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Pre-debate: The Age of Friedman: America's most influential living economist



PRE-DEBATE

A fairly interesting piece on Friedman, who can rightfully claim to be a
successor to Hayek in a way, though both are from different schools of
economic thought. [Surprisingly, almost all schools of thought now
converge on certain fundamentals.]

Thought I'd share it, for what it is worth (I think one fine day,
copyright laws will catch up with internet and many of us will be inside
prison:  but gain the knowledge while it is possible to do it!). 

"The Age of Friedman: America's most influential living economist since
World War II was once isolated and ignored," from NewsWeek 15th June,
1998., By Robert  Samuelson
 

IT IS ONLY IN THE PAST 10 OR 15 YEARS that Milton Friedman has been seen
for what he is: the most influential living economist since World War II.
For decades, Friedman, now 85 and long retired from the University of
Chicago was regarded as a brilliant outcast. He extolled "freedom,"
praised "free markets" and attacked big government. He was a cheerful
dissenter in an era when government seemed the solution to most social
problems. Confident of his views, Friedman would debate almost anyone,
anywhere, but he was widely dismissed as a throwback. 

Not anymore. Friedman's impact has been so huge that he's approaching John
Maynard Keynes (1883-1946) as the century's most significant economist. He
almost single handedly resurrected the "quantity theory of money": the
idea that inflation stems from "too much money chasing too few goods."
Once governments accepted this, they could control inflation by slowing
money growth. Abroad, Friedman has promoted market economics from Chile to
China. At home, his ideas now permeate public debate. Even in the 1950s,
he advocated a flat tax, school vouchers and a "negative income tax" for
the poor (embodied in today's earned income-tax credit). 

We now have Friedman's story of his odyssey from pariah to prophet in an
autobiography written with his wife of nearly 60 years, Rose, "Two Lucky
People" (University of Chicago Press. $35). It is a remarkable tale of
sheer doggedness. His early intellectual isolation was extraordinary. For
a while in the 1950s, the library at a university as eminent as Duke
didn't carry his books; his ideas were considered too loony. 

Disapproval was so high in part because he never disguised his rejection
of Keynes, who then mesmerized most economists. Where Keynes saw the
private economy as highly unstable and therefore in need of governmental
guidance, Friedman thought that government intervention often deepened
economic slumps. Where Keynes toasted intellectuals and mocked capitalists
comparing the stock market, for example, to a "casino" Friedman saw
individual creativity as the wellspring of social progress. The contempt
of many intellectuals for capitalism struck him as self-indulgent: biting
the hand that fed them. 

Like many postwar economists, Friedman has viewed economics as a "science" 
much like physics in which basic truths can be proved with evidence. As it
happens, much of his scholarly work has discredited Keynesian economics.
In 1957, he published "A Theory of the Consumption Function," which
refuted a central Keynesian tenet: that people spend less of their income
and save more as societies grow wealthier. This presumably occurred
because people's wants were satisfied. If true, it would justify higher
government spending to offset weak private spending. But by analyzing
historic consumption patterns, Friedman showed it wasn't true. People
always developed new wants. 

More important was his explanation of the Great Depression. In the 1930s,
Keynes had argued the private economy could drop into a deep slump from
which it might not automatically recover. In 1963, Friedman and Anna
Schwartz published "A Monetary History of the United States," contending
that, on the contrary, the Depression resulted from governmental errors.
Between 1929 and 1933, about 10,000 banks failed leading to a one-third
drop in the money supply and widespread bankruptcies. But Congress had
created the Federal Reserve in 1913 to prevent banking panics, Friedman
and Schwartz noted. If the Fed had done its job, the Depression would have
been only a normal business slump. 

Finally in 1968, Friedman conceived (simultaneously with economist Edmund
Phelps of Columbia) of the "natural rate of unemployment." Until then,
Keynesian dogma held that a bit less unemployment would bring only a bit
more inflation and that the two could coexist in a stable relationship
say, 4 percent unemployment with 4 percent inflation. This implied that
governments could select the most desirable mix of unemployment and
inflation. Not so, said Friedman. If government tried to push unemployment
below its "natural rate," inflation would rise ever higher. This
ultimately described the pursuit of "full employment" in the 1960s and
1970s:  inflation went from 1 percent in 1960 to 13 percent in 1979. 

Friedman's influence also reflects his success as a popularizer. In 1962,
he published "Capitalism and Freedom," which described his then heretical
views. In 1966, he was invited (along with two other prominent economists)
to write a column for NEWSWEEK; he did so until 1984. In 1980, he hosted a
10-part public television series entitled "Free to Choose" and wrote a
book (with Rose, also an economist) by the same name. They condemned,
among other things, welfare dependency and centrally planned economies. 

Despite his advocacy, Friedman doubts that intellectuals can initiate
political change. The "tyranny" of the status quo is too strong. "Only a
crisis actual or perceived produces real change," he once wrote. Then,
"the actions that are taken depend on the ideas that are lying around." So
he has sprinkled about "alternatives to existing policies."  Crisis also
remade his image. As inflation rose, he became more respectable.
Communism's collapse vindicated his harsh view of central planning. 

"Two Lucky People" chronicles this story, but as autobiography, it is
disappointing rambling book that lacks introspection. It never asks the
central puzzle: how did Friedman become Friedman? 

By all odds, he belonged on the political left. Born to two poor Russian,
Jewish immigrants, Friedman grew up in Rahway, N.J. The family lived above
a clothing store that his mother maintained, while his father worked in
Manhattan. He recalls their arguing often over money. Public institutions
treated him well. The local library helped make him a voracious reader, a
high-school civics teacher rates lavish praise; he attended Rutgers
University on a public scholarship. He graduated in 1932 at the depth of
the Depression, when political pressures pushed students to the left. 

"Two Lucky People" hardly explains how, given this climate, Friedman
emerged by the early 1940s with an outlook so out of tune with the times.
In conversation, he says that after Rutgers "I was mildly socialistic"
much like millions of other young people. He attributes his change to
graduate study at the University of Chicago, where a cadre of economists
did not accept the common view of the Depression as an inevitable crisis
of capitalism. His government service during World War II working on tax
policy and a variety of weapons problems may also have played a part. He
felt the thrill of Washington but also saw firsthand the "manipulation,
dishonesty, and self-seeking" of politics. 

Some biographer may unravel this and other puzzles. Friedman's skepticism
of government has never been total hostility. He has consistently seen a
role for government in everything from reducing poverty to promoting
education. But he has favored policies that checked government power and
emphasized private responsibility. Though called a "conservative,"
Friedman disdains the label and sees himself as a libertarian or "radical"
someone who so prizes freedom that he would make dramatic political
changes to enhance it. A true conservative, by contrast, only reluctantly
alters existing social arrangements. Friedman's ambitions have never been
so modest.