Money Mischief: Episodes in Monetary History

"This is another book that influenced my thinking, and is also the easiest read of the five. Again, it’s a collection of articles. Milton Friedman retired as a professor from the University of Chicago in 1977. And this book came out in 1992. I read Milton Friedman for the first time when I was 16 years old, and that was what made me want to become an economist and gave me a keen interest in monetary policy. Money Mischief is a wonderful book. It goes through episodes of monetary mistakes in history and, to a monetary policy nerd, it reads like beautiful literature. Obviously, Milton Friedman was a master of communication. He could take these complicated matters and set them out in a simple way. I have myself written a book on Milton Friedman. Unfortunately for non-Danish-speaking audiences, it’s in Danish. In that book I called Milton Friedman a pragmatic revolutionary. What Milton Friedman did, both in his academic work on economic theory and history, monetary policy and so forth, and as a policy advocate deeply engaged in policy debates, was to take things and make them very, very easy to understand. And he was able to convince people of his argument by making those arguments very logically. In Money Mischief , you learn about all the thinking that went on behind Milton Friedman’s academic and policy work. A view that for example was presented in his famous speech to the American Economic Association in 1968 , when he was its president. That speech essentially argued that we cannot reduce unemployment permanently below what he called the ‘natural level’—the NAIRU [non-accelerating inflation rate of unemployment]—without creating inflation. In that speech, he forecast what then happened in the coming years of rising US and global inflation, starting around that time. If you want to understand his work starting in the 1950s and 1960s at the University of Chicago, the Money and Banking Workshop which he set up there, all of that work is summed up beautifully in Money Mischief in a very accessible fashion. It’s something that an economics student can read fairly easily and learn a lot from. There are also a range of odd examples. He discusses fixed exchange rate policies and looks at two examples, Chile and Israel. Chile had a period of being linked to the dollar, which ended in economic disaster. Israel had a period of being linked to the dollar that helped bring down very high inflation. And he discusses why these two similar policies lead to two different outcomes. He says ‘never underestimate the importance of luck for nations’. I often remember that phrase, because I think it’s so telling in a lot of the things in politics and economics. Another takeaway from the book that has influenced me is that monetary rules are extremely important. He discusses bi-metalism, which nobody remembers, when some countries used to be linked to gold and others to silver and some to a combination of gold and silver. It’s not that he’s advocating that system, but by taking these historical economic examples, he teaches us about the mechanisms of monetary policy."