When Milton Friedman died in 2006 I wrote a blog post crediting him as an ‘enormous influence on my life’. I said back then that although few people call themselves ‘Friedmanites’, for many – including me – his writings guided us to a broader set of arguments and influences. Despite the subtitle Jennifer Burns gives her biography of Friedman -‘the last conservative’ – these were mostly ideas in the classical liberal tradition.
Classifying Friedman
Burns acknowledges that Friedman described himself as a classical liberal. But in the United States ‘liberals’ are the rough equivalent of social democrats or progressives in other countries. Tribally, Friedman was not one of them. His US partisan leanings were Republican, he was sceptical of ‘big government’, and he sometimes associated with people progressives hate.
If Friedman is a ‘conservative’, the word ‘last’ is doing a lot of work. It refers back to the post-WW2 synthesis of relative conservatism in social matters, private enterprise/free market economics and anti-communism adopted by ‘conservative’ political parties. Friedman more than anyone else turned the private enterprise part of this synthesis into a free market perspective. This combination of views still exists, but has faded as a political force. In the 2010s and 2020s populist figures like Donald Trump captured American ‘conservatism’.
For a non-American audience it is simpler to keep Friedman’s ideological classification as ‘classical liberal’.
Friedman’s school and undergraduate life
Friedman’s parents were late 19th century Jewish migrants to the US from Beregszász, then part of the Austro-Hungarian empire, now in Ukraine. They lived in Brooklyn when Milton was born in 1912, but soon moved to the New Jersey town of Rahway. Burns describes the boy Milton as an ‘ebullient and self-assured princeling’ and ‘short of stature but bursting with energy’; other than his height these characteristics helped propel him to academic and political prominence.
Friedman was a good student at Rahway High and in Hebrew school. He was agnostic from his teens but continued his studies, winning a scholarship to Rutgers College. With strong maths, Friedman planned to become an actuary. He took his first economics classes in 1929. Economics was in a transition phase from political economy to the mathematical discipline it is today. This made Friedman’s maths ability valuable, although Burns believes the political economy part remained strong in his worldview. The stock market crash that year and the subsequent Great Depression created big questions for economists to answer.
At Rutgers, Friedman met an important mentor, future Federal Reserve chair Arthur Burns. Burns was one of Friedman’s teachers, but only eight years older with a similar Jewish migrant background. Friedman admired Burns’ approach to scholarship, with its attention to detail and openness to criticism. But Jennifer Burns (presumably no relation) notes differences in intellectual style, with Burns ‘eclectic and pragmatic’ while Friedman ‘would seek system’.
Via another Rutgers teacher, Friedman encountered the work of his future University of Chicago colleague Frank Knight. Knight emphasised the difference between risk (calculable by an actuary) and uncertainty (hard to measure). Knight saw the willingness to act despite uncertainty as, Burns puts it, ‘the value contributed by an entrepreneur’. But the luck involved was reason to have compulsory state social insurance, a version of the welfare state.
When Friedman completed his Rutger course he had two offers for graduate progams, in applied maths at Brown University and in economics at the University of Chicago. He chose Chicago.
Student days at the University of Chicago
The 1932 Chicago Price and Distribution Theory subject had alphabetical-by-surname seating, which put Milton Friedman next to Rose Director, the only woman in the class, and the future Rose Friedman. Along with her brother Aaron, who was teaching at Chicago while working on a PhD, Rose was like Friedman and Burns part of the Jewish intellectual diaspora from Central Europe. Rose and Aaron were born in a town near Beregszász, before migrating to the US in 1913 (Rose was about 18 months older than Milton).
At Chicago, Friedman took classes with Knight, Henry Simons, Jacob Viner, and Lloyd Mints. Burns has Friedman’s notes from the Mints class, which ‘judging by the copious doodles’ she thinks he found ‘less than riveting’, but whose quantity theory of money influenced Friedman’s later monetarism. Friedman was also unimpressed by his formal adviser, the statistician Henry Schultz. When Schultz went to Europe for a year, he arranged for Friedman to spend time at Columbia University under Harold Hotelling (before Friedman became famous himself he knew many people who were or would become prominent). Columbia exposed him to a more interventionist school of economic thought linked to President Franklin Roosevelt’s New Deal policies.
Back at Chicago in 1934 Friedman expanded his intellectual interests, attending a seminar on Max Weber and reading works from a philosophy syllabus including John Stuart Mill’s On Liberty.
Friedman in Washington DC and New York
At the end of the 1935 academic year Friedman moved to Washington DC for a job at the National Resources Committee, a government agency to ‘spearhead economic planning’. Burns notes the irony. Friedman worked on a big survey of American consumers, devising a statistical method still used today to analyse the results. His paper writing up the results won him a job at the National Bureau of Economic Research in New York, where Arthur Burns was already working. In 1938 Rose and Milton married.
In 1939 Friedman met the left-wing Swedish economist Gunnar Myrdal. In response to their discussion, and drawing on his consumption survey work, Friedman wrote a paper on a possible minimum income system. The paper was never published. It was, however, the start of one of Friedman’s best known ideas, the negative income tax, under which people with incomes below a threshold would be paid by the government.
During WWII, Friedman was employed in the tax research section of the US Treasury. He worked on how to collect personal income tax from employers, instead of earners paying it in quarterly instalments, although a PAYG system was not introduced until after he left. The ‘glib and always confident’ Friedman was sent several times to represent Treasury’s views to Congress committees.
After his time at Treasury, Friedman joined the Statistical Research Group, a ‘quasi-academic’ project assisting the US military. He worked on a new statistical method for testing bombs, which required using less of them before coming to a conclusion. The method became a ‘key concept in postwar statistics’.
In the 1940s study time for a doctoral dissertation was not funded and publication was required for acceptance. Friedman’s dissertation compared the earnings of doctors and dentists. Other economists disputed his argument that restricted entry to the medical workforce explained a large proportion of the additional earnings of doctors. Friedman was accused of misreading the data and under-appreciating the ‘non-rational’ factors influencing economic behaviour. But eventually the dissertation was accepted by Columbia University and he became Dr Friedman.
Back at Chicago
In 1946 Friedman returned to the University of Chicago, this time as an academic. In this post-WW2 period he starts his collaboration with Anna Jacobson Schwartz, whose research into US monetary history was a foundation of Friedman’s monetarism. It was also, via his brother-in-law Aaron Director, the start of his association with Friedrich Hayek.
In 1947 Friedman attended the first meeting of the classical liberal Mont Pelerin Society, organised by Hayek and named after its Swiss location. Friedman presented a paper on ‘progressive negative taxation’, insisting on its liberal characteristics compared to means-tested benefits. Burns tracked down a 1951 article written by Friedman for a Norwegian magazine run by a Mont Pelerin contact, where he called his view that liberals must recognise positive important state functions ‘neo-liberalism’ (his only use of the word, probably reflecting a European audience familiar with European intellectual developments, not its negative 21st century academic usage).
In 1957 Friedman published a book called A Theory of the Consumption Function. It was part of a literature on the relationship between income and consumption. Keynesian theory assumed that governments giving money to poorer people would flow through to additional spending rather than saving. But empirical work on consumption, which Friedman had first encountered in the 1930s, cast doubt on this relationship. Work by Rose Friedman and Dorothy Brady had led to the ‘relative income hypothesis’, that spending patterns were influenced by a family’s surroundings. In towns with fewer rich families savings rates were higher. In more densely populated areas savings were lower. Drawing on further work by Brady and Margaret Reid, Friedman’s book advanced the ‘permanent income hypothesis’, that spending and saving patterns were based on longer-term assumptions about income.
Friedman and money
In 1960, Friedman published another book, A Program for Monetary Stability, setting out his monetarist theory that money supply growth should be regulated with a predetermined rule. But another money book made his name: A Monetary History of the United States 1867-1960, co-authored with Anna Jacobson Schwartz and published in 1963. It argued that a large decline in the quantity of money triggered the 1930s Great Depression, blaming errors by the Federal Reserve. The book was reviewed by mainstream media outlets, and led to Friedman meeting Barry Goldwater, then a contender for the Republican presidential nomination.
Capitalism and Freedom and controversy
The link with Goldwater attracted more attention to Friedman, including to his book Capitalism and Freedom, co-authored with Rose in 1962. Unlike his previous books, Capitalism and Freedom was aimed at a general rather than an academic audience, but initially had poor sales. When the book was covered in the context of the Goldwater campaign, some of its arguments landed the Friedmans in trouble.
Capitalism and Freedom supported educational vouchers, which let parents/students take their public funding to an educational institution of their choice. As with the negative income tax, I understood vouchers as part of Friedman’s creative classical liberal engagement with the welfare state. Vouchers accept a positive role for the state in funding certain services while minimising centralised control and monopoly provision. But Burns emphasises how the idea intersected with American racial politics.
Southern-state opponents of racial desegregation of schools took up the idea of vouchers as a way around the rules. A Capitalism and Freedom chapter on discrimination did not help. Drawing on ideas developed by Friedman’s student Gary Becker, the chapter framed discrimination as a product. Firms and consumers that discriminate on characteristics such as race or religion pay for that by losing employees or customers that could have made them better off. The Friedmans preferred persuasion and market penalties as counter-forces to discrimination over regulation.
Burns acknowledges that Capitalism and Freedom‘s arguments were not motivated by personal racism. The Friedmans sent their own children to a desegregated school and Milton mentored African-American students (‘most notably Thomas Sowell‘). The Friedmans’ arguments reflected their Jewish experience. The marketplace was a realm where Jews could succeed despite widespread anti-semitism. But Burns judges that the ‘Friedmans’ opinions were nevertheless an apologia for racism’.
Goldwater won the Republican presidential nomination but lost to Lyndon Johnson in the 1964 election. Despite the Goldwater campaign’s electoral defeat, in hindsight it marked a major shift in ‘conservative’ politics, one in which Friedman would play a major role, sought out by journalists and given a regular column in Newsweek, which then had a large international circulation (I read it in 1980s Australia).
Friedman and the draft
Burns says that Friedman’s relationship with Goldwater ‘solidified an alliance between libertarian economics and reactionary populism’. But, as she reports, Friedman had many views that sat poorly with those of more conventional ‘conservatives’. One was his opposition, during the Vietnam war, to the military draft. She notes that this created a position of opposing the draft while being neutral on the war itself (Burns says Friedman never offered a view on the war). While not forming any ‘alliance’ with left-wing demonstrators who were against both the war and the draft, Friedman’s position helped changed the politics of the draft, which ended in 1973.
The Nixon administration
Burns says that Friedman’s global influence reached its highest levels during the Nixon administration (1969-1974). A version of his negative income tax idea reached Congress but did not pass. Opposition from Arthur Burns was among the reasons. This was not the only case of policy tension between Friedman and and his old friend and mentor Burns. From 1970 Burns was chair of the Federal Reserve, where he and Friedman disagreed about how to control inflation. Friedman was shocked when Burns backed the temporary use of wage-price policy.
In this time, Friedman worked increasingly with George Shultz. Friedman met Shultz in the late 1950s, when Shultz was a business school professor at Chicago. In the 1970s they promoted a move to a floating exchange rate.
The Nobel prize and Chile
In 1976 Friedman won the Nobel prize for economics, further increasing his global profile. Much of the extra attention, however, was unwanted. Although Friedman had long been controversial, a 1975 trip to Chile during the Pinochet dictatorship made him a figure of hate on the left. Burns devotes a chapter, ‘Six days in Santiago’, to this issue.
For Friedman, the background was a longstanding relationship between a Chilean university and the University of Chicago. By 1970 nearly a hundred Chileans had studied economics at Chicago. These ‘Chicago boys’ were trying to influence Chilean economic policy. A group of them organised Friedman’s trip to bolster their case. Friedman met with many government officials, including Pinochet. On Burns’ account, Friedman did not tell Pinochet anything that could not be found in his Newsweek columns. She says that the decision to move to a more radical free market policy had already been made. But on the left, the visit was seen as endorsing Pinochet’s violent overthrow of the previous left-wing Allende government, his brutal continued oppression of his regime’s opponents, and his shock therapy economic policies.
Friedman was bewildered by the reaction. He had visited other oppressive regimes, including the USSR, without such a reaction. In Chile’s case, however, there was a more proximate connection between his visit and policy change. He had under-estimated the sensitivity of the issue. By the 1970s most left-wingers had given up on the USSR as a model for the future, but Allende was still a hero. Burns suggests that the attacks on Friedman was also the left doing what the right had long done to them, associating their ideas with murderous dictatorship.
Free to Choose
In 1977 Friedman left Chicago and moved to the Hoover Institution at Stanford. In 1980 he made the TV series Free to Choose. Its companion book – my introduction to Friedman’s ideas – was the US best-selling non-fiction book of the year.
Monetarism fades
The 1980s and 1990s were not kind to a strict money supply version of monetarism. The amount of money in the economy was hard to measure or control. These tasks were made more difficult by deregulation of the banking sector. Friedman made wrong predictions of a return to inflation. Interest rates rather than the money supply became the key mechanism used by central banks to control inflation. But Burns suggests that Friedman’s emphasis on clear goals and the importance of central banks in managing inflation was a key policy legacy. The goals helped manage expectations, recognising that inflation is both an monetary and psychological phenomenon. [Update: Stephen Kirchner explains Friedman’s monetary policy legacy much better than I can.]
Friedman’s broader legacy
Friedman remained active up until near his death in 2006 at the age of 94. Burns lists the ideas he was important to developing and promoting: universal basic income, the monetary interpretation of the Great Depression, monetarism, vouchers, the permanent income hypothesis, and floating exchange rates. I would add another – education loans repaid according to income, initially suggested in the 1950s, publicised by Capitalism and Freedom in the 1960s, and first implemented at a national scale in Australia in 1989, with other countries following later (the US has a poorly designed version). I realise now the connection income contingent loans have to Friedman’s theories about the smoothing of income and consumption over time.
While Friedman was disappointed by the continued growth of government, in my view he more than anyone else made classical liberalism relevant to the 20th century. At the macro level, he looked for ways to make a market economy more stable. At the micro-level the negative income tax would do a similar thing at the individual or household level, without an intrusive welfare state. I am not convinced that a negative income tax, or its contemporary equivalent of a universal basic income, is feasible. But it is hard to dispute that the main alternative of means-tested benefits invades privacy, adds red tape, and deters work – contrary to classical liberal goals. Vouchers and income contingent loans are practical, helping balance income and consumption over time without state education monopolies or illiberal control.
Friedman and women
Friedman’s intellect and personality were crucial factors in his success. Burns’ biography highlights the context in which these were able to flourish. She pays attention to his female collaborators at a time when female economists were unusual: Anna Jacobson Schwartz, Dorothy Brady, Margaret Reid, and of course Rose Director/Friedman. All four women were critical to the work that initially made Milton prominent, and Rose was a key factor in his public profile, putting together Capitalism and Freedom and Free to Choose and helping him prepare his Newsweek column.
Conclusion
Milton Friedman: The Last Conservative is not as easy to read as a previous biography by Jennifer Burns, Goddess of the Market: Ayn Rand and the American Right. While from my non-economist’s perspective Burns does a good job explaining technical economic issues, the differences between measures of the money supply are harder to make entertaining than Rand’s strange life and ideas. But Friedman is a more important figure than Rand. He could be dogmatic but he was not just arguing, like Rand, from first principles – his work involved an inventive empirical and intellectual engagement with the problems of his time. Burns does an excellent job tracing the development of his ideas, outlining their strengths and weaknesses, and explaining their successes and failures.
Andrew Norton 