Milton Friedman

"Milton Friedman isn’t running the show anymore!” declared Joe Biden in 2020. But the legacy of the economist who reshaped modern economics continues to influence debates worldwide.

1. Early Life: A Tragedy-Fueled Drive

Milton Friedman’s brilliance as a student was evident from his early years in Rahway, New Jersey. Despite facing hardships, including the loss of his father during high school, he persevered and pursued academia. His early life mirrored his resilience and tenacity.

Raised in a working-class Jewish immigrant family, Friedman thrived in a nurturing, close-knit community. This environment, coupled with encouragement from influential professors at Rutgers, especially Arthur Burns and Homer Jones, steered him toward economics. Their guidance led him to the University of Chicago and ultimately down the path that would define his career.

The backdrop of the Great Depression ignited Friedman’s interest in economic solutions. The University of Chicago, immersed in debates surrounding price theory and free markets, became his intellectual testing ground. Here, the foundation of his economic vision began to take form.

Examples

• Friedman’s teachers emphasized price theory, directly influencing his method of analyzing markets.
• His personal ambition persevered through tragedy, showing determination after his father’s untimely passing.
• A camaraderie with his professors introduced him to Chicago’s reputation for economic theory.

2. Columbia: From Government Work to Controversy

At Columbia University, Friedman’s intellectual journey met ideological divergence as he encountered contrasting views on economic planning. These influences, combined with his groundbreaking statistical work for New Deal agencies, refined his critical approach to policy.

While still a PhD student, Friedman was swept into the New Deal’s data-driven efforts, such as family spending surveys. His knack for innovative analysis caught the attention of leading economists but also triggered a dispute when his research on medical licensing criticized the American Medical Association for restricting access to the profession.

Meanwhile, the reigning ideas of Keynesian economics made sweeping gains, but Friedman steadfastly pursued Chicago-style theories. This period of friction and intellectual experimentation prepared Friedman to chart his unique course and reject mainstream ideas.

Examples

• Friedman’s statistical innovations in Washington, DC, highlighted his analytical skills.
• His controversial thesis on medical licensing sparked years of contention at the National Bureau of Economic Research.
• By rejecting Keynes’s ideas, Friedman positioned himself as a dissenting voice in a changing academic landscape.

3. The Bridegroom of Laissez-Faire Economics

By the time he returned to the University of Chicago in 1946, Friedman had weathered personal loss, professional challenges, and wartime dilemmas. Supporting himself with economic teaching, he became a champion of free markets, attracting rising debate and attention to his ideas.

The death of Friedman’s mentor, Henry Simons, marked an uneasy beginning for his tenure. Nevertheless, Friedman reorganized alliances within the department to outmaneuver Keynesian-focused colleagues. This laid the groundwork for what became known as the "Chicago School" of thought.

Key collaborations emerged during these years, strengthening Chicago’s reputation. Aaron Director pioneered law and economics, while George Stigler examined why government regulations often failed. Together, they built a compelling case for market-driven solutions.

Examples

• Friedman inherited but reshaped Chicago’s price theory tradition by addressing social problems through economic lenses.
• He collaborated with influential colleagues, including Aaron Director and George Stigler.
• His policy experiments reflected a strategic shift toward ideas like negative income taxes.

4. Monetarism as the Counter-Revolution

Milton Friedman is best known for developing monetarism, the economic theory that emphasizes the role of money supply in controlling inflation and shaping economic growth. By challenging Keynesian frameworks, he reframed the way central banks approach monetary policy.

He and Anna Schwartz’s pivotal study, A Monetary History of the United States, 1867–1960, highlighted Federal Reserve mismanagement as the cause of the Great Depression. This conclusion cast doubt on Keynesian reliance on fiscal stimulus as a remedy to economic downturns.

Friedman’s monetarist principles gained prominence as inflation surged in the 1970s. Central banks started adopting his ideas, directly driving policies under Paul Volcker at the Federal Reserve, leading to the eventual taming of stagflation.

Examples

• His research demonstrated that monetary missteps, rather than inherent market failures, exacerbated the Great Depression.
• His famous assertion that "inflation is always a monetary phenomenon" redefined central banking.
• Monetarist policies under Volcker signaled a significant shift away from Keynesian strategies during the late 1970s.

5. Freedom Over Equality

Friedman argued that the ultimate goal of economic policies should be freedom, not equality. He believed market-driven approaches could solve societal problems without creating dependency or inefficiency tied to traditional welfare systems.

One of Friedman’s bold experiments was advocating school vouchers to introduce competition in education. He also promoted a negative income tax to replace bureaucratic welfare programs, emphasizing cash-based solutions over government intervention.

These ideas set Friedman apart from both conservatives and liberals. Despite his laissez-faire reputation, he consistently sought pragmatic approaches that advanced economic freedom while addressing social inequities.

Examples

• Friedman’s school voucher concept challenged centralized public education monopolies.
• His proposal for a negative income tax inspired contemporary discussions on universal basic income.
• By prioritizing personal liberty over state control, Friedman expanded his appeal across ideological boundaries.

6. Global Influence and Reaganomics

Milton Friedman’s theories not only reshaped American policy but also left their imprint globally. His ideas gained traction in the UK under Prime Minister Margaret Thatcher and guided economic reforms in Chile during Pinochet’s rule.

In the United States, Friedman’s advocacy aligned with Ronald Reagan’s agenda of tax cuts, deregulation, and reduced government spending. His free-market philosophy was not only welcome in conservative circles but also spread to centrist policymakers seeking pragmatic strategies to tackle inflation and unemployment.

Beyond governments, Friedman’s influence shaped public opinion through his widely viewed television series, Free to Choose, which popularized his concepts.

Examples

• Friedman became an informal advisor to Reagan during his presidency.
• His theories influenced Thatcher’s privatization efforts in the UK.
• The success of Free to Choose demonstrated his ability to connect with a broader audience.

7. Confronting Stagflation

The phenomenon of stagflation – high inflation alongside stagnating economic growth – exposed the weaknesses of Keynesian economics during the 1970s. Friedman’s alternative monetarist approach provided a solution to this seemingly unsolvable economic dilemma.

Friedman advised abandoning traditional demand-side policies in favor of controlling the money supply. With Paul Volcker at the Federal Reserve executing these policies, inflation was finally subdued, though at a significant short-term economic cost.

The period cemented Friedman’s reputation for delivering practical answers where existing frameworks faltered, marking the zenith of his influence.

Examples

• Stagflation directly challenged Keynesian models, which could not address simultaneous inflation and unemployment.
• Friedman’s monetarist theory provided a clear framework for managing money supply to curb inflation.
• The Volcker-led Federal Reserve adopted monetarist policies with transformative effects on the economy.

8. Advocating Simplicity in Solutions

A hallmark of Friedman’s work was his advocacy for streamlined economic policies that promote individual autonomy over bureaucratic controls. He believed simpler approaches could achieve better outcomes and avoid government overreach.

Friedman called for reducing regulatory hurdles and creating mechanisms like currency controls to ensure price stability. His overarching belief was that individuals are more efficient at managing resources than any government.

This principle resonated deeply in both academic and public discussions, underscoring Friedman’s ability to translate economic complexity into clear principles.

Examples

• His focus on simplified welfare systems influenced contemporary UBI proposals.
• Proposals like fixed monetary supply growth became standard in central banking circles.
• His free-market explanations invited larger public discussions through accessible programming.

9. Lasting Legacy

Even decades after his passing, Milton Friedman’s theories continue to provoke debate. Policymakers revisit his ideas whenever inflation rises, and his work on government intervention shapes conversations globally.

Events like the 2021 inflation resurgence during the COVID-19 pandemic made many reassess Friedman’s prescriptions, including “inflation is always and everywhere a monetary phenomenon.” His enduring impact solidifies his place among economic thought leaders.

Whether one agrees with his ideas or not, Friedman’s influence on modern economics is undeniable, shaping the policies and beliefs that govern today’s world.

Examples

• Central bank strategies like inflation targeting draw heavily from Friedman’s frameworks.
• His critiques of government planning have resurfaced amid debates on economic recovery policies.
• Public discourse around market freedoms often echoes Friedman’s original arguments.

Takeaways

1. Learn to question widely accepted ideas, as Friedman did with Keynesian economics, to uncover alternative solutions.
2. Emphasize clarity in communication, much like Friedman’s ability to simplify economic theories for general audiences.
3. Explore the balance between individual freedoms and government intervention when crafting policies or addressing social issues.