Milton Friedman - the man who said "Keynes was wrong on just about everything, and his followers are wrong on absolutely everything."
My first ever quest entry
Milton Friedman, whether you love him or loathe him, will go down in history as one of the most influential economists of the 20th century. Can he really be a role model? Well, maybe not, but he must be respected for having the sheer intelligence to question accepted economic wisdoms and introduce totally original lines of thought. He was a man who made a massive mark on the world, particularly in the 1980s when it was his policies that shaped two of the world's most influential countries. Dr. Eamonn Butler said of him, "In his influence on governments as well as on his fellow economists, Friedman is recognised as one of the most important economic thinkers of the century." His name is most often associated with 1980s supply-side economics advocated and practiced by both Margaret Thatcher (the woman who said "There is no such thing as society") and Ronald Reagan (the man who said "The government's view of the economy can be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."). Why, then does Friedman have such a bad reputation as a fascist, cruel man? This writeup is going to be a mix of factual information and my feelings on why he should be admired and respected for the work he has done in his field. I genuinely admire the guy for all his flaws in the same way I admire Margaret Thatcher. I'm not sure if I like either of them all that much, but is that reqisite for trying to emulate their successes? And there's no denying that Milton Friedman has been successful. Note: the comments down the right of the page are quoted from Milton Friedman - they should give you a good idea of the man if you can't be bothered to actually read this writeup.
Inflation is the one form of taxation that can be imposed without legislation.
Friedman was born on the 31st July, 1912 in Brooklyn, New York. He was the fourth and last child in his family, and his parents were Ethel (Landau) and Jeno Saul Friedman. "His name is clearly Jewish!", I hear you say. Well his parents were born in Carpatho-Ruthenia, which was then a province in Austria-Hungary. As time went on, this province became part of Czechoslovakia (between the Wars) and then became part of the Soviet Union. It's now part of Slovakia and the Ukraine (thanks to admiralh for the info). Anyway, back to the story. Friedman's parents, while still teenagers, moved to America in the hope of building a new life for themselves. This is in fact where they met, in New York. From his autobiography: "When I was a year old, my parents moved to Rahway, N.J., a small town about 20 miles from New York City. There, my mother ran a small retail "dry goods" store, while my father engaged in a succession of mostly unsuccessful "jobbing" ventures. The family income was small and highly uncertain; financial crisis was a constant companion. Yet there was always enough to eat, and the family atmosphere was warm and supportive."
Exchange rates should float freely.
So, during his youth he went to elementary and secondary school with his sister getting a thorough but normal education that didn't mark him out as anything special. He graduated in 1928 from Rahway High School prior to turning 16 but unfortunately his father tragically died while he was in his senior year. His father had been the breadwinner in the family, and supported them through thick and thin and this was a massive emotional blow for Friedman. His mother was left to support the whole family on her own, and this was a large family (by today's standards anyway). He had two elder sisters to help his mother but the job was never going to be easy. At this time he writes "Nonetheless, it was taken for granted that I would attend college, though, also, that I would have to finance myself." This expectation was, in a way, forced upon him. As the eldest male he had a sort of unspoken obligation to take charge.
Annual consumption is a function of people's expected lifetime earnings - not just their income at the current time.
Education
In the late 1920s (I'm not sure of the exact date) he managed to get into Rutgers University. Not only this, but he was also awarded a "competitive" scholarship which was great considering his financial situation. At that time Rutgers university was, says Friedman in his autobiography, "a relatively small and predominantly private university receiving limited financial assistance from the State of New Jersey, mostly in the form of such scholarship awards." Although not hugely prestigious, it was an impressive achievement for someone whose parents had been poor immigrants. He graduated from Rutgers University in 1932, and managed to pay his way through college like most students: working in restaurants, department stores, summer jobs and what he calls "entrepreneurial ventures." So, in the 1930s the world's foremost proponent of Monetarist theory might have served you a coffee.
Hell hath no fury like a bureaucrat scorned.
Milton Friedman strangely enough did not study Economics at University straight away - despite later going on to draw up theories that rivalled those of John Maynard Keynes, he shunned the 'dismal science' and decided to go for Mathematics with the intention of going on to become an actuary. He says he "went so far as to take actuarial examinations, passing several but also failing several." In case you're wondering an actuary is a financial fortuneteller of sorts, using statistical methods to predict stuff. Well, Friedman was bored. Now what?
Only government can take perfectly good paper, cover it with perfectly good ink and make the combination worthless.
After becoming just a touch disillusioned with this actuary stuff, his interest in Economics began. He said "Shortly, however, I became interested in economics, and eventually ended with the equivalent of a major in both fields." If he had gone on to become an actuary who knows what might have happened? Maybe Voodoo economics would never have happened, maybe we would still be trying to spend our way out of liquidity traps. Milton Friedman's economic career really took off thanks to the help of two men: Arthur F. Burns and Homer Jones. Burns was teaching at Rutgers University (which Friedman attended - remember?) while he was still in the process of finishing off his doctoral dissertation for Columbia University.
Jones was at that time teaching at the University of Chicago (where Friedman would later make his name - but we'll get to that in a minute) and also taking part in graduate work like research. Both these men had clearly had a profound effect on Friedman and he speaks highly of them: "Arthur Burns shaped my understanding of economic research, introduced me to the highest scientific standards, and became a guiding influence on my subsequent career. Homer Jones introduced me to rigorous economic theory, made economics exciting and relevant, and encouraged me to go on to graduate work." He later added "Arthur Burns and Homer Jones remain today among my closest and most valued friends."
There's no such thing as a free lunch.
University of Chicago
University of Chicago is one that is always linked with right wing Monetarist theories. Milton Friedman is the reason. Homer Jones recommended to the Economics faculty that Friedman should receive a scholarship and the department sure enough offered him a tuition scholarship, which he accepted. At the same time he was also offered a scholarship by Brown University but this was to study Applied Mathematics. He said "by that time, I had definitely transferred my primary allegiance to economics." Once again, if he had decided to go and study Mathematics the world would almost certainly have been a different place in the 1980s. Entering the University of Chicago in 1932, Friedman found his first year tough - financially his situation wasn't great. Despite the scholarship he was struggling to pay his way through study. However, this was balanced by the fact that he found "intellectually, it opened new worlds. Jacob Viner, Frank Knight, Henry Schultz, Lloyd Mints, Henry Simons and, equally important, a brilliant group of graduate students from all over the world exposed me to a cosmopolitan and vibrant intellectual atmosphere of a kind that I had never dreamed existed. I have never recovered." He loved studying at Chicago and never regretted his decision to go into Economics - the subject was one that stretched him but more importantly allowed him to develop his own ideas and theories (which is one reason why I like Economics, too - I never felt like I could make a difference in a subject like Maths which felt like a body of knowledge but Economics was a totally different matter).
Columbus did not seek a new route to the Indies in response to a majority directive.
I am currently going through a period when I need to decide what I am going to study at University. There are tough decisions to be made, and careers to consider. One place I look to for advice is people I admire - there's no doubt in my mind that had Friedman gone on to study maths the world would be worse off. He is one of the many people whose careers go to show that you don't have to be a total genius to achieve something significant in your field - as cheesy as that sounds, it's reassuring for someone who is uncertain about what to study. Small details can swing my opinion and can have a large effect on my life, and people like Friedman can convince people like me to go into fields that we may not otherwise have considered.
The greatest advances of civilization, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralized government.
Anyway, let's get back to Friedman's life story. Soon after he joined the University of Chicago he met what he called a "shy, withdrawn, lovely, and extremely bright fellow economics student, Rose Director." Six years after meeting Rose, the two married and she has continued to have a significant effect on his life. He wrote "our depression fears of where our livelihood would come from had been dissipated, and, in the words of the fairy tale, we have lived happily ever after." His family life illustrates a whole new dimension to his character, but I'm going to leave most of it out since it is his economic thinking that really captured my imagination and interest.
The government solution to a problem is usually as bad as the problem.
University of Columbia and Stuff
If you look back Friedman mentions a group of people who affected his life - one of them is Henry Schultz's and through Schultz's professional contacts, Friedman was offered a fellowship at Columbia University. He accepted this fellowship saying
"the year at Columbia widened my horizons still further. Harold Hotelling (My note: Hoteeling was Friedman's friend) did for mathematical statistics what Jacob Viner had done for economic theory: revealed it to be an integrated logical whole, not a set of cookbook recipes. He also introduced me to rigorous mathematical economics. Wesley C. Mitchell, John M. Clark and others exposed me to an institutional and empirical approach and a view of economic theory that differed sharply from the Chicago view."
One of the important things about Columbia, found Friedman, was its graduates - like at Chicago, they were often as effective as the teachers in introducing him to new theories and ideas. The following year Friedman returned to the University of Chicago and worked alongside Henry Schultz (if you don't remember who he is then cast your eyes back a bit). At that time Schultz was working on his book The Theory and Measurement of Demand which went on to be a well respected book in economic circles - Friedman learnt much from this professional link and no doubt this assisted him when he later wrote his own books. Many other things happened during this time, and I'll let Milton himself sum it up: "Equally important, I formed a lifelong friendship with two fellow students, George J. Stigler and W. Allen Wallis.
Allen went first to New Deal Washington. Largely through his efforts, I followed in the summer of 1935, working at the National Resources Committee on the design of a large consumer budget study then under way. This was one of the two principal components of my later Theory of the Consumption Function."
Underlying most arguments against the free market is a lack of belief in freedom itself.
Between 1941 and 1943 Friedman worked at the US Treasury Department where his area of specialisation was "wartime tax"
which admittedly doesn't sound thrilling. The two years after that were spent back at Columbia University where he says "my capacity as a mathematical statistician undoubtedly reached its zenith on VE Day, 1945." His work was Mathematics based over there, but he didn't enjoy it as much so in 1945 he left to join the University of Minnesota, from which "he had been on leave," says his autobiography. He spent one year there and then it was back to the University of Chicago where he taught economic theory - a post to which he was naturally suited. He took over from another prominent economist who had left Chicago and gone to Princeton. During this time Freidman became attached to the University and gained real recognition. Friedman made this clear saying, "Chicago has been my intellectual home ever since. At about the same time, Arthur Burns, then director of research at the National Bureau, persuaded me to rejoin the Bureau's staff and take responsibility for their study of the role of money in the business cycle." This research got quite a lot of attention on its publication
What kind of society isn't structured on greed? The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system.
Later
During Autumn 1950, Friedman went on to spend several months in Paris where his role was "consultant to the U.S. governmental agency administering the Marshall Plan." He was assigned to examine the Schumann Plan, which was "the precursor of the common market." If you look at the top of this writeup you'll see a quote that says, "Exchange rates should float freely." His Paris research was what got Friedman interested in interest rates (particularly floating ones) and led him to conclude that " a common market would inevitably founder without floating exchange rates." this viewpoint was established in his essay The Case for Flexible Exchange Rates. A quick economics lesson: Monetarists are firm believers in free market ideology and this means they see any attempt at Government intervention silly and ultimately doomed to failure. Fixing exchange rates are silly, think Monetarists - the free market has self-correcting mechanisms and any attempt to interfere with these mechanisms will end in tears.
Three years later (from 1953 to 1954) Friedman took up the prestigious post of "Fulbright Visiting Professor at Gonville & Caius College, Cambridge University." Interestingly, this is one place where I am considering applying to in the near future. While at Cambridge Freidman also had a good time. In his autobiography he writes
"Because my liberal policy views were "extreme" by any Cambridge standards, I was acceptable to, and able greatly to profit from, both groups into which Cambridge economics was tragically and very deeply divided: D. H. Robertson and the "anti-Keynesians"; Joan Robinson, Richard Kahn and the Keynesian majority. Beginning in the early 1960s, I was increasingly drawn into the public arena, serving in 1964 as an economic adviser to Senator Goldwater in his unsuccessful quest for the presidency, and, in 1968, as one of a committee of economic advisers during Richard Nixon's successful quest. In 1966, I began to write a triweekly column on current affairs for Newsweek magazine, alternating with Paul Samuelson and Henry Wallich. However, these public activities have remained a minor avocation - I have consistently refused offers of full-time positions in Washington. My primary interest continues to be my scientific work."
Friedman was a member of President Ronald Reagan's Economic Policy Advisory Board and had close ties with Margaret Thatcher who implemented many of his supply-side policies like decreasing union power.
Inflation is like a drug. Its stimulating effect temporary. Only larger and larger doses can sustain the stimulus, before the chaos of hyperinflation removes all the gains.
Milton and Economics (Nothing to do with supply-side leanings in Paradise Lost)
And that is Milton Friedman, ladies and gentlemen! Now anyone who knows anything about Friedman will be aware he is most famous for being the primary supporter of supply-side policies (classified by Bush as Voodoo economics). The reason I didn't talk about this much is that I wanted to leave it for last - Milton Friedman is a Monetarist. John Maynard Keynes is (obviously) a Keynesian. What does that mean? Well that is a node in itself but generally, we can consider Friedman as economically right of centre. Monetarists believe in the free market ideology - they think that markets self-correct and that any attempt to influence demand (by, say, lowering taxes during a recession) will only lead to inflation since the long run Aggregate Supply Curve is (according to them) horizontal. That sounds technical and it is, but the point is this - Monetarists believe that "there is a close and stable link between inflation and the money supply," they "reject the use of fiscal policy as a tool of demand management" and claim that "the government's role in the management of the economy should be restricted to controlling the money supply." Monetarists would repeal the minimum wage. As strange as that sounds they have good reasons for doing so - the minimum wage means that labour markets fail to clear and the quantity of labour (a factor of production) falls. This means the potential output of the economy falls and this can cause inflation, which is generally speaking not terribly helpful.
However the purpose of this writeup isn't to give you a detailed explanation of Friedman's economic theory - I have omitted 90% of his main works that got him recognition and left out much of his career. An detailed explanation of Monetarism is not the purpose of this either. I have even left out details of his 1976 Nobel Prize because I want to focus on something else. I think we should admire someone who can come out fairly humble beginnings and make such an impact on society. Everyone seems to ignore his history as the child of poor immigrants and leaves out details of his childhood and early career. I think people should look at his slow rise to power and the astonishing efect he's had on the world's most important countries.
Sources
- http://www.adamsmith.org/friedman/home.htm
- http://www.creativequotations.com/one/977.htm
- http://www.friedmanfoundation.org/
- http://www-hoover.stanford.edu/bios/friedman.html
- http://www.nobel.se/economics/laureates/1976/
- http://www.ideachannel.com/Friedman.htm
- http://almaz.com/nobel/economics/1976a.html
- http://www.bized.ac.uk/virtual/economy/library/economists/friedmanth.htm
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