Happy Birthday Milton Friedman
On this day in 1912, Milton Friedman was born.
It is hard to imagine today the incredulity with which Milton Friedman’s most well-known views were met when he first expounded them. Ideas which are by many regarded as self-evidently correct were then considered heretical to the Keynesian orthodoxy, rendering Friedman a sort of flat-earther amongst the academic community. More than any other economist, Friedman was at the vanguard of the discreditation of the hegemonic post-war consensus of demand management, with its highly discretionary countercyclical actions and interventions aimed at mitigating recessions or speeding up recoveries.
You wouldn’t intuitively think that such a well-known defender of market economics would have come from such a poor background. The son of Hungarian immigrants, growing up, his father took work wherever he could, and his mother worked as a low-level seamstress. His preciousness was evident from a young age, beginning a degree in mathematics at Rutgers University at the ripe age of seventeen. From there, his academic rise was meteoric, and he found himself doing postgraduate work at the University of Chicago with such scholarly titans as Frank Knight, Jacob Viner and Henry Simons, eventually becoming one of the pillars of the Chicago School of economics.
Friedman’s star as a radical economic thinker began to shine with the publication with George Stigler of Roofs or Ceilings? in which he demolished the idea that rent controls were anything but extremely damaging. There is now widespread agreement amongst economists on this. Assar Lindbeck puts it extremely well when he says that “Next to bombing, rent controls seem in many cases to be the most efficient technique for destroying cities”. But widespread agreement on this most topical issue did not exist at the time of writing (1945).
The monograph was derided as an attack on the ability and authority of politicians and economists to shape the economy according to their benevolently motivated and rationally preconceived ends. Of course, as with much of what Friedman advocated, in the long run, he was right.
Income from Independent and Professional Practise was published shortly after. This was a book length piece of research which drew on extensive statistical analysis to reveal that those who benefited the most from occupational licencing were not in fact the consumers of the services which those professions provided, but rather the professionals themselves (such as lawyers and dentists). By restricting competition by throwing up costly entry barriers, Friedman showed that the general public were merely paying more for worse services. The results of his study reflect a recurring theme in Friedman’s work, which is exemplified by the pithy and humorous quote of Ronald Regan’s:
“Government is not the solution to our problems. Government is the problem”.
Indeed, what Friedman emphasized was that in matters of policy, intentions ought to matter little. Even the best-meaning government programme is useless if its effects are bad in the jurisdiction to which it would have effect. This evidence based, empirical approach to policy making is reflected in his Methodology of Positive Economics, an excellent and very accessible essay (despite its rather wonkish title) in which it is asserted that economics as a science should be concerned with facts, rather than normative judgements. His insights were the apparently obvious contentions that positive economics should produce the facts which inform normative economics, and that the assumptions behind any model of the world matter little, as long as it is capable of accurate prediction. The value of any theory in the social and physical sciences depends on the success of the predictions which can be made with it, and not on the descriptive realism of the assumptions behind it.
Given the last sentence, it will probably not shock you that Friedman was not as preoccupied with touching up complex and highly abstracted mathematical models as he was with testing theories against the facts time after time so to discover the answers to the big questions in economics, which have a very tangible impact on our day to day lives. This led him to study the issue of his day, inflation, and in 1956, he wrote The Quantity Theory of Money, which along with his later book A Monetary History of the United States (co-authored by Anna Schwartz), revealed how, as he was later to say in a quote which has become synonymous with his name, “Inflation is always and everywhere a monetary phenomenon” – that is to say, too much money, chasing too few goods. He went on to demolish the Keynesian critique of this in his Theory of the Consumption Function in 1957.
By the 1960s, he was able to predict the forthcoming combination of persistent high inflation combined with high unemployment and stagnant demand, catchily labelled by Paul Samuelson as ‘stagflation’. Friedman’s monetarism could account for the economic malaise of the 1970s in a way that the Keynesian consensus could not.
Outside of the academy, his work as a public intellectual was whopping not just in its amount, but also in its scope. He wrote hundreds of newspaper columns, and featured frequently on national television and radio. This is not even mentioning the pop-economics books Capitalism and Freedom and Free to Choose, which together sold hundreds of thousands of copies.
Probably more than any other public thinker, Friedman helped to turn the tide of mainstream thought in economics. Interestingly however, he was not the first person to express many of the aforementioned ideas. His legacy is largely the result of his masterful command of the art of communication. He was able to spin and thread an easy to understand narrative out of complex and deeply thought-through economics, enabling him to communicate with the public in a way which the present Conservative party would do well to remember.
Of course, the man is hardly without controversy. He is often tainted (wrongly, but that is another article in itself) by association with the Chicago University trained Chilean economists who went on to serve under the brutal military dictatorship of Augusto Pinochet. The ‘Chicago Boys’, as they were known, composed a document following the 1973 Chilean coup d’état which was named El Ladrillo, (The Brick) for its sheer size, which served as the template for Chile’s subsequent economic reforms. These reforms, which included the pioneering privatisation of swathes of state-run industries and reforms to the pension system, saw Chile go on to become one of the most prosperous states in South America (the second richest to this day).
Similar programmes of deregulation, privatisation and liberalisation have since had the same effect elsewhere, most notably today in China and India. Because of this, more people have escaped grinding poverty in the last 25 years, than have in the last 25,000 years of human existence. The Nobel Prize winning economist Gary Becker rightly stated that “The person they are most indebted to for the improvement of their situation is Milton Friedman”.
No posthumous birthday hagiography would be complete without a character assessment, and in this area too, Friedman shines. He was known for his warm temperament, his infectious smile and the kindness he showed to all he met.
Both the President and Director of the Adam Smith Institute can attest to this, having had the privilege of knowing the man personally. The economic historian Diedre McCloskey recalls how when she transitioned from male to female, Friedman was particularly understanding at a time when changing gender was less accepted than it is now. Indeed, in McCloskey’s own words “Milton cares for freedom because he puts tremendous weight on the dignity of his fellow humans. Over and over he says: Laissez faire, let the person herself decide for herself”.
Friedman’s ideological foil John Maynard Keynes wrote in his General Theory that ‘The ideas of political philosophers and economists, both when they are right and when they are wrong, are more powerful than is commonly understood. Practical men, who believe themselves to be exempt from any intellectual interest, are usually the slaves of some defunct economist.’
Whether you love him or loathe him, it is undeniable that Friedman’s influence and legacy are astoundingly significant. His views have shaped the world in remarkable ways. The former Chairman of the U.S. Federal Reserve Alan Greenspan once remarked about Friedman, that:
“His impact is not only on the 20th century, but on the 21st, and I suspect ongoing”.
Another former Fed Chairman, Ben Bernanke, said of Friedman that:
“The direct and indirect influences of his thinking on contemporary monetary economics would be difficult to overstate”.
As you may have noticed by now (and as former Executive Director of the ASI Sam Bowman has previously stated), in many ways, the work of the ASI is a continuation of Friedman’s. Long may that tradition of freedom continue!