(Drivebycuriosity) -Milton Friedman belongs to the most influential economists of the last 100 years. John Maynard Keynes might still have more followers, the Keynesians, but Friedman was more often right. I was so lucky to meet him in the year 1990 at a meeting of the Mont Pelerin Society in München, when I worked for a German magazine.
Jennifer Burns`excellent biography "Milton Friedman: The Last Conservative" gives an introduction in his life and his work ( amazon). Burns calls Friedman a "conservative" even though he preferred to call himself a liberal, a believer in limited government, free trade and individual rights. But in America the term "liberal" is used for left of the middle and includes politicians like Joe Biden, Bernie Sanders & Elizabeth Warren.
Friedman was the leading monetarist, preaching the classic quantity theory of money and the insight that "inflation is always and everywhere a monetary phenomenon". He declared "too many dollars chasing too few goods cause a general rise of prices". The recent inflation wave, caused by a deluge of money generated by government checks & massive bond purchases by the Federal Reserve, Friedman´s helicopter money, confirms him again.
Freedom Of Choice
But he was much more. He had an enormous influence as a classical liberal. He fought (in words) for a philosophy of freedom and was an advocate of individual rights, free markets and trade and limited government. Friedman wanted a political world of maximum individual choice, and an economic system where individuals were likewise free to bargain and to contract at will. As an economist, Friedman tended to see numbers, and as an individualist, he saw people rather than groups.
Milton published together with his wife Rose the book "Capitalism and Freedom", which they later distilled into their TV show "Free to Chose". The show, a major platform for Friedman´s view, dovetailing with the emergent anti-government, tax-cutting sentiment in the Reagan era, aired on nearly 75 percent of the nation`s PBS television channels. Each of the ten episodes attracted an estimated three million viewers, while a companion volume was the best-selling nonfiction book of 1980. "Free to Choose" crystallized all the free-floating anti-government sentiment of the era, showcasing inefficient bureaucrats, runaway federal spending, and harried, harassed ordinary citizens struggling against red tape and regulation.
Friedman put price theory into the center of his research and revitalized and popularized the Chicago price theory - the analysis of rational human choice under conditions of scarcity. He taught that the price system - the free interaction of buyers and sellers - could produce better social outcomes than the decisions of politicians and regulators. Friedman claimed that human behavior is shaped by price signals, that people want more of what was cheap and less of what of what was dear, or would prefer (by same risk, stress, time etc) a higher income to a lower one.
Vanishing Monopolies
Friedman dismissed the popular view that monopolies are pervasive and therefore require government control, which lead to the Sherman Antitrust Act from 1890 and the Clayton Antitrust Act from 1914 and today`s huge antitrust lawsuits against Google, Amazon and other big corporation. Friedman asked: "Do monopolies really exist? Were they inevitable and durable, or did they tend to disappear?" He claimed that - government intervention aside - monopolies tend to vanish and competition to revive.
History gives him right. When a company has success it inspires copycats who want a share from the pie. Who remembers MySpace? The company was once the leading social network and regarded as a monopolist ( theguardian). But then came Zuckerberg out of nowhere and destroyed MySpace`s "monopoly" by creating Facebook. And today the technology sector is shaken up by the rise of AI. "The free market is not only a more efficient decision maker than even the wisest central planning body, but even more important, the free market keeps economic power widely dispersed".
Friedman also critizised the idea that companies are responsible for social issues, today known as DEI (Diversity, Equity & Inclusion): "There is one and only one responsibility of business - to use its resources and engage in activities designed to increase its profits as long as it stays within the rules of the game. A corporate executive only had direct responsibility to his employers. To divert resources to other goals would be unethical, spending someone else´s money for a great social interest".
Markets For Votes
Friedman embraced the Public Choice Theory, developed by Gordon Tullock, James Buchanan and others, who taught that "politicians were political entrepreneurs, creating new markets for votes with new programs, industries and special interests trying to influence policy were ´rent-seeking´, hoping to stifle competition, gain advantage, and pass the costs to someone else." Friedman recommended "we shall do far better to seek a change in our effective political constitution that will narrowly limit the power of those whom we elect and thereby alter the incentives of both politicians and voters".
But - maybe surprisingly - Friedman also sided with some progressives ideas and proposed a basic income which he called "negative income tax". He recommended that households who`s incomes are below a certain low level should not pay taxes, instead they should receive government money to finance their living.
Destabilizing Influence
Friedman`s center of gravity was of course the role of money in the economy. He was supported by Anna Schwartz, who was at first Friedman´s teacher and later cooperated with the famous momentous study about the role of money in business circles and the cause of the Great Depression: "A Monetary History of the United States, 1867-1960". Schwartz`s contribution to this work was important because she was buried in data and grasped the granularity of the data in a way and had a love and feel for history that Friedman did not share.
The book`s centerpiece was its stunning analysis of the Great Depression. Friedman and Schwartz`s data showed a precipitous 33 percent decline in the quantity of money during what they called "The great contraction". The Federal Reserve, that was founded in 1913 to stabilize the banking system, failed because the agency ignored that money was drained from the banking system and the economy collapsed. What appeared to be a failure of markets was in fact a failure of the Fed. Friedman reached the conclusion that the Great Depression was made great by a severe reduction of money supply, that was caused or at least accepted by the Federal Reserve: "By and on the large the Federal Reserve system has probably been a destabilizing influence during its life and that we might very well have been better off if we had never had it".
Pariah Of The Left
Unfortunately Friedman became a pariah of the left after he visited Chile where he and other economists - mostly from Chicago, the so-called Chicago Boys -, convinced Pinochet to set on market forces instead of government controls and taught the Chilenian administration how to reduce the red-hot inflation there by slowing the growth of money.
Burns`book is much more than just a biography of Friedman, it is also a history of economics, "the master discipline of the twentieth century". We learn about the work of Alfred Marshall ("Principle of Economics"), Frank Knight ("Risk, Uncertainty and Profit"), Jacob Viner, Irving Fisher and others who influenced Friedman´s thinking. She describes the evolution of the global economy during Friedman`s lifetime and the ancient clash between so-called progressives and classical economists, the changes of the global economy and the developments of the economic science. And Burns elaborates Friedman´s disputes with Keynesians, the left-leaning, universities and professors like MIT and Paul Samuelson & James Tobin and covers the political changes in the US that influenced Friedman or might have been influenced by him.
The biographer also introduces her readers into the controversy between "saltwater" and "freshwater" economists. "Saltwater" represents universities in the East Coast, which are leaning on left-wing theories, also called Keynesian theories; while "Freshwater" includes Chicago, Minnesota and Carnegie Mellon, who - like Friedman - defend the importance of market forces contra regulation & activist government policies.
Unfortunately Friedman´s opponents and the economic illiterate seem to rule theses days, leading to trade wars, rising regulation and ill advised monetary policy (for instance Fed Chair Powell ignores the role of money driveby).
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