Notorious gangster Al Capone attempts to help unemployed men with his soup kitchen “Big Al’s Kitchen for the Needy.” The kitchen provides three meals a day consisting of soup with meat, bread, coffee, and doughnuts, feeding about 3500 people daily at a cost of $300 per day.
Bettmann Archive
Thoroughgoing Keynesian Ben Bernanke once quipped to Milton Friedman (1912-2006), “You’re right, we did it. We’re very sorry.” What did they or “we” do? According to Friedman, the Fed failed to increased the so-called “money supply” in the 1930s, thus the economic downturn.
Bernanke and Friedman’s incorrect analysis was rooted in the Keynesian notion that governments have resources. They don’t. Just as governments can only spend money insofar as they extract it from the private sector first, creations of government like the Federal Reserve can’t increase money in circulation that only circulates insofar as there are market goods, services and labor to exchange. In other words, money in circulation is a mirror into production precisely because without production there’s no money circulating.
No doubt some reading this will say governments can and do “print money” with abandon, and while true, the latter is not the same as increasing money in circulation. And it’s certainly not evidence of a central bank or monetary authority increasing so-called “money supply.”
It’s not even close, and it explains why dollars referee exchange globally and in countries where the official currency is something else entirely. It’s markets at work. Yes, governments can once again print money, but only producers decide what monetary mediums circulate. And their production dictates the amount circulating. Nothing else.
Friedman claimed, and his myriad disciples claim to this day that the Fed once again caused the Great Depression through a failure to increase the so-called “money supply.” Friedman made, and they make a Keynesian argument that’s no different from the traditional Keynesian falsehood that government spending can increase economic growth. No, it can’t. Governments extract their spending power from the private sector. There’s no increase in demand or growth to speak of.
What’s true about government spending is similarly true about money in circulation. Governments can’t increase it. To suggest otherwise amounts to Keynesian mysticism whereby an effect of production (money) can be forced into circulation by an entity that produces nothing. Sorry, but that’s not true. Money has but one purpose, which is to facilitate exchange of goods, services and labor. Without any of the three, money once again ceases to circulate.
Which explains the decline of money in circulation in the 1930s: it was an effect of horrendously bad policy from Herbert Hoover and FDR. Think top tax rates that reached 83%, record tariffs on 20,000 foreign goods, taxes on undistributed profits as high as 74 percent, substantial overregulation of U.S. industry (including wage rates), along with FDR’s devaluation of the dollar (yes, inflation) from 1/20th of a gold ounce to 1/35th. That dollars in circulation declined amid these substantial barriers to production was a statement of the obvious.
Crucial about the decline is that it wasn’t an effect of the Fed, rather it was an effect of bad policy. Which is what President Trump doesn’t grasp now. The Fed can’t save him from himself. Tariffs are taxes on production, government spending is a tax on progress, deportation saps workforce productivity, and the weak dollar (see the gold price) is a tax on investment. Naturally the economy is weakening due to bad policy, but as with the 1930s, the Fed can’t alter reality.
Which is the point. Money reflects reality simply because money is an effect of production. Surprisingly Milton Friedman conflated the previous truth about the 1930s, while Trump unsurprisingly does so now. Either way, a focus on central banks amid bad policy is a non sequitur precisely due to the fact that when economic policy is good, money in circulation is plentiful without regard to what central banks do.
Source: https://www.forbes.com/sites/johntamny/2025/09/14/as-milton-friedman-once-did-trump-thinks-the-fed-can-beat-bad-policy/
