Milton Friedman In 2003 Vs. George Soros Today On The Euro

by John Hawkins | June 4, 2012 1:22 pm

In talking about the Euro, George Soros[1] had this to say.

The European Union is “like a bubble” — not a financial bubble but a political bubble — that could pop as a result of the euro -zone crisis, Soros said.

“In the boom phase, the EU was what the psychoanalyst David Tuckett calls a ‘fantastic object’ — unreal but immensely attractive,” he said.

“In retrospect, it is now clear that the main source of trouble is that the member states of the euro have surrendered to the European Central Bank (ECB) their rights to create fiat money. They did not realize what that entails — and neither did the European authorities,” he said.

Had Europe listened to Milton Friedman, it would have understood the dangers of the Euro perfectly well. Back in 2003, I interviewed Milton Friedman[2] and asked him about the Euro. Interestingly, he pointed out the same flaw back then that Soros is highlighting today.

Switching directions again, Europe has been moving towards a single currency. Do you think that’s a wise move for all the states, some of them, or none of them? Why so?

We’re in the midst of a wonderful natural experiment. You have a really different arrangement with the euro than we’ve ever had historically. We’ve had many cases in which a number of countries have used the same currency. That’s when they’ve used gold or silver as money. But each individual country has been able to control the content of its own money. So while they were using the same commodity as currency, they were always in a position to determine what the terms of exchange were between their own currency and the other currencies.

But the euro is a very different arrangement. For the first time in history, we have essentially an independent central bank for a considerable number of distinct political entities. I, in advance, was very negative about it and have been very negative & pessimistic about it. We’ll see how the Europe plan does on the one hand and on the other, how the other countries of the world, the UK, the United States, Japan, which are linked together by flexible exchange rates, we’ll see how they do.

So we’ll have a really nice, natural experiment just as before the Soviet Union dissolved, we had a natural experiment comparing socialism and capitalism.

It looks like Freidman’s natural experiment is coming to a head and his “very negative” judgment appears to have been completely justified.