Remembrance  

Milton Friedman:
The Rational, The Relentless

by Bruce Ramsey

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Milton Friedman was, to educated Americans, Mr. Free Market. Nobody else was.

There were other possibilities. Investment people knew Alan Greenspan as a fan of the market, but his influence was over interest rates and Federal Reserve policy, not political ideas. Intellectuals knew Friedrich Hayek — well, some of them did — but Hayek was not Mr. Free Market to the American public.

Friedman was. He talked to Americans in ordinary language that intelligent people could understand. He did not demonize his opponents. Even when he attacked their ideas, it was always to promote capitalism and freedom — and, anyway, most of the times he debated it was not about their proposals but his. He was cheerful, polite, rational — and relentless.

Those who don’t recall the 1960s won’t appreciate the impact he had. Government was a success then. It had cured the Depression. It had won World War II. It was launching a war on poverty and was going to win that one, too. It was going to end racism, go to the moon, have a war in Vietnam, and keep the economy running at the same time. “Guns and butter,” the promise was.

The good news for government had been brought in the 1930s by an Englishman named John Maynard Keynes. He and his disciples had marketed the happy theory that depressions could be kept away with state spending, paid for by the sale of bonds. If too much of this was done there would be inflation; if not enough, unemployment. The proper tradeoff could be calculated by smart economists from Harvard, so that there would be no more than the tiniest amount of inflation and lots and lots of growth.

On Dec. 31, 1965, Time put the late Keynes, with his horse face and brushy mustache, on its cover. Keynes was It.

Against these theories Milton Friedman waged guerrilla warfare, in academia and in his fortnightly Newsweek column. Friedman didn’t believe the economy needed a Harvard priesthood for direction. It had a natural rate of unemployment, and it would tend toward that rate if labor markets were left alone. It had a natural rate of investment, and of growth, and of other things the Keynesians did not understand. Like a car, there was a gas pedal and a brake, which was the supply of money. Government could hit the brakes or step on the gas, but this was hazardous, Friedman said, because the effect wouldn’t come for six months, or maybe a year. There was a great risk of running into the ditch, which had been what had happened in the Great Depression. It was better to give the economy a small bit of gas all the time and otherwise let it alone.

The Keynesians were not letting it alone. The way they were going about it, Friedman said, the economy might have rising unemployment and rising inflation at the same time. The Keynesians said that was impossible, but it happened in the late 1960s and into the 1970s.

At the same time that Friedman was undermining the Keynesians’ macroeconomic theory, he was applying classical economics to microeconomic problems. In his Newsweek column, he would hammer on rent control or the minimum wage law or farm subsidies. He also argued against the system of pegged currencies, which in many countries meant currencies were not freely tradeable. Back then, all major currencies were pegged to the dollar, and the dollar was pegged to gold, though you weren’t allowed to own any monetary gold. Only foreign central banks could demand gold for greenbacks, and the government was asking them to please, please not do it. The result was recurring foreign-exchange “crises.” Friedman argued that these financial spasms would all go away if currencies were allowed to float in the market.

People said it would be chaos. Businessmen wouldn’t be able to plan. Friedman didn’t think so. Markets are mostly orderly. The market offered no guarantee of future value, of course — no free guarantee, though if people wanted to set up a futures market in foreign exchange, you might be able to buy one.

He was right about floating rates, and his public advocacy played a role in bringing them about. He was also right about the risk of inflation and unemployment at the same time, the importance of the money supply, and the difficulties in “fine tuning” economic growth. The industrial countries have had fairly low inflation for the past 20 years. Much of the improvement came when the Federal Reserve started targeting the supply of money, preventing it from growing as fast as it had. The Fed never did it quite the way Friedman said to do it, but it did it, and this did slow the inflation in prices. The collapse in the gold price in the 1980s was one result.

Friedman’s influence wasn’t just economic. He argued against the draft, which had existed for almost the entire time since 1940. Since then, America had taken on the task of policing much of the planet, and abolishing the draft sounded very radical. Friedman stuck to his guns. Kill it, he said.

The story of Friedman and the draft is told by David R. Henderson of the Naval Postgraduate School, in the August 2005 Econ Journal Watch, and by Gary North on LewRockwell.com. In December 1966, when the Vietnam War still had the strong support of the American public, the University of Chicago held a conference on the draft. There were 74 participants. Friedman was there, and spoke against the draft, as did economist Walter Oi. Several politicians were there too, including Senator Edward Kennedy and a young Republican congressman named Donald Rumsfeld. Also anthropologist Margaret Mead, who favored the draft. In his and his wife Rose’s autobiography, “Two Lucky People,” Friedman wrote:

I have attended many conferences. I have never attended any other that had so dramatic an effect on the participants. A straw poll taken at the outset of the conference recorded two-thirds of the participants in favor of the draft; a similar poll at the end, two-thirds opposed. I believe that this conference was the key event that started the ball rolling decisively toward ending the draft.

One of the ball-rollers was Martin Anderson, who had written “The Federal Bulldozer,” an attack on the federal urban renewal program. In 1968, Anderson was an adviser to Richard Nixon in his campaign for president against Vice President Hubert Humphrey, a New Deal Democrat committed to welfare, warfare, and conscription. Anderson proposed to Nixon that he come out for a volunteer army; it would get him votes. Nixon did, in a radio address on Oct. 17, 1968.

After the election, Nixon appointed a commission to consider a volunteer military. It was chaired by Thomas Gates, who had been secretary of defense under Eisenhower, and it included several generals. Altogether it had 15 members, and, according to Friedman, who was one of them, only five began as opponents of the draft; five favored it and five were undecided. Yet when they handed in their recommendation, 14 wanted to end it. (One had dropped out.)

Libertarians who denounce working within the status quo, and in government, and with Republicans, should ponder that story. In such a group of people — about the size of a jury — a smart, relentless person can change minds and history. Friedman did. Probably it was not all him, but I’ll bet most of it was.

Friedman not only solidified the verdict against the draft; he vigorously defended it in congressional testimony. He had a famous confrontation with Gen. William Westmoreland, commander of the forces in Vietnam. Friedman tells it in “Two Lucky People”:

In the course of his testimony, he made the statement that he did not want to command an army of mercenaries. I stopped him and said, “General, would you rather command an army of slaves?” He drew himself up and said, “I don’t like to hear our patriotic draftees referred to as slaves.” I said, “I don’t like to hear our patriotic volunteers referred to as mercenaries.” But I went on to say, “If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general; we are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher.” That was the last that we heard from the general about mercenaries.

It was a classic Friedman riposte. He called the general a mercenary, and called himself one, too, damning an idea without damning the person.

Nixon ignored his commission on marijuana. He might have ignored the Gates commission, too — he was no principled defender of freedom — but for the political feeling against the war. It was dragging his administration down. When the draft was changed to a lottery, millions of young men knew from their lottery numbers that they were safe, and political tension eased. Probably Nixon took counsel from that. In any case Nixon and the Democratic Congress let the draft expire in 1973 — and we haven’t had it since.

Sometime when you’re politically depressed, remind yourself of that. No draft — for one-third of a century! And now, whenever some humanitarian like Rep. Charlie Rangel runs conscription up the flagpole, military officers come out against it. They don’t want it. Friedman, who wrote a book called “The Tyranny of the Status Quo,” would smile.

In an interview with Brian Doherty of Reason, published in June 1995, Friedman said, “In the realm of policy, I regard eliminating the draft as my most important accomplishment.”

That tells you what his values were.

I recently had an email from a Liberty contributing editor who asked how I could call Friedman a libertarian when he had proposed, in “Capitalism and Freedom,” a “negative income tax” (which became the Earned Income Credit in the tax code today) and had helped devise income-tax withholding during World War II. This libertarian went on to say that Friedman was a classical liberal, and that his son David, an anarchocapitalist, is the libertarian.

Friedman once said, “I’d rather use the term ‘liberal’ than ‘libertarian.’ ” But “liberal” is what people called the emblematic American Keynesian, John Kenneth Galbraith, and even these days, when the soft Left has adopted the label “progressive,” “liberal” still denotes a leftward lean. If we are talking among ourselves, we can make words mean whatever we want, but if we are in the public square, we should minimize the use of a private language. Friedman knew that, and he called himself a libertarian.

He did hang out with Republicans, being an adviser to Sen. Barry Goldwater in 1964, briefly to Nixon, and then to Ronald Reagan. To Reason he said: “I am a Republican with a capital ‘R’ and a libertarian with a small ‘l.’ I have a party membership as a Republican, not because they have any principles, but because that’s the way I am the most useful and have most influence. My philosophy is clearly libertarian.”

Dragging out his work for the Treasury 60 years ago is a bit harsh. When Friedman helped devise tax withholding, he was a government employee and there was a war on. A real one. The choice was taxes or inflation (or, rather, how much of each). It was better to have taxes. He did not apologize for it, though the New York Times noted in his obituary that he said that Rose “has never forgiven me for the part I played in devising and developing withholding for the income tax.”

Much of the difference between Friedman and his libertarian critics is over proposals to get partway to a private solution. Libertarian polemicist Murray Rothbard attacked Friedman for supporting tax-funded school vouchers. In 1991, in The Individualist magazine, he wrote that Friedman was “the Establishment’s Court Libertarian” and a “statist.” Rothbard attacked a lot of people; it was his way. It wasn’t Friedman’s, who would explain patiently and politely that his aim was to dismantle the education monopoly, an action that would help millions of people. They could worry later about state financing. “I would like to see the government out of the education business entirely,” he told Reason, but government had been in education so long that the only way to remove it would be in steps. Vouchers were a big step and — in contrast with abolition — a possible step.

Friedman’s critics at LewRockwell.com would reply that he was too trusting of the state. Vouchers are dangerous because with state money comes regulation, and instead of saving us from the public schools they might end up wrecking the private ones. Friedman acknowledged that that was a possibility. A voucher system could easily be corrupted. His answer was: don’t let it be.

Vouchers have taken root in a number of places, thanks partly to the Milton and Rose D. Friedman Foundation for School Choice. We shall see whether they work well or not.

The monetary standard was another issue that divided Friedman from his critics. They were for gold money managed by the invisible hand and he was for paper money managed by a central authority. Expand the supply of dollars by 3% per year, he suggested, to accommodate the increase in population and business, and let it go at that. You could do it with gold, but it took a lot of manpower and energy to dig that much gold out of the ground each year for the sole purpose of limiting the supply of dollars. Just limit the dollars.

Later he came closer to the gold advocates. He granted that central bankers had done a lot of damage by printing money too liberally. That damage, plus the institutions that a fiat-money world needed to hedge against more damage — futures markets, etc. — probably cost more than mining, refining, and managing the gold.

These were meaningful issues for libertarians, but not for the public. In the public view, Friedman was always the radical, always arguing for some new thing like the flat tax, marijuana legalization, or the volunteer army.

His public-policy involvement started in 1947, when Hayek invited some thinkers of like mind to a meeting in Switzerland of the group that became the Mont Pelerin Society. The Volker Fund, a libertarian seed fund that had financed Hayek, Ludwig von Mises, Garet Garrett, and others, paid the way of the American participants, including Friedman. There he met intellectually sympathetic people.

One of the consequences of that meeting was a summer seminar for academics in the mid-1950s, financed by the Volker Fund. Friedman spoke and Rose transcribed the tapes. They became “Capitalism and Freedom,” which was published in 1962. It was a popular book, and it stated the case for a volunteer army, floating exchange rates, the abolition of medical licensing, and a new idea called the school voucher.

Four years later, Friedman took over the Newsweek economics column from Henry Hazlitt, who had held it since 1946, the year he published the famous “Economics in One Lesson.” Friedman held that column until 1983. It ranged widely: the May 1, 1972, column, for example, was “Prohibition and Drugs.”

In 1976 Friedman won the Nobel Memorial Prize in Economics “for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy.” The prize gave him an immediate cachet. A year later a public-TV producer, Bob Chitester, came to Friedman and proposed a series on capitalism. Interest from TV was unusual, and this was coming from state television. But PBS had run a series on Galbraith, and there was need of balance.

Chitester’s ten-part series, filmed around the world, was called “Free to Choose.” Chitester remembered: “Milton refused to write a script in advance of filming. Points to be made in each scene were agreed upon but his commentary was extemporaneous.” Most people don’t have the neuron count to do it that way; Friedman did. As with “Capitalism and Freedom,” the transcripts became the raw material for a popular book. This one was “Free to Choose,” published by Harcourt Brace Jovanovich in 1980. It was a bestseller and has been translated into at least 14 languages.

By this time Friedman had international influence. Most controversial was his influence in Chile. In 1970, a Marxist, Salvador Allende, had won the presidency with 36% of the vote in a three-way election. After Allende had plunged the country into triple-digit inflation, he was ousted in a bloody coup by Gen. Augusto Pinochet, who set up a military junta. That Friedman would give advice to a junta proved to the Left that he was a proto-fascist, and they made a big deal of it.

Recalled Harvard professor Greg Mankiw, on his blog: “Friedman was — and is — unrepentant. Of course, he did not endorse the dictatorship. But, he wrote, ‘I do not regard it evil for an economist to render technical economic advice to the Chilean government to help end the plague of inflation, any more than I would regard it as evil for a physician to give technical medical advice to the Chilean government to end a medical plague.’ ”

No similar protests were made when Friedman met in 1988 with Zhao Ziyang, who was general secretary of the Communist Party of China — a government fully as authoritarian as the one in Chile. Zhao was the economic modernizer among China’s leaders, and might have done great things, but he was deposed the next year for excessive sympathy with the students in Tiananmen Square.

China followed much of Friedman’s advice, and benefited from it. But the Asians who appreciated Friedman the most were the Hong Kong Chinese, who, he said, had the purest and most successful form of capitalism on earth. After that, anybody who criticized how they did things got an earful of Milton Friedman.

His praise of Hong Kong came at a time when the colony had no political parties and the people couldn’t vote. That rubbed some the wrong way. In my first piece in Liberty (“Capitalism Without Democracy, Hong Kong Without Hope,” March 1990), an article written when I lived in Hong Kong, I criticized the people of that place for accepting a system that had been given to them, without understanding its political underpinnings or undertaking to defend it politically. I ended the piece by saying that the Hong Kong people had been “too busy in Mr. Friedman’s capitalist paradise, making money.”

A friend later took me to task for the dig at Friedman. Later Friedman himself spoke about some of the political issues I had raised, and I regretted using his name that way. He knew full well about the political underpinnings of the market.

And he kept an eye on Hong Kong until the end. A month before he died, The Wall Street Journal (Oct. 6, 2006) ran a piece by him attacking Hong Kong’s appointed governor, Donald Tsang, who had subsidized Hong Kong Disneyland and talked of having a “pro-active” economic policy to fix “imperfections” in the market.

Friedman wrote: “Mr. Tsang insists that he only wants the government to act ‘when there are obvious imperfections in the operation of the market mechanism.’ That ignores the reality that if there are any ‘obvious imperfections,’ the market will eliminate them long before Mr. Tsang gets around to it. Much more important are the ‘imperfections’ — obvious and not so obvious — that will be introduced by overactive government.” Friedman’s statements were news in Hong Kong, and Tsang had to answer them.

Friedman had other overseas successes, big and small. Wikipedia credits him with influencing the Independence Party of Iceland, “including Davíd Oddsson, who became Prime Minister in 1991 and began a radical program of monetary and fiscal stabilization, ambitious privatization, reduction of taxes (e.g. the corporate income tax from 50% to 18%), the definition of exclusive use rights in the fisheries, abolition of various government funds for aiding loss-making enterprises and liberalization of currency transfers and capital markets.”

In all these things, Friedman had stature.

When Reason’s Doherty said in 1995 that Friedman had “a respectability and presence that most people and organizations labeled libertarian don’t have,” the economist replied: “That’s because of one thing only: I won the Nobel Prize. What, are you kidding yourself?”

But it was Friedman who was kidding himself, at least partly. He had been on the cover of Time, Dec. 19, 1969, seven years before winning the Nobel Prize. Earlier in 1969 (Jan. 10), Time had run a long article about Friedman that began with this paragraph:

For years, the maverick views of Milton Friedman, the towering iconoclast of U.S. economics, attracted just about as much ridicule as respect. A monetary theorist, the bald and somewhat cherubic University of Chicago professor maintains that the U.S. and many other major nations mismanage their economies. They do so, he argues, by manipulating taxes, federal spending and money supply — techniques that were formulated by Britain’s John Maynard Keynes. “Keynesian economics doesn’t work,” says Friedman. “But nothing is harder for men than to face facts that threaten to undermine strongly held beliefs.”

Time wrote about Friedman — even though he was Newsweek’s columnist — for several reasons. First, he had institutional standing (the University of Chicago) and was respected in his field, standing on ground that he had won and defended in intellectual combat. Second, he had made a relentless, public attack on Keynesian economics, predicting certain Keynesian policies would cause inflation and recession, and those predictions had begun to come true. Third, in doing all this, Friedman and his “Chicago School” threatened to supplant the Keynesians — and that made him interesting. And the Chicagoans did supplant them — at UCLA, and at my alma mater, the University of Washington, and at many other places. That was important, too.

Being on the cover of Time gave Friedman standing. So did the Nobel Prize. So did being on PBS. So did being an adviser to Goldwater, Nixon, and Reagan. So did the fact that there was never any time when Friedman had been publicly and obviously wrong in a big way. He climbed, and he was never brought down.

It was important to Friedman that the power didn’t go to his head. In the interview with Doherty, he said: “If you really want to engage in policy activity, don’t make that your vocation. Make it your avocation. Get a job. Get a secure base of income. Otherwise, you’re going to get corrupted and destroyed.”

Doherty’s new history of the libertarian movement, “Radicals for Capitalism” (Public Affairs, 2007), says that Friedman “has done more to make more people understand and respect the general tenets and thrusts of libertarian ideas than any other libertarian advocate.”

Milton Friedman was not just a figure in the libertarian movement. And though The Economist called him one of the two greatest economic thinkers of the 20th century — the other was the Englishman with the brushy mustache — he was not just a figure in the world of economics. He was, to Americans generally, a figure emblematic of freedom.

© Copyright 2009, Liberty Foundation

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