with other trading partners.
From Wikipedia (Graphs from IMF)
In the foreign exchange market and international finance, a world currency or global currency refers to a currency in which the vast majority of international transactions take place and which serves as the world’s primary reserve currency. In March 2009, as a result of the global economic crisis, China and Russia have pressed for urgent consideration of a global currency and a UN panel has proposed greatly expanding the IMF’s SDRs or Special Drawing Rights.
A world currency is at one extreme of a conceptual spectrum that has local currency at the other extreme.
Currencies have many forms depending on several properties: type of issuance, type of issuer and type of backing. The particular configuration of those properties leads to different types of money. The pros and cons of a currency are strongly influenced by the type proposed. Consider, for example, the properties of a complementary currency.
The euro and the United States dollar
Since the mid-20th century, the de facto world currency has been the United States dollar. According to Robert Gilpin in Global Political Economy: Understanding the International Economic Order (2001): “Somewhere between 40 and 60 percent of international financial transactions are denominated in dollars. For decades the dollar has also been the world’s principal reserve currency; in 1996, the dollar accounted for approximately two-thirds of the world’s foreign exchange reserves” (255).
Many of the world’s currencies are pegged against the dollar. Some countries, such as Ecuador, El Salvador, and Panama, have gone even further and eliminated their own currency (see dollarization) in favor of the United States dollar. The dollar continues to dominate global currency reserves, with 63.9% held in dollars, as compared to 26.5% held in euros (see Reserve Currency).
Since 1999, the dollar’s dominance has begun to be eroded by the euro, which represents a larger size economy, and has the prospect of more countries adopting the euro as their national currency. The euro inherited the status of a major reserve currency from the German Mark (DM), and since then its contribution to official reserves has risen as banks seek to diversify their reserves and trade in the eurozone continues to expand.
As with the dollar, quite a few of the world’s currencies are pegged against the euro. They are usually Eastern European currencies like the Estonian kroon and the Bulgarian lev, plus several west African currencies like the Cape Verdean escudo and the CFA franc. Other European countries, while not being EU members, have adopted the euro due to currency unions with member states, or by unilaterally superseding their own currencies: Andorra, Monaco, Montenegro, San Marino, and Vatican City.
As of December 2006, the euro surpassed the dollar in the combined value of cash in circulation. The value of euro notes in circulation has risen to more than €610 billion, equivalent to US$800 billion at the exchange rates at the time (today equivalent to circa US$968 billion).
19th – 20th centuries
Prior to and during most of the 1800s, international trade was denominated in terms of currencies that represented weights of gold. Most national currencies at the time were in essence merely different ways of measuring gold weights (much as the yard and the meter both measure length and are related by a constant conversion factor). Hence some assert that gold was the world’s first global currency. The emerging collapse of the international gold standard around the time of World War I had significant implications for global trade.
In the period following the Bretton Woods Conference of 1944, exchange rates around the world were pegged against the United States dollar, which could be exchanged for a fixed amount of gold. This reinforced the dominance of the US dollar as a global currency.
Since the collapse of the fixed exchange rate regime and the gold standard and the institution of floating exchange rates following the Smithsonian Agreement in 1971, most currencies around the world have no longer been pegged against the United States dollar. However, as the United States remained the world’s preeminent economic superpower, most international transactions continued to be conducted with the United States dollar, and it has remained the de facto world currency.
Only two serious challengers to the status of the United States dollar as a world currency have arisen. During the 1980s, the Japanese yen became increasingly used as an international currency, but that usage diminished with the Japanese recession in the 1990s. More recently, the euro has increasingly competed with the United States dollar in international finance.
Hypothetical single supranational currency (Wiki may need to update Emphasis mine)
An alternative definition of a world or global currency refers to a hypothetical single global currency or supercurrency, as the proposed terra or the Dey (acronym for Dollar Euro Yen) , produced and supported by a central bank which is used for all transactions around the world, regardless of the nationality of the entities (individuals, corporations, governments, or other organisations) involved in the transaction. No such official currency currently exists. There are many different variations of the idea, including a possibility that it would be administered by a global central bank or that it would be on the gold standard. Supporters often point to the euro as an example of a supranational currency successfully implemented by a union of nations with disparate languages, cultures, and economies. Alternatively, digital gold currency can be viewed as an example of how global currency can be implemented without achieving national government consensus.
A limited alternative would be a world reserve currency issued by the International Monetary Fund, as an evolution of the existing Special Drawing Rights and used as reserve assets by all national and regional central banks. Indeed, on March 26, 2009, a UN panel called for a new global currency reserve scheme which with “greatly expanded SDR (Special Drawing Rights), with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations, could contribute to global stability, economic strength and global equity.”  Russia and China call for global reserve currency.
On March 16, 2009, in connection with the April 2009 G20 summit, the Kremlin called for a supranational reserve currency as part of a reform of the global financial system. In a document containing proposals for the G20 meeting, it suggested that the “IMF (or an Ad Hoc Working Group of G20) should be instructed to carry out specific studies to review the following options:
Enlargement (diversification) of the list of currencies used as reserve ones, based on agreed measures to promote the development of major regional financial centers. In this context, we should consider possible establishment of specific regional mechanisms which would contribute to reducing volatility of exchange rates of such reserve currencies.
Introduction of a supra-national reserve currency to be issued by international financial institutions. It seems appropriate to consider the role of IMF in this process and to review the feasibility of and the need for measures to ensure the recognition of SDRs as a “supra-reserve” currency by the whole world community.”
On March 24, 2009, Zhou Xiaochuan, President of the People’s Bank of China, called for “creative reform of the existing international monetary system towards an international reserve currency,” believing it would “significantly reduce the risks of a future crisis and enhance crisis management capability.” Zhou suggested that the IMF’s Special Drawing Rights, a currency basket comprising dollars, euros, yen, and sterling and could serve as a super-sovereign reserve currency, not easily influenced by the policies of individual countries. US President Obama, however, rejected the suggestion stating that “the dollar is extraordinarily strong right now.”  In the g8 summit russian prez revelaed the world currency Other proposals for a global currency
In March 30, 2009, at the Second South America-Arab League Summit in Qatar, Venezuelan President Hugo Chavez proposed the creation of the Petro is a supranational currency, in order to to face the instability that the generation of fiat currency has caused in the world economy. The petro-currency would be backed by the huge oil reserves of the oil producing countries. Arguments for a global currency
Advocates, notably Keynes, of a global currency often argue that such a currency would not suffer from inflation, which, in extreme cases, has had disastrous effects for economies. In addition, many argue that a global currency would make conducting international business more efficient and would encourage Foreign direct investment (FDI).An often over-looked alternative to an establishment-created global reserve currency is for anyone to adopt already existing mechanisms that traditionally has worked very well in conducting international business. There are, for example, no obstacles for legal or physical persons to start drawing contracts and invoicing in XAU – Gold – as opposed to the defunct USD, the EUR, the YAN, or any “basket” of national/regional currencies.
Arguments against a single global currency
Some economists argue that a single global currency is unworkable given the vastly different national political and economic systems in existence.
Loss of national monetary policy
One currency can only be provided by one institution printing and setting the interest rate on money deposited or lent to banks. However the central bank is a lender of last resort, and is not, contrary to popular belief, involved in most transactions involving money. The interest rate set by the central bank only indirectly determines the interest rate customers has to pay on their bankloans. Given that private firms or persons see different risks with different lendings the interest rate can be very different from one investment to the next, from one person to the next, or one country to the next. In general lending to poor involves more risk, and you need higher interest to compensate for that risk. Still only one set of politics for interest can be made at any time by one central bank. In general a bigger currency area will in general have less chance of using interest rate to stabilize the economy, because different areas may be in different stages in the boom-bust cycle, and the interest rate setting must be a compromise between the interests of the different part of the currency area.
In the present world, nations are not able to work together closely enough to be able to produce and support a common currency. There has to be a high level of trust between different countries before a true world currency could be created. A world currency might even undermine national sovereignty of smaller states.
Most modern currencies have an interest rate, while one of the largest religions in the world, Islam, is against the idea of paying interest for loans. This might prove to be an unsolvable problem for a world currency, if religious views concerning interest do not moderate. This is not necessarily a fatal flaw, however, as a large number of religious adherents who oppose the paying of interest are still currently able to take advantage of banking facilities in their countries which are able to cater to this. An example of this might be Islamic banking, which operates well enough in nations where the central bank sets interest rates for most other transactions. However, banking systems in the Middle East region is less developed then in the west, and investments like for instance housebuilding have to rely more on equity or private lendings from family or close friends.
Some economists argue that a single world currency is unnecessary, because the U.S. dollar already provides many of the benefits of a world currency while avoiding some of the costs.
If the world does not form an optimum currency area, then it would be economically inefficient for the world to share one currency.
Milton Friedman Interview, Interview conducted 10/01/00
INTERVIEWER: When did you begin to break with Keynes and why? What were the first doubts you had?
MILTON FRIEDMAN: Very shortly after the war, when I came to the University of Chicago and started working on money and its relation to the economic cycle. I cannot tell you exactly when, but very shortly thereafter, as I studied the facts, they seemed to me to contradict what Keynesian theory would call for.
INTERVIEWER: What was it that you studied that made you begin to feel that this didn’t add up?
MILTON FRIEDMAN: Let me emphasize [that] I think Keynes was a great economist. I think his particular theory in The General Theory of Employment, Interest, and Money is a fascinating theory. It’s a right kind of a theory. It’s one which says a lot by using only a little. So it’s a theory that has great potentiality.
And you know, in all of science, progress comes through people proposing hypotheses which are subject to test and rejected and replaced by better hypotheses. And Keynes’s theory, in my opinion, was one of those very productive hypotheses — a very ingenious one, a very intelligent one. It just turned out to be incompatible with the facts when it was put to the test. So I’m not criticizing Keynes. I am a great admirer of Keynes as an economist, much more than on the political level. On the political level, that’s a different question, but as an economist, he was brilliant and one of the great economists.
Now the crucial issue is, which is more important in determining the short-run course of the economy? What happens to investment on the one hand, or what happens to the quantity of money on the other hand? What happens to fiscal policy on the one hand, or what happens to monetary policy on the other hand? And the facts that led me to believe that his hypothesis was not correct was that again and again it turned out that what happened to the quantity of money was far more important than what was happening to investments. The essential difference between the Keynesian theory and the pre-Keynesian, or the monetarist theory, as it was developed, is whether what’s important to understanding the short-run movements of the economy is the relation between the flow of investments — the amount of money being spent on new investments, on the one hand, or the flow of money, the quantity of money in the economy and what’s happening to it. By the quantity of money I just mean the cash that people count, carry around in their pockets and the deposits that they have in banks on which they can write checks. That’s the quantity of money. And the quantity of money is controlled by monetary policy. On the investment side the flow of investment is controlled by private individuals, but is also affected by fiscal policy, by government taxing and government spending. The essential Keynesian argument, the basic Keynesian argument, was that the way to affect what happened to the economy as a whole, not to a particular part of it, but to the level of income, of employment and so on, was through fiscal policy, through changing government taxes and spending. The argument from the monetarists’ side was that what was more important was what was happening to the quantity of money, monetary policy on that side. And so, as I examined the facts about these phenomena, it more and more became clear that what was important was the flow of money as compared to the flow of government spending, and when fiscal policy and monetary policy went in the same direction, you couldn’t tell which was more important. But if you looked at those periods when fiscal policy went in one direction and monetary policy went in another direction, invariably it was what happened to monetary policy that determined matters. The public event that changed the opinion of the profession and of people at large was the stagflation of the 1970s, because under the Keynesian view, that was a period in which you had a very expansive fiscal policy, in which you should have had a great expansion in the economy. And instead you had two things at the same time, which under the Keynesian view would have been impossible: You had stagnation in the economy, a high level of unemployment. You had inflation with prices rising rapidly. We had predicted in advance that that would be what happened, and when it happened, it was very effective in leading people to believe that, maybe, there was something to what before had been regarded as utter nonsense.
INTERVIEWER: Was stagflation the end for Keynesianism?
MILTON FRIEDMAN: Stagflation was the end of naive Keynesianism. Now obviously the term “Keynesian” can mean anything you want it to mean, and so you have new Keynesianism, but this particular feature was put to an end by the stagflation episode.
INTERVIEWER: Talking about Keynesian policies, John Kenneth Galbraith, when we talked to him a few days ago, said that World War II “affirmed Keynes and his policies.” Do you agree?
MILTON FRIEDMAN: No, I don’t agree at all. World War II affirmed what everybody knew for a long time. If you print enough money and spend it you can create an appearance of activity and prosperity. That’s what it confirmed. It did not confirm his theories about how you preserve full employment over a long time.
The Great Depression
INTERVIEWER: You’ve written that what really caused the Depression was mistakes by the government. Looking back now, what in your view was the actual cause?
MILTON FRIEDMAN: Well, we have to distinguish between the recession of 1929, the early stages, and the conversion of that recession into a major catastrophe. The recession was an ordinary business cycle. We had repeated recessions over hundreds of years, but what converted [this one] into a major depression was bad monetary policy. The Federal Reserve system had been established to prevent what actually happened. It was set up to avoid a situation in which you would have to close down banks, in which you would have a banking crisis. And yet, under the Federal Reserve system, you had the worst banking crisis in the history of the United States. There’s no other example I can think of, of a government measure which produced so clearly the opposite of the results that were intended. And what happened is that [the Federal Reserve] followed policies which led to a decline in the quantity of money by a third. For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing from beginning to end, with millions of people having their savings essentially washed out, that decline was utterly unnecessary. At all times, the Federal Reserve had the power and the knowledge to have stopped that. And there were people at the time who were all the time urging them to do that. So it was, in my opinion, clearly a mistake of policy that led to the Great Depression.
INTERVIEWER: How did the Depression change your life and your career plans? You started out [with plans] to become an insurance actuary; instead you became an economist.
MILTON FRIEDMAN: Well, I don’t think that’s very hard to understand. It’s 1932. Twenty-five percent of the American working force is unemployed. My major problem with the world is a problem of scarcity in the midst of plenty … of people starving while there are unused resources … people having skills which are not being used. If you’re a 19-year-old college senior, which is going to be more important to you: figuring out what the right prices ought to be for life insurance, or trying to understand how the world got into that kind of a mess?
Why are you not, and why have you never been, a communist?
INTERVIEWER: A lot of people in the ’30s were drawn to the left. So why are you not and why have you never been a communist?
MILTON FRIEDMAN: (laughs) No, I’ve not, never been a communist. Never even been a socialist — [though] it may well be that I harbored socialist thoughts at the time when I was an undergraduate. But undoubtedly [the fact that I’m not a communist] is tied in with the accident that I went to the University of Chicago for graduate study and at the department of economics at the University of Chicago, they were classical liberal economists. Classical economics, which begins with Adam Smith, with his book The Wealth of Nations, published in 1776, the same year as the American Revolution and the American Declaration of Independence, emphasizes the individual as the ultimate objective of science. And the question of economic science is how to explain the way in which individuals interact with one another, to use their limited resources to satisfy their alternative ends. The emphasis is on the fact that there are many objectives that people have. There are limited resources to satisfy them. What’s the mechanism whereby you decide which ends are to be satisfied for which people in what way? And the emphasis in the classical liberal economists is on doing that through free markets.
Did you support Franklin Roosevelt’s New Deal?
INTERVIEWER: Now at the time of the Depression, did you personally support New Deal policies?
MILTON FRIEDMAN: You’re now talking not about the Depression, but the post-Depression. At least the bottom of the Depression was in 1933. You have to distinguish between two classes of New Deal policies. One class of New Deal policies was reform: wage and price control, the Blue Eagle, the national industrial recovery movement. I did not support those. The other part of the new deal policy was relief and recovery… providing relief for the unemployed, providing jobs for the unemployed, and motivating the economy to expand… an expansive monetary policy. Those parts of the New Deal I did support.
INTERVIEWER: But why did you support those?
MILTON FRIEDMAN: Because it was a very exceptional circumstance. We’d gotten into an extraordinarily difficult situation, unprecedented in the nation’s history. You had millions of people out of work. Something had to be done; it was intolerable. And it was a case in which, unlike most cases, the short run deserved to dominate. I want to emphasize that you’re talking about a long time ago. I was very young and unsophisticated, inexperienced, and I can’t swear to you that what I’m saying now is actually what I believed then. I don’t have any record of what my specific attitude was toward the New Deal policies. I must confess that probably I was thinking at that time more about my own interests and position than I was about these broader issues. So I think this is somewhat retrospective thinking rather than thinking at the time.
On Richard Nixon
MILTON FRIEDMAN: Nixon was the most socialist of the presidents of the United States in the 20th century.
INTERVIEWER: I’ve heard Nixon accused of many things, but never [of being] a socialist before.
MILTON FRIEDMAN: Well, his ideas were not socialist, quite the opposite, but if you look at what happened during his administration, first of all, the number of pages in the Federal Register, which is full of regulations about business, doubled during his regime. During his regime the EPA, the Environmental Protection Agency, was established and the OSHA, the Occupational Safety and Health Administration, the OECA [the Office of Enforcement and Compliance Assurance of the EPA] — about a dozen, a half-dozen alphabetic agencies were established so that you had the biggest increase in government regulation and control of industry during the Nixon administration that you had in the whole postwar period.
INTERVIEWER: Tell us how Nixon decided to adopt wage and price controls.
MILTON FRIEDMAN: Nixon, as you know, had been in the price control organization during World War II and understood that price controls were a very bad idea, and so he was strongly opposed to price controls. And yet, in 1971, August 15, 1971, he adopted wage and price controls. And the reason he did it, in my opinion, was because of something else that was happening, and that had to do with the exchange rate; that had to do with Bretton Woods and the agreement to peg the price of gold. The United States had agreed in 1944, at the Bretton Woods Conference, on an international financial system under which other countries would link their currencies to the U.S. dollar, and the United States would link its currency to gold and keep the price of gold at $35 an ounce. And because of the policies that were followed by the Kennedy and Johnson administrations, it had become very difficult to do that. We had had inflationary policies, which led to a tendency for the gold to flow out, for the price of gold to go above $35 an ounce. And the situation had become very critical in 1971. Nixon had to do something about that. If he had done nothing but close the gold window, if he had said the United States is going off the gold standard and done nothing else, every headline in every newspaper would have been, “That negative Nixon again! Just a negative act.” And so instead he dressed it up by making it part of a general economic policy, a recovery policy, in which wage and price controls, which the democrats had been urging all along, became a major element. And by putting together the combination of closing the gold window and at the same time having wage and price controls, he converted what would have been a negative from a political point of view to a political positive. And that was the political reason for which he did it.
INTERVIEWER: There is a photograph of you and George Shultz with Nixon in the Oval Office. What did you say to him on that occasion? What did you tell him?
MILTON FRIEDMAN: Well, I don’t know what occasion that particular one was, but the one that’s relevant to your question is the last time I saw Nixon in the Oval Office with George Shultz. What we usually discussed when Nixon wanted to talk was the state of the economy: what monetary policy was doing.
Nixon was a very, very smart person. In fact, he had one of the highest IQs of any public official I’ve met. The problem with Nixon was not intelligence and not prejudices. The problem with him was that he was willing to sacrifice principles too easily for political advantage. But at any rate, as I was getting up to leave, President Nixon said to me, “Don’t blame George for this silly business of wage and price controls,” meaning George Shultz. And I believe I said to him, I think I said to him, “Oh, no, Mr. President. I don’t blame George; I blame you! ” (laughs) And that, I think, was the last thing I said to him. Now, the interesting point of that story is that the Nixon tapes are now available, and I have been trying to get that part of the Nixon tapes, but I haven’t been able to get them yet. I want to make sure I didn’t make this up.
On Ronald Reagan
INTERVIEWER: Tell us briefly how Paul Volcker set out to squeeze inflation out of the economy.
MILTON FRIEDMAN: Well, by the time Paul Volcker came along — this was in 1968-69 [Volcker was undersecretary in the Treasury Department from 1969-74, president of the New York Federal Reseve Bank from 1975-79, and appointed chairman of the Board of Governors of the Federal Reserve Board from 1979-87] — inflation had gotten very high and had gone up close to 20 percent. He was at a meeting of the International Monetary Fund in Yugoslavia in 1979, when the U.S. came under great criticism from the other people there for our inflationary policies. And he came back to the United States and had got the open market committee to announce that they would change their policy and shift from controlling interest rates to controlling the quantity of money. Now, this was mostly verbal rhetoric. What he really wanted to do was to have the interest rate go up very high, to reflect the amount of inflation. But he could do it better by professing that he wasn’t controlling it and that he was controlling the quantity of money, and the right policy at that time was to limit what was happening to the quantity of money, and that meant the interest rate shot way up. This is a complex story. It isn’t all one way, because in early 1980 President Carter introduced controls on installment spending, and that caused a very sharp collapse in the credit market and caused a very sharp downward spiral in the economy. To counter that, the Federal Reserve increased the money supply very rapidly. In the five months before the 1980 election, the money supply went up more rapidly than in any other five-month period in the postwar era. Immediately after him, Reagan was elected, and the money supply started going down. So that was a very political reaction during that period.
INTERVIEWER: How important was President Reagan’s support for Volcker’s policies?
MILTON FRIEDMAN: Enormously important. There is no other president in the postwar period who would have stood by without trying to interfere, to intervene with the Federal Reserve. The situation was this: The only way you could get the inflation down was by having monetary contraction. There was no way you could do that without having a temporary recession. The great error in the earlier period had been that whenever there was a little contraction there was a tendency to expand the money supply rapidly in order to avoid unemployment. That stop-and-go policy was really what bedeviled the Fed during the ’60s and ’70s. That was the situation in 1980, in ’81 in particular. After Reagan came into office, the Fed did step on the money supply, did hold down its growth, and that did lead to a recession. At that point every other president would have immediately come in and tried to get the Federal Reserve to expand. Reagan knew what was happening. He understood very well that the only way he could get inflation down was by accepting a temporary recession, and he supported Volcker and did not try to intervene. Now, you know, there is a myth that Reagan was somehow simpleminded and didn’t understand these things. That’s a bunch of nonsense. He understood this issue very well. And I know — I can speak with, I think, authority on this — that he realized what he was doing, and he knew very well that he was risking his political standing in order to achieve a basic economic objective. And, as you know, his poll ratings went way down in 1982, and then, when the inflation seemed to be broken enough, the Fed reversed policy, started to expand the money supply, the economy recovered, and along with it, Reagan’s poll ratings went back up.
INTERVIEWER: And the economy has been pretty solid ever since. [As of the year 2000.]
MILTON FRIEDMAN: Yes, absolutely. There is no doubt in my mind that that action of Reagan, plus his emphasis on lowering tax rates, plus his emphasis on deregulating … I mentioned that the regulations had doubled, the number of pages in the Federal Register had doubled, during the Nixon regime; they almost halved during the Reagan regime. So those actions of Reagan unleashed the basic constructive forces of the free market and from 1983 on, it’s been almost entirely up.
INTERVIEWER: What Reagan was doing is almost exactly mirrored in Britain by what Mrs. Thatcher was doing at about the same time. Are the two influencing to each other, or is it just a case of ideas coming into their own?
MILTON FRIEDMAN: Both of them faced similar situations. And both of them, fortunately, had exposure to similar ideas. And they reinforced one another. Each saw the success of the other. I think that the coincidence of Thatcher and Reagan having been in office at the same time was enormously important for the public acceptance, worldwide, of a different approach to economic and monetary policy.
Where We Stand Today
INTERVIEWER: From your apartment, you can almost see Silicon Valley. How do you think information technology, the Internet, and the new economy, will affect the big issues of economics and politics that you’ve devoted your life to?
MILTON FRIEDMAN: The most important ways in which I think the Internet will affect the big issue is that it will make it more difficult for government to collect taxes. And I think that’s a very important factor. Governments can most effectively collect taxes on things that can’t move. That’s why property taxes are invariably the first tax. People can move, so it’s a little more difficult to collect taxes on them. States within the United States find it more difficult to collect taxes on people, but the United States as a whole can collect taxes on people more easily. Now the Internet, by enabling transactions to be made in cyberspace, not recorded, by enabling them to move so that somebody in Britain can order books from Amazon.com in the United States, somebody in the United States can do a deal in India, I think the cyberspace is going to make it very much more difficult for government to collect taxes, and that will have a very important effect on reducing the role that governments can play.
INTERVIEWER: So we’re sort of marching forward to a kind of, the ultimate “Hayekian” state, are we?
MILTON FRIEDMAN: I think we are in that respect. Now, of course it has its advantages and disadvantages. It makes it easier for criminals to conduct their affairs, but, you know, you have to distinguish between criminals and criminals. We have as many criminals as we have because we have as many laws to break as we have. You take the situation in the United States. We have two million people in prison, four million people who are under parole or under supervision. Why? Because of our mistaken attempt to control what people put in their bodies. Prohibition of so-called drugs, of illegal drugs, is a major reason for all of those prisons. And those are victimless crimes, which should not be crimes.
INTERVIEWER: More than half a century after that first meeting in Mont Pelerin, who’s won the argument? Who’s lost?
MILTON FRIEDMAN: There is no doubt who won the intellectual argument. There is no doubt that the received intellectual opinion of the world today is much less favorable towards central planning and controls than it was in 1947. What’s much more dubious is who won the practical argument. The world is more socialist today than it was in 1947. Government spending in almost every Western country is higher today than it was in 1947, as a fraction of income, not simply in dollars. Government regulation of business is larger. There has not been a great deal of nationalization, socialization in that sense, but government intervention in the economy has undoubtedly gone up. The only countries where that is not true are the countries which were formerly part of the communist system. You can see that we won the argument in practice as well as on the intellectual level in Poland, in Czechoslovakia, in Hungary, in Russia, and throughout that part of the world. But in the West, the practical argument is as yet undecided.
INTERVIEWER: Are you hopeful?
MILTON FRIEDMAN: Oh, yes, I’m very hopeful about it. Don’t misunderstand me. At the moment we have not won the argument in practice, but I think in the long run ideas will dominate, and I think we will win the argument in practice as well as on the intellectual level.
INTERVIEWER: Central controls have been discredited, the governments seem to have retreated remarkably, but are we becoming increasingly regulated?
MILTON FRIEDMAN: You have to distinguish different areas. Some kinds of regulations have declined. Regulations of prices, particular regulations of industries as a whole have declined. Other kinds of regulations, particularly regulations on personal behavior, have gone up. It’s social control that has been taking the place of narrow economic control.
INTERVIEWER: Do you feel some of those regulations are ultimately a threat to the free market?
MILTON FRIEDMAN: They’re not a threat to the free market. They’re a threat to human freedom.
INTERVIEWER: At the moment, governments everywhere are retreating from the marketplace, or seem to be. Do you think a pendulum could swing back the other way?
MILTON FRIEDMAN: The pendulum easily can swing back the other way. It can swing back the other way, not because anybody wants to do it in a positive sense, but simply because as long as you have governments which control a great deal of power, there always [will be] pressure from special interests to intervene. And once you get something in government, it’s very hard to get it out. So I think there is a real danger. I don’t think we can regard the war as won by any manner of means. I think it still is true that it takes continued effort to keep a society free. What’s the saying? “Eternal vigilance is the price of liberty.”
- FT.com / MARKETS / Currencies – Euro notes cash in to overtake dollar
- “There’s a New ‘Dey’ Coming!”
- A Single Global Currency
- UN panel touts new global currency reserve system. AFP, March 26, 2009. Retrieved 27 March 2009.
- Russian Proposals to the London Summit (April 2009). Kremlin website. 16 March 2009. Retrieved 25 March 2009.
- At G20, Kremlin to Pitch New Currency. Moscow Times. March 17 2009. Retrieved 25 March 2009.
- China presses G20 reform plans. BBC News, March 24, 2009. Retrieved 25 March 2009.
- Obama rejects China’s call for new global currency. AFP, March 25,2009. Retrieved 25 March 2009.
- Chavez to seek Arab backing for ‘petro’
- Chavez to seek Arab backing for `petro-currency’
Related Wiki Links:
- Digital gold currency
- Special Drawing Rights (SDRs)
- Dollar hegemony
- World Currency Unit
- Monetary hegemony
External Wiki links
- Global Imbalances and Developing Countries: Remedies for a Failing International Financial System, Jan Joost Teunissen and Age Akkerman (eds.), 2007, downloadable pdf book
- Single Global Currency Association.
- A Single Global Currency? Sure, why not. But, only if it’s Gold and Silver Bullion!.
- Malaysia Mahathir Proposes Single Global Currency.
- Illustrated map “Money of the states of the world”
Related Background Links:
On Why Not a Global Currency Kenneth Rogoff (pdf)
RightSide News: Geithner and His World Currency, SDRs and More
Socio-Economics History Blog: European Central Banksters Seek World Currency, Total Control
Econlib: Keynesian economics
Library of Economics and Liberty: An Interview with Milton Friedman
2ndlook – View From A Square Prism: The Third Currency Option – Junk the Dollar and the Euro