Skip to content
MiltonFriedman.org

Milton Friedman on What government is for

The IMF was established at Bretton Woods in 1944 to serve one purpose only: to supervise the operation of the system of fixed exchange rates established at Bretton Woods. That system ended on August 15, 1971, when President Nixon, as part of a package of economic changes including wage and price ceilings, closed the gold window; that is, he ended the commitment that the United States had undertaken at Bretton Woods to buy and sell gold at $35 an ounce. With the official death of the Bretton Woods system in 1973, the IMF should have been abolished. But few things are so permanent as government agencies, including international agencies. The IMF, sitting on a pile of funds, sought and found a new function: serving as an economic consulting agency to countries in trouble. It found plenty of clients, even though its advice was not always good.

Context. From an article on the East Asian financial crisis, which he traces to three elements: stagnation in Japan, the pegging of exchange rates to the U.S. dollar by national central banks, and the existence and policies of the International Monetary Fund.

How Asia Fell
Column, 1999, The Times (London), October 12, 1998, as “Clear Lessons to Be Learnt from the East Asian Episode”; reprinted with minor editorial changes in Hoover Digest 1999 No. 2
Checked against the sourceRead the source

Where this comes from

Checked against the sourceThe wording was checked against the work itself.

Cite this passage

Milton Friedman, “How Asia Fell” (The Times (London), October 12, 1998, as “Clear Lessons to Be Learnt from the East Asian Episode”; reprinted with minor editorial changes in Hoover Digest 1999 No. 2, 1999). https://miltonfriedman.org/quotes/imf-should-have-been-abolished-permanent-agencies-1998

Quoted for commentary and research. Rights in the underlying work remain with its rights holder, so cite the work itself, not only this page.

Topics

He also said

  1. Mexico, it is said, was bailed out by a $50 billion financial aid package from a consortium including the IMF, the United States, other countries, and other international agencies. The reality is that Mexico was not bailed out. Foreign entities—banks and other financial institutions—that had made dollar loans to Mexico that Mexico could not repay were bailed out. The internal recession that followed the bailout was deep and long and left the ordinary Mexican citizen with a sharply reduced income facing higher prices for goods and services. That remains true today.

    Context. From an article on the East Asian financial crisis, which he traces to three elements: stagnation in Japan, the pegging of exchange rates to the U.S. dollar by national central banks, and the existence and policies of the International Monetary Fund. Just before, he calls the Mexican crisis of 1995 the most recent example of a major currency crisis in a country with a central bank and pegged exchange rates.

    How Asia Fell
    Column, 1999, The Times (London), October 12, 1998, as “Clear Lessons to Be Learnt from the East Asian Episode”; reprinted with minor editorial changes in Hoover Digest 1999 No. 2
    Checked against the sourceRead the source
  2. 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.

    Context. Asked what actually caused the Great Depression, in a PBS interview for the series Commanding Heights. He had just distinguished the ordinary recession of 1929 from its conversion into a major depression by bad monetary policy.

    Commanding Heights: Milton Friedman interview
    Interview, 2000, PBS, “The Great Depression,” interview conducted October 1, 2000
    Checked against the sourceRead the transcript
  3. The price system works so well, so efficiently, that we are not aware of it most of the time. We never realize how well it functions until it is prevented from functioning, and even then we seldom recognize the source of the trouble.
    Free to Choose
    Book, 1980, Ch. 1 "The Power of the Market", p. 14
    Checked against the sourceFind the book

Think this quote is wrong, misattributed, or missing context? Report it and it gets fixed, not argued with.