Professor Milton Friedman
Father of monetarism and prophet of laissez-faire who won the 1976 Nobel Prize for Economics
Friday 17 November 2006
Milton Friedman, economist and writer: born New York 31 July 1912; Member of Research Staff, National Bureau of Economic Research 1948-81; Professor of Economics, University of Chicago 1948-82 (Emeritus); Economic Columnist, Newsweek 1966-84; Nobel Prize for Economics 1976; Senior Research Fellow, Hoover Institution, Stanford University 1976-2006; married 1938 Rose Director (one son, one daughter); died San Francisco 16 November 2006.
Milton Friedman was the father of monetarism and the prophet of laissez-faire economics. It was his debunking of the economics of John Maynard Keynes which was a major factor in leading to the free market revolutions in Britain and the United States. By his contribution to consumption theory, to the demand for money and to economics methodology, and to decision-making under uncertainty, he moved the economic consensus decisively to the right. For some commentators, it has not been fanciful to trace the collapse of Communism back to Friedman's teachings.
His great books Capitalism and Freedom (1962) and Free to Choose (1980) will be crucial texts for any economic historian. Friedman participated in almost every major economic policy debate in the last 60 years - on poverty, wage and prices control, competition policy, the economics of discrimination, the economics of healthcare, inflation and floating exchange rates. He may be the last of the great economists to deal with all the major issues of both micro- and macro- economics. By any criteria, he was one of the 20th century's five most insightful and influential economists.
Friedman was above all else a superb expositor of ideas, however unpalatable they might be. He was a wonderful stimulator, not only of students but of the world of economists. Like his ideas or loathe them, he must be in the league of Adam Smith, Malthus, Keynes and John Kenneth Galbraith, the heavyweight of the left as Friedman was the heavyweight of the right.
When, as an undergraduate, I let out to my then lecturer, the formidable Joan Robinson, that I had invited a 42-year-old visiting American professor in Cambridge to tea to meet some of my student friends, she observed, "And what did Mephistopheles say to you?" The truth was that the lilting voice of Milton Friedman had beguiled us all with wit and charm.
In his autobiography, Two Lucky People (1998), written jointly with his wife Rose, Friedman wrote,
Joan Robinson was an extremely controversial and remarkable economist, with whom I got along well personally, though we were worlds apart in our views. She had gone on to teach at Cambridge and become one of the leading members of the so-called Cambridge Circus, a group of young disciplines of Keynes who had been closely involved in criticising successive drafts of Keynes's General Theory.
Friedman recalled that a friend had called him one day and reported that Robinson planned to criticise his advocacy of flexible exchange rates in the next lecture in the series that she was giving. The friend suggested that Friedman should attend. So he phoned Robinson and asked if she would mind. She encouraged him to do so.
At the lecture she announced that Friedman was in the audience and that they had different views about flexible exchange rates. She asked him to come to the podium and discuss with her the basis of their disagreement. She said that both were competent technical economists so that their difference did not represent a mistake in logical reasoning, but must reflect differences in their factual assumptions and values and that students would find it instructive to explore those differences. What followed was a wonderful discussion - etched into the minds of all who were fortunate enough to be present.
Fortunate was Cambridge in that year of 1953-54 in their visiting Fulbright lecturer. However Friedman later reflected that he and his wife were dismayed at the cleavage that different political and economic philosophies had created among economists in Cambridge. The dominant group, led by Richard Kahn, Nicholas Kaldor and Joan Robinson, favoured a centrally controlled and planned economy as the only way to solve economic and social problems. A smaller yet important group led by Stanley Dennison and Peter Bauer, Fellows of Caius, the college which had invited the Friedmans, believed that individual freedom is the prime objective of social arrangements and that planning by millions of individuals unfettered by government controls is the most efficient kind of economic system.
Because they were foreign guests, the Friedmans were entertained by both groups. They could not get over the fact that the other guests at the gatherings were always from one group or the other, but never from both. What disturbed them was the bitterness and hostility that the two groups exhibited toward each other and the almost complete absence of any intellectual dialogue between them.
Milton and Rose Friedman came from the University of Chicago, where they were accustomed to being in a minority with respect to their political and economic views: they had never been on a campus in the United States where the division was as deep or as emotional as it was in Cambridge. They later lamented that it was unfortunate for Britain that a number of the Cambridge faculty became advisers to the 1964 Labour government and were, in the Friedmans' opinion, responsible "for many of the measures that pushed England closer and closer to a totalitarian state until the ministry of Margaret Thatcher". One can understand how, for many in Britain, Milton Friedman became a Prince of Darkness.
Milton Friedman's parents had been born in a small, mostly Jewish town, at Beregszasz in Carpatho-Ruthenia, which was then part of Austro- Hungary. Both his parents spoke Yiddish. At an early age his father went to live with a much older half-brother in Budapest. They had the same mother, but different fathers. His half-brother's name was Friedman and, since he was always referred to as "Friedman's brother", he took Friedman as his name.
Shortly after the family had emigrated to the US, in 1912 Milton Friedman was born in Brooklyn, New York. From school and Rutgers University, he went to the University of Chicago and was lucky enough to become a student of the brilliant Jacob Viner, whom Friedman described as having an incisive and organised mind, rigorous and not given to suffering fools.
Rose Friedman recalled:
As a brash student in Viner's class, Milton had a formative experience. In illustrating some economic proposition on the blackboard with a special example, Viner differentiated a function incorrectly. It was a clear mistake, yet for the rest of the class period he maintained his mathematics was correct while Milton stubbornly asserted that it was not. After the class was over, and the rest of the students had left, Viner quickly admitted his error. That taught Milton a lesson - though one he has often disregarded. In later years, we translated the lesson into a maxim for our children: "If you make a mistake and refuse to admit it, you hurt yourself twice, once when you make the mistake and again when you refuse to admit it."
Towards the end of his life, Friedman saw parallels between the American depression of the Thirties and the Asian crisis of the Nineties. His remedy was in higher government spending, expanded money supply and faster inflation. This was like the Pope proposing orgies on demand. Friedman's statement reads:
Japan has been following a deflationary policy. It has turned illiquid banks into insolvent banks, just as the Fed did in the Thirties. Japan should print more money and expand monetary growth to 6 per cent. Then it should let the weak banks go under, and allow others to acquire the assets.
It may have been from his other mentor in Chicago, Frank Knight, that Friedman always avoided the deep slumber of a decided opinion. From 1934 to 1936 Friedman was Knight's research assistant. He tells us that Knight had an unfailing suspicion of authority, yet somehow his unwillingness to bow to any authority except reason that did not lead him to arrogance but rather to a special sort of humility, and that in particular there was not the slightest element of condescension in relations with his students. This is exactly how undergraduates in Cambridge found Friedman himself, ever instilling a sense of scepticism which became part of their thinking and work.
To another of his mentors, Wesley Mitchell, he expresses gratitude for teaching him a lesson.
After reading my draft of a proposed bulletin on our early results, Mitchell came into my office and gave me a dressing down about the quality of the exposition. As I recall more than half a century later, he said "There is some excuse for Simon [Kuznets] if he doesn't write clearly. After all, English was not his native language and he did not learn it until his late teens. But there's none for you. English is your native tongue. People often excuse bad writing by saying that they know what they mean, and simply have difficulty expressing it. That is nonsense. If you cannot state a proposition clearly and unambiguously, you do not understand it.
This clarity was a major factor in Friedman's influence. He knew that trying to write something clearly and unambiguously was the best way to find errors and omissions in reasoning and get ideas straight.
Friedman at the beginning of the Second World War joined the staff of Henry Morgenthau Jnr, Franklin D. Roosevelt's long-serving Secretary of the Treasury. From January 1934 until July 1945, to my surprise and disappointment, I found the Secretary to be quite limited in his intellectual capacity. I repeatedly was amazed that anyone with such limitations could occupy so important a position. I have since learnt better. Objective evidence of his meagre intellectual capacity was readily available. One sign was his insistence of having back-up support at all hearings. Another was how often, when asked a specific question at a hearing, he would refer it to a subordinate answer. I recall, on at least one occasion, a representative or senator saying: "Mr Secretary, I want your opinion, not the opinion of your subordinate."
The late Harry Johnson, Fellow of King's College, Cambridge, and Professor at the London School of Economics, who joined Milton Friedman in Chicago, told me that Friedman had the lowest possible opinion of politicians in general. This did not reduce his pleasure at being one of Ronald Reagan's most influential advisers.
In 1976 Friedman went to Stockholm to receive the Nobel Prize. He did not regard it as the pinnacle of his career, and said so. He said afterwards:
My statement was interpreted as a criticism directed at the members of the Nobel committee personally - something I never intended. The particular people who made the choice are eminent, able scholars who did their best. But is it desirable in any discipline that a few scholars who have made their mark in that discipline should have the power to decide the kind of work that is prestigious, on which other scholars ought to concentrate if they want their work to be recognised as important? Is it desirable to have that much centralisation of power effectively directing the course of research in basic fields?
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