David Frum, a political commentator with no economics background whatsoever, chides Ron Paul for being self-taught on economics and claims that Paul has taught himself the opposite of what has been serious science from Alfred Marshall to Milton Friedman.
Paul is an advocate of the Gold Standard, and a critic of central banking. But let the record be clear --- Milton Friedman was a critic of discretionary monetary policy, he advocated a monetary rule, and in later life became increasingly concerned with public choice problems in following the monetary rule. He suggested that a computer run monetary policy at one point to take the human element out of it, and he also had favorable things to say about alternative banking regimes. In addition, his critique of the gold standard was not as vociferous as some would have you believe. He argued that the costs of the gold standard were too great. (see Roger Garrison's piece on this) However, he did admit that the gold standard had served as a useful check on inflation for many years. See Friedman's Monetary Mischief. He did not, it must be stressed, advocate a return to a gold standard for a variety of reasons. In his last interview on the subject that I am aware of --- a podcast with my colleague Russ Roberts --- Friedman advocates the central bank practice of "inflation targeting" and singles out Don Brash for his exemplary performance as central banker in NZ.
Friedman and the gold standard advocates share a fundamental bond ---- inflation is destructive to an economy and ultimately to a civilization. Good policy must fight inflation.
Friedman stated the facts on inflation as follows:
1. Inflation is everywhere and always a monetary phenomena. Its cause is a more rapid an increase in the quantity of money than in output;
2. Governments determine the quantity of money;
3. There is only one cure for inflation, a slower increase in the quantity of money;
4. It takes time for inflation to develop; it takes time for inflation to be cured (measured in years not months);
5. Unpleasant side effects are unavoidable.
Pundits like Frum believe that economic policy can be designed to avoid the unpleasant side effects of previous policy errors. But there isn't any silver bullet here to provide a quick and easy fix to decades of monetary irresponsibility. As I said before, we don't need government intervention, we need market correction. Market forces, if allowed to operate freely, will work quickly to reallocate labor and capital and shift resources to higher valued uses. Furthermore, if allowed to operate unencumbered by restrictions and controls, the lure of the gains from trade and the gains from innovation will ameliorate many (not all) of the side-effects. As Milton Friedman said, we have been misled by false teaching in economics to believe that there is a trade-off between inflation and unemployment. This dichotomy is false. The choice is not between inflation and unemployment, but between high unemployment as a result of inflation, or unemployment as a temporary side-effect of the cure for inflation. Playing the policy game of always pushing off market corrections through easy money, is as Hayek warned like holding a 'tiger by the tail'.
Right at the time that David Frum is ridiculing Ron Paul's for holding economic ideas that have been rejected from the time of Marshall to Friedman, we learn that the European Central Bank is injecting $500 billion into the banking system to ease the market corrections that must result from the previous credit expansion. That tiger is getting awful hard to hang on to!!!
And, Mr. Frum should look up the various Nobel Prize winners in economics, starting with Hayek, who have been concerned with government monetary policy and looked to a commodity backed money as a viable alternative. The 'self-taught' economics of Ron Paul (whatever other problems I might have with him and his presentation of these ideas) is grounded in sound scientific economics. An understanding of the logic of human action, the coordinating capacity of the market economy, the problems with bureaucracy, the special pleading of interest groups, and the destructive capacity of inflation are fundamental to his economic policy message. I hope my students learn those lessons from reading Adam Smith, David Hume, J. B. Say, F. A. Hayek, and James Buchanan. None of these names are on the 'crackpot' list of economists. Some might want to call Mises a crackpot, but the reality is that his work, more than any other 20th century economist, has all those arguments integrated into it and presented in a coherent and comprehensive manner. Mises was not a crackpot, but perhaps the most insightful economic thinker in the world at a time when the world itself was upside down. He was an anti-socialist when the world looked upon socialism with hope, and he was an anti-Keynesian when the discipline of economics all moved in the Keynesian direction. Subsequently we learned that socialism led not to hope but to political tyranny and economic deprivation, and Keynesianism was logically flawed in lacking microfoundations, and practically flawed in leading to world-wide inflation and economic stagnation. In other words, Mises was right! In fact, I think one could make a reasonable argument that Mises was right on every single controversial position he held --- from methodology to public policy.
So where does that leave us? Well, we have monetary injections on top of an already precarious financial situation. Market adjustments are required, not interventions of easy money.
I can think of no better response to Mr. Frum's claims about economic teachings than John McEnroe's now famous line at Wimbledon --- "You CANNOT be serious."
ADDITION: See Richard Ebeling's discussion of Friedman and the Gold Standard.