Does Rand Paul Understand Milton Friedman?

There has been a bit of a kerfuffle over Rand Paul mentioning Milton Friedman as a potential candidate for Federal Reserve Chair (were he still alive and Rand Paul President).  People from both the left and the right seem to have criticized Senator Paul for "not understanding Milton Friedman".  To counter that, Rand Paul wrote this response in the National Review which seems to indicate he does understand some of what Milton Friedman was saying and at this point anyone criticizing the Senator is really just nitpicking and will likely not convince many Americans of anything. (people don't really have the patience to listen to arguments on whether a politician understand the work of dead economists as they don't either):

It is, however, disappointing when National Review joins the fray and publishes opinion claiming that Friedman "would likely have supported a much more aggressive monetary response to our economic downturn."

Professor Ivan Pongracic of Hillsdale College explains that Friedman's insight was that the Fed's inaction in the Great Depression was in the context of a banking system in which the central bank had monopolized the position of lender of last resort.

Pongracic writes:

Friedman and Schwartz claimed that the depression would not have been a Great Depression if there had been no Federal Reserve in the first place: "[I]f the pre-1914 banking system rather than the Federal Reserve System had been in existence in 1929, the money stock almost certainly would not have undergone a decline comparable to the one that occurred."

That point was effectively elaborated by Milton and Rose Friedman in Free to Choose:

Had the Federal Reserve System never been established, and had a similar series of runs started, there is little doubt that the same measures would have been taken as in 1907 — a restriction of payments. That would have been more drastic than what actually occurred in the final months of 1930.

The existence of the Reserve System prevented the drastic therapeutic measure: directly, by reducing the concern of the stronger banks, who, mistakenly as it turned out, were confident that borrowing from the System offered them a reliable escape mechanism in case of difficulty; indirectly, by lulling the community as a whole, and the banking system in particular, into the belief that such drastic measures were no longer necessary now that the System was there to take care of such matters.

I would also like to point out that Anna Schwartz, Friedman's co-author in his seminal piece of work on the Great Depression had this to say about the Federal Reserve's actions:

For her part, Schwartz is now conflicted about Bernanke's application of her and Friedman's theories. "You don't have to lower the interest rates to the extent that he has in order to increase the money supply," she informed me. "The essential action should be increasing the money supply. That's the lesson of the Great Depression."

She upholds the analogy between today's crisis and what she and Friedman prescribed in The Great Contraction. "There's nothing contradictory in The Great Contraction with reference to what the Fed should be doing currently.... And I don't believe there's any contradiction between what The Great Contraction was reporting and the current condition of the banking system in this country."

Schwartz sounded alarmed, though, at the zealousness with which Bernanke has put "monetary expansion" into practice. She berated the Fed for going too far and predicted that it will have to raise interest rates "in the near future" to arrest inflation. Asked if she sees hyperinflation on the horizon, she exclaimed, "Oh, yes!"

Personally, I think Rand Paul did do a bit of a misstep with mentioning Friedman.  Yes, you can dig up pieces of his work on monetary policy to support the proposition that he would be a good, conservative Fed chair interested in sound money.  Plus you can always point to his very libertarian writings such as "Capitalism and Freedom" and "Free to Choose".  However, he and his minions were instrumental in destroying the Bretton Woods system, an action which left our currency in shambles and allowed for massive deficit spending.  For that, I will never forgive Milton Friedman. 

I really think Rand Paul just mentioned his because he was a somewhat libertarian economist that people have heard of.  He really should stick with the Austrians, no matter how obscure.