Introduction
In the realm of 20th-century economics, few figures loom as large as Milton Friedman. A diminutive man with outsized influence, Friedman's ideas on free markets and limited government profoundly shaped economic thinking and policy for decades. His impact was so enduring that even in 2020, presidential candidate Joseph Biden felt compelled to declare, "Milton Friedman isn't running the show anymore!"
But who was Milton Friedman, and how did he come to wield such immense influence? In her book, Jennifer Burns traces the remarkable journey of this controversial economist from his humble beginnings to his position as a towering intellectual force. This summary explores Friedman's early life, his formative experiences, and the development of his groundbreaking ideas. We'll also examine his lasting legacy and why his theories continue to spark debate long after his passing.
Early Life: From Rahway to Chicago
A Gifted Student from Humble Beginnings
Milton Friedman's story begins in Rahway, New Jersey, in the late 1920s. The son of Hungarian Jewish immigrants, Friedman stood out among his peers for his exceptional intellect. His parents, Jenő Saul Friedman and Sára Ethel, ran a successful dry goods store and provided a nurturing environment for Milton and his three older sisters.
Tragedy struck during Friedman's senior year of high school when his father suddenly passed away. Despite this profound loss, Friedman's ambition remained undimmed. He enrolled at Rutgers College with the initial goal of becoming an actuary.
The Spark of Economic Curiosity
It was during his sophomore year at Rutgers that Friedman's life took a pivotal turn. An introductory economics course ignited his passion for the subject. Two professors, Arthur Burns and Homer Jones, recognized Friedman's potential and encouraged him to pursue graduate studies at the University of Chicago.
This guidance came at a crucial moment in history. The Great Depression was ravaging the American economy, and questions about its causes and potential solutions were at the forefront of economic discourse. For a brilliant young mind like Friedman's, there could hardly have been a more exciting time to enter the field.
Arrival in Chicago: A Hotbed of Economic Debate
In the fall of 1932, Friedman arrived at the University of Chicago's economics department. The atmosphere was electric, with urgent debates swirling around the causes and cures for the ongoing economic crisis. It was here that Friedman first encountered the department's emphasis on "price theory" – the mathematical analysis of supply, demand, and market equilibrium.
Among his classmates was Rose Director, who would later become his wife and intellectual partner. Together, they navigated the challenging coursework and engaged with formidable professors like Jacob Viner and Frank Knight.
Columbia, Washington, and Beyond: Friedman's Intellectual Journey
Columbia: A Different Perspective
After his time in Chicago, Friedman pursued doctoral studies at Columbia University. The contrast between the two institutions was stark. While Chicago championed free markets and skepticism of government intervention, Columbia's economics program focused heavily on economic planning and was more sympathetic to government action.
Washington and Early Career Challenges
Friedman's academic pursuits soon led him to Washington, D.C., where he worked for a New Deal agency on a massive family spending survey. His innovative statistical work caught the attention of Simon Kuznets at the National Bureau of Economic Research (NBER), leading to a position in New York City.
It was during this time that Friedman married Rose Director, solidifying a partnership that would span both his personal and professional life.
However, Friedman's early career was not without controversy. His doctoral research on medical licensing, which accused the American Medical Association of artificially restricting the supply of doctors, sparked a years-long dispute with his NBER superiors. This conflict highlighted the growing divide between Friedman's Chicago-style free market approach and the more interventionist leanings of many mainstream economists.
The Keynesian Revolution and Friedman's Response
As Friedman was developing his ideas, a seismic shift was occurring in economics. John Maynard Keynes's General Theory was inspiring a new generation of economists to embrace government intervention and deficit spending as solutions to economic downturns. Friedman, however, remained skeptical of Keynesian ideas, preferring to focus on Chicago-style price theory and questioning the inevitability of boom-bust cycles.
Wartime Contributions and Academic Struggles
World War II brought new opportunities and challenges for Friedman. Working in the Treasury Department, he made significant contributions to military testing methods through his collaboration with Abraham Wald on sequential analysis. This work not only aided the war effort but also became an important concept in postwar statistics.
Despite these successes, Friedman's academic career remained tumultuous. A brief stint at the University of Wisconsin ended in resignation amid departmental conflicts. His doctoral dissertation, still unpublished, continued to be a source of tension with the NBER.
The Return to Chicago: Friedman's Ascent
A Homecoming and a Tragedy
In 1946, Friedman returned to the University of Chicago as a faculty member. What should have been a triumphant homecoming was marred by tragedy when his mentor, Henry Simons, died shortly after Friedman's arrival. This loss, coupled with the growing influence of the Keynesian-oriented Cowles Commission within the department, presented Friedman with significant challenges.
Building the Chicago School
Undeterred, Friedman set about reshaping the economics department. He outmaneuvered the Cowles economists, eventually leading to their departure for Yale. In their wake, Friedman helped nurture two new intellectual movements:
Law and Economics: Spearheaded by his brother-in-law, Aaron Director, this approach applied price theory to critique antitrust regulations.
Government Failure Analysis: Led by George Stigler, this movement examined how regulations could be captured by special interests.
Developing a Unique Vision
Between these two poles, Friedman began to articulate his own distinctive vision of liberalism. He explored policy ideas like school vouchers and negative income taxes, which aimed to address social issues through market mechanisms rather than bureaucratic interventions. Friedman also shifted his emphasis from equality to freedom, distinguishing himself from both conservative reactionaries and New Deal liberals.
By the late 1950s, Friedman and his allies had established a formidable Chicago counter-tradition in economics, law, and political science. This approach was poised to challenge the dominant paradigm of Keynesian economics and government intervention.
Friedman's Legacy: Reshaping Economic Thought
Challenging Keynesian Orthodoxy
Friedman's most significant contributions came in his challenges to Keynesian economic orthodoxy. Initially met with skepticism, his ideas gained traction as real-world events seemed to validate many of his theories and warnings.
Monetary Theory and the Great Depression
In their 1963 study, "A Monetary History of the United States, 1867-1960," Friedman and Anna Schwartz presented a groundbreaking analysis of the Great Depression. They argued that poor policy decisions by the Federal Reserve were the primary cause of the Depression's severity, directly contradicting the Keynesian narrative that blamed inherent instability in private investment. Years later, the Federal Reserve would acknowledge the accuracy of Friedman's conclusions.
Inflation and Monetary Policy
Friedman's extensive research on money supply and consumption led to his famous assertion that "inflation is always and everywhere a monetary phenomenon." This principle, though disputed for decades, has proven remarkably durable and now underpins the inflation targets used by modern central banks.
Peak Influence: The 1970s and 1980s
Friedman's public influence reached its zenith during the late 1970s and early 1980s. As Keynesian solutions failed to address the stagflation crisis, policymakers turned to Friedman's ideas for answers.
Volcker's Monetarist Experiment
Federal Reserve Chairman Paul Volcker explicitly adopted Friedman's monetarist remedies to combat inflation, targeting money supply instead of interest rates. While the process was painful, it ultimately succeeded in breaking the back of stagflation and ushering in a new era of economic stability.
Influence on Reagan Administration
Friedman's small-government ethos and faith in markets aligned closely with President Ronald Reagan's outlook. As an informal adviser to the administration, Friedman helped shape policies around taxes, regulation, and education.
Beyond Academia: Public Intellectual and Free Market Champion
Friedman's influence extended far beyond the ivory tower. His 1980 TV series and accompanying book, "Free to Choose," made a powerful case to the general public for limited government and economic freedom. His advocacy for a negative income tax as a replacement for welfare programs presaged contemporary discussions about universal basic income.
Enduring Relevance
Even long after his death, Friedman's ideas continue to shape economic debates. The COVID-19 pandemic response rekindled discussions about government stimulus and central bank policies, putting Friedman's theories back in the spotlight. When inflation unexpectedly surged in 2021, many saw it as a vindication of Friedman's warnings about the dangers of excessive money creation.
Friedman's Approach: Key Principles and Ideas
Free Markets and Limited Government
At the core of Friedman's economic philosophy was a deep belief in the power of free markets and the dangers of excessive government intervention. He argued that markets, when left to operate freely, were the most efficient means of allocating resources and driving economic growth.
Friedman was not an anarchist, however. He recognized that government had important roles to play, particularly in maintaining the rule of law, enforcing contracts, and providing certain public goods. But he consistently argued for limiting the scope of government action, warning that well-intentioned interventions often led to unintended negative consequences.
Monetary Policy and Inflation
Friedman's work on monetary policy was perhaps his most influential contribution to economics. He argued that the money supply was the key driver of inflation and that central banks should focus on maintaining a stable rate of money growth rather than trying to fine-tune the economy through interest rate adjustments.
This "monetarist" approach stood in stark contrast to the Keynesian focus on fiscal policy and government spending. Friedman's ideas eventually gained widespread acceptance and continue to influence central bank policies around the world.
The Role of Government in Education
Friedman was a vocal advocate for school choice and educational vouchers. He argued that the government monopoly on education led to inefficiency and poor outcomes, particularly for disadvantaged students. By introducing market forces into education through vouchers, Friedman believed that schools would be forced to improve or lose students to better-performing institutions.
While controversial, Friedman's ideas on education have influenced policy debates and led to various school choice experiments across the United States.
Negative Income Tax
In an effort to address poverty while minimizing bureaucracy, Friedman proposed the concept of a negative income tax. Under this system, individuals earning below a certain threshold would receive direct cash payments from the government, effectively creating a guaranteed minimum income.
Friedman saw this as a more efficient and freedom-preserving alternative to the complex web of welfare programs. While never fully implemented in the form he envisioned, the idea has influenced modern proposals for universal basic income.
Skepticism of Government Regulation
Throughout his career, Friedman maintained a skeptical view of government regulation. He argued that regulations often served the interests of established businesses rather than consumers, a phenomenon known as "regulatory capture." Friedman advocated for removing many regulations, believing that market forces would generally lead to better outcomes than government-imposed rules.
Criticisms and Controversies
Despite his enormous influence, Friedman's ideas were not without critics. Some of the main criticisms include:
Oversimplification: Critics argued that Friedman's models and theories often oversimplified complex economic realities, leading to policy prescriptions that didn't account for real-world complications.
Income Inequality: Friedman's focus on economic freedom and market solutions was seen by some as neglecting issues of income inequality and social justice.
Role of Government: Many economists and policymakers believed Friedman underestimated the positive role government could play in addressing market failures and providing social goods.
Chile Controversy: Friedman faced criticism for his association with the economic policies of Chile's Pinochet regime, though he maintained that he only provided economic advice and did not support the dictatorship's political repression.
Friedman's Enduring Impact
Regardless of one's ideological leanings, it's impossible to deny Milton Friedman's profound impact on economic thought and policy. His ideas reshaped how policymakers and the public understood fundamental economic issues like inflation, unemployment, and the role of government in the economy.
Friedman's legacy extends beyond specific policy prescriptions. He championed a way of thinking about economics that emphasized individual freedom, market solutions, and skepticism of government intervention. This approach continues to influence debates on issues ranging from education reform to central bank policy.
Even for those who disagree with Friedman's conclusions, engaging with his ideas remains crucial for understanding modern economic discourse. His emphasis on empirical analysis and clear communication set a standard for economists seeking to influence public policy.
Conclusion: A Giant of 20th Century Economics
Milton Friedman's journey from a small-town boy in New Jersey to one of the most influential economists of the 20th century is a testament to the power of ideas. Through rigorous scholarship, persuasive communication, and unwavering conviction, Friedman reshaped economic thinking and left an indelible mark on public policy.
His theories on monetary policy, inflation, and the role of government continue to spark debate and inform decision-making at the highest levels of government and business. Whether one views Friedman as a champion of freedom or a misguided advocate of unfettered markets, his impact on our understanding of economics is undeniable.
As we continue to grapple with complex economic challenges in the 21st century, Friedman's ideas remain relevant and thought-provoking. His legacy serves as a reminder of the profound influence that economic thinking can have on shaping our world, for better or worse.
In the end, Milton Friedman's life and work embody the power of intellectual perseverance and the enduring importance of economic ideas in shaping our society. His story, as told by Jennifer Burns, offers invaluable insights into the development of modern economic thought and the ongoing debates about the proper role of markets and government in our lives.