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QE: Haven’t We Learned So Much Since 1609?

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In response to my post last Thursday on the Fed’s signaling the possibility of more quantitative easing (QE), a commentator using the pseudonym “Milton Friedman” wrote,

have you checked inflation rates lately? they are at historic lows. if the parade of horribles doesn’t happen, shouldn’t that cause you to reconsider your understanding of the economy? economists have learned quite a few things since 1609…

As I responded on that post, I’m not sure what “parade of horribles” he is referring to; my point was simply that the short term gain of inflationary policy now is not worth risking the likely long term disadvantages and need not be taken as apocalyptic.

Furthermore, as a matter of fact, inflation rates do not appear to be at “historic lows” in 2012, especially given the short bout of deflation we experienced from March to October 2009. I’ll let readers make up their own minds on that point, however, since it really doesn’t affect my argument.

What is far more important to me is pseudo-Friedman’s comment that “economists have learned quite a few things since 1609.” The reference to 1609 is due to the fact that I was highlighting the work of Spanish scholastic Juan de Mariana’s analysis of the effects of inflationary policies in medieval Spain. Is pseudo-Friedman right? Is Mariana’s analysis invalid due to its antiquity?

I think, perhaps, another lesson from history is in order. This time a bit more recent, so perhaps not as easy to dismiss for anyone who shares pseudo-Friedman’s sympathies. In his introduction to St. Athanasius’s On the Incarnation of the Word of God, C. S. writes,

Every age has its own outlook. It is specially good at seeing certain truths and specially liable to make certain mistakes. We all, therefore, need the books that will correct the characteristic mistakes of our own period. And that means the old books. All contemporary writers share to some extent the contemporary outlook—even those, like myself, who seem most opposed to it. Nothing strikes me more when I read the controversies of past ages than the fact that both sides were usually assuming without question a good deal which we should now absolutely deny. They thought that they were as completely opposed as two sides could be, but in fact they were all the time secretly united—united with each other and against earlier and later ages—by a great mass of common assumptions. We may be sure that the characteristic blindness of the twentieth century—the blindness about which posterity will ask, “But how could they have thought that?”—lies where we have never suspected it, and concerns something about which there is untroubled agreement between Hitler and President Roosevelt or between Mr. H. G. Wells and Karl Barth. None of us can fully escape this blindness, but we shall certainly increase it, and weaken our guard against it, if we read only modern books. Where they are true they will give us truths which we half knew already. Where they are false they will aggravate the error with which we are already dangerously ill. The only palliative is to keep the clean sea breeze of the centuries blowing through our minds, and this can be done only by reading old books. Not, of course, that there is any magic about the past. People were no cleverer then than they are now; they made as many mistakes as we. But not the same mistakes. They will not flatter us in the errors we are already committing; and their own errors, being now open and palpable, will not endanger us. Two heads are better than one, not because either is infallible, but because they are unlikely to go wrong in the same direction.

To summarize, every age has its assumptions, and the only way that we can break out of the assumptions of our own time is to study books from another time. Lewis goes on to say, “To be sure, the books of the future would be just as good a corrective as the books of the past, but unfortunately we cannot get at them.”

Is it true that “economists have learned quite a few things since 1609”? Of course they have. For example, as Jordan Ballor recently noted, many writers of the past—including Mariana—fall victim to the “zero-sum fallacy.” He writes,

you also find this idea as a fundamental assumption in such luminaries as Juan de Mariana, who in his otherwise brilliant Treatise on the Alteration of Money echoes Plato, “one man’s profit is another’s loss,” calling this one of the “fundamental laws of nature,” and correlatively that “one man’s loss is another man’s gain. There is no way around that fact.” This assumption was often one of the animating dynamics behind the mercantilist regimes from the times of Montaigne and Mariana and beyond.

So, yes, economists have learned a thing or two since 1609. The zero-sum fallacy was part of the assumptions of the day that stand out like a sore thumb to us in our context today (or at least ought to). However, what about the assumptions of our day?

There is a categorical difference between Mariana’s employment of the zero-sum fallacy and his analysis of the ills of the inflation. The former is grounded upon a mere assumption of the times backed only by the authority of a single comment by Plato. The latter is backed by his analysis of centuries of European—and especially Spanish—history in which he demonstrates how, over and over again, inflationary policy was recommended to the king for the sake of short term gains, only to lead to long term loss. Mariana bases his statements about inflation upon a dizzying mountain of empirical evidence.

Today, by contrast, we have tried QE in recent years with little noticable gain. As Jon Hilsenrath and Kristina Peterson noted in their article,

The Fed remains restrained by doubts in and outside its ranks about whether five years of monetary easing has done much to lift an economy still repairing the damage from last decade’s housing bubble.

Thus, even support for the short term gains of QE is questionable.

As for the long term disadvantages of inflationary policy, perhaps pseudo-Friedman simply needs to hear it from a more recent source. Would the real Milton Friedman please stand up?

Dylan Pahman Dylan Pahman is a research fellow at the Acton Institute, where he serves as managing editor of the Journal of Markets & Morality. He earned his MTS in Historical Theology from Calvin Theological Seminary. In addition to his work as an editor, Dylan has authored several peer-reviewed articles, conference papers, essays, and one book: Foundations of a Free & Virtuous Society (Acton Institute, 2017). He has also lectured on a wide variety of topics, including Orthodox Christian social thought, the history of Christian monastic enterprise, the Reformed statesman and theologian Abraham Kuyper, and academic publishing, among others.


  • Roger McKinney

    Nice response! I would ask those like pseudo-Friedman who think ideas are automatically invalid because they are old, is the gravity no long valid? After all, Newton “discovered” it around the same time that Mariana wrote.

  • That’s a good point. On further reflection I do think that I was too uncharitable given that his comment rubbed me the wrong way.