In Memoriam: Milton Friedman

On April 10, 1947, a group of economists and business leaders gathered at the Mont Pelerin Resort in the Swiss Alps for a conference organized by Austrian economist Friedrich Hayek. Hayek had invited international scorn with the publishing of his landmark Road to Serfdom. He advanced the argument that Socialism and Nazism had a common origin: the repudiation of the capitalist model of voluntary action in favor of state planning and coercion. “When a person’s income is guaranteed, he can neither be allowed to stay in his job merely because he likes it nor to choose other work he would like to do. As it is not he who makes the gain or suffers the loss…the choice must be made for him by those who control the distribution of income.”

Among those attending Hayek’s conference was a young American economist named Milton Friedman. A faithful student of the Austrian School and its leading light, Ludwig von Mises, Friedman would emerge as the leading proponent of free markets in the United States and leading opponent of the interventionist model then seen as beyond error. In his magnum opus, Capitalism and Freedom, he claimed that Socialism was contradictory to a free society and urged the west to resist what Hayek called “the inevitability of planning.” “Political freedom means the absence of coercion of a man by his fellow men. The fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a dictator, an oligarchy, or a momentary majority.” Friedman argued that the true cause of the Great Depression was not capitalism, but rather the Federal Reserve cutting the money supply too drastically, causing bank failure and reduced investment. He was an early champion of monetarism, the idea of a direct link between money supply and inflation, as well as the view that individuals consume based on expected lifetime income as opposed to present-day earnings. His work won him a Nobel Prize, a position of leadership in UChicago’s world famous Economics School, and political influence with three US presidents.

In arguing for the need to reduce taxes, cut government spending, end all wage and prince controls, and reduce state regulation over private industry, Friedman was considered a madman by an economic establishment committed to maintaining the model advanced by John Maynard Keynes. Keynes argued that a trade-off existed between inflation and unemployment, which can be effectively managed by enlightened policymakers. Hence, the aim of the state was to increase the public’s demand for goods and services, with deficit spending a necessary byproduct of government programs created in times of economic distress.

The 1970s saw the decline of the Keynesian approach. Johnson’s Great Society, Nixon’s price controls, and Carter’s increased regulation resulted in stagflation: increasing interest and inflation rates coupled with high unemployment. The trade-off championed by Keynes was disproved and Friedman’s arguments gained popularity. The twin reforms of the Reagan and Thatcher administrations in the US and Britain, which saw drastic reductions in unemployment and inflation cut in half, vindicated Friedman’s theories. Healthy growth in the West was paralleled by the collapse of Soviet Communism and the ascendancy of democratic and free market systems in Eastern Europe and Latin America. Friedman’s work with the government of Hong Kong toward a free market program and away from government regulation helped it become one of the highest producing and fastest growing economies in South East Asia. Friedman was highly criticized for advising Augusto Pinochet’s regime in Chile. The long-term effects, however, spoke for themselves. Chile stopped hyperinflation, saw a massive expansion of the middle class, sustained the highest levels of growth and productivity of any state in Latin America, and replaced the military junta with liberal democracy.

Milton Friedman’s belief in individual freedom and the power of markets over state control made him one of history’s greatest economic theorists. He never removed government from the equation completely, but criticized what he thought was a society moving increasingly toward an unacceptable level of collectivism and coercion. Friedman inspired generations of economists and political leaders. His ideas have shaped the political landscape and improved the lives of millions. For this and much more, we owe him an eternal debt.