Remarks on Jennifer Burn’s book, “Milton Friedman, the Last Conservative” (New York: Farrar, Straus and Giroux, 2023, 575 pages) on April 9, 2024, at the Association of Private Enterprise Education (APEE) meetings in Las Vegas.
I am honored to speak today about Milton Friedman, the famous economist, and Jennifer Burn’s new biography, “Milton Friedman, the Last Conservative.” We maintained a friendship and correspondence from the early 1980s until his death on November 16, 2006. In fact, I may have been the last person to have lunch with him at his favorite Italian restaurant in San Francisco, just a few weeks before he died. He had forgotten to shave, but we had a great time together. He had full use of his mind, but he complained that he was losing his eyesight at age 94. “Maybe you’ll live to be 100,” I said. He replied, “I hope not.”
After his passing, I wrote a tribute to this happy warrior, calling it “My Friendly Fights with Milton Friedman.”[1] In it, I recount the various encounters and debates I had with Mr. Friedman, as he liked to be called.
Despite our disagreements, he was kind enough to endorse two of my books that he especially liked: “Vienna and Chicago, Friends or Foes? A Tale of Two Schools of Free-Market Economics” (Capital Press, 2005) in which he said, “We were friends – and foes!” and my history of thought, “The Making of Modern Economics,” in which my chapter on Friedman is called “Milton’s Paradise.”
“Hidden Figures”: Four Women Behind the Scenes
One of the unique contributions to Burns’ biography (see chapter 8) was the behind-the-scenes influence of four women who helped research, write and edit Milton’s work: Anna J. Schwartz, Dorothy Brady, Margaret Reid, and Rose Friedman. Schwartz did so much research, massaging the data, and writing that she was listed as full co-author of A Monetary History of the United States, 1867-1963. I once made the mistake of referring to Anna Schwartz as his “researcher” in a letter to Friedman that he blew up, writing me a scathing letter that is still burning in my files. But reputations are hard to change. A month later, in a 1993 American Economic Review, I saw a picture of Anna Schwartz being made a “distinguished fellow.” The short summary of her professional career listed her as a “researcher” seven times.
Dorothy Brady and Margaret Reid held workshops and did considerable research in the development of the permanent consumption hypothesis that resulted in Friedman’s book, A Theory of the Consumption Function (published in 1957). He was listed as the sole author.
Rose was deeply involved in the editing of Milton’s 1956 lectures at Wabash College into his bestselling Capitalism and Freedom, published in 1962. The inside the cover noted that the book was “with the assistance of Rose D. Friedman.” She later received full billing as co-author of Free to Choose, published in 1980.
Since I have only a short time remaining, I’d like to focus on one major theme, and that is, that Milton Friedman was his own man, and frequently made comments and took views that surprised me, so that he probably would be most comfortable calling himself an “individualist” than any other label. [etc.]
Since I only have a short amount of time, I’d like to focus on one major theme, and that is, that Milton Friedman was his own man, and frequently made comments and took views that surprised me, so that he probably would be most comfortable calling himself an “individualist” than any other label.
Friedman on Keynes and Keynesian Economics
First, Friedman views on John Maynard Keynes and Keynesian economics are mixed. It’s true that Friedman’s monetarism is often seen directly opposed to Keynesianism, a counter-revolution if you will. His “permanent-income hypothesis” countered Keynes’s consumption function. And his Monetary History, co-authored with Anna Schwartz, struck at the heart of the Keynesian model, the deep-seated claim that free-enterprise capitalism is inherently unstable and could be stuck indefinitely at less than full employment. (Only government deficit spending could bring us back to full employment.) After studying the causes of the Great Depression, Friedman states, “The fact is that the Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than any inherent instability of the private economy” (Friedman 1982 [1962], p. 38).
And thus, Jennifer Burns concludes that Friedman was never a Keynesian (Burns 2023, p. 119). Indeed, as Friedman wrote me a letter, “I was never a Keynesian in the sense of being persuaded of the virtues of government intervention as opposed to free markets” (Skousen 2022, p. 406).
And yet….there is evidence that he flirted with Keynesian economics on many levels. During his stint with the Treasury Department in the early 1940s, Friedman was asked to give testimony on ways to fight inflation during World War II. His reply, couched in Keynesian ideology, mentioned several options: cut government spending, raise taxes, and impose price-wage controls. Nowhere does he mention monetary policy or controlling the money supply, policies for which Friedman is now famous. He confessed, “I had completely forgotten how thoroughly Keynesian I then was” (Friedman and Friedman 1998, pp. 112-113).
There are other examples that can’t be dismissed too easily. During the 1930s, Friedman had “strong New Deal leanings” and favored Keynesian-style deficit spending as a way out of the depression (Ebenstein 2007, p. 39). In this regard, Friedman’s mentor was not Keynes, but his teachers at the University of Chicago – Frank Knight, Jacob Viner, and Henry Simons. They were Keynesian before Keynes! (Skousen 2022, pp. 392-393).
Friedman also said surprisingly positive things about Keynes the man. On the 50th anniversary of the publication of Keynes’s magnum opus, Friedman described The General Theory as “a great book.” He glorified Keynes as a “brilliant scholar” and “one of the great economists of all time.”
Friedman contrasted the Keynes revolution to the austere response of the Austrian school of Ludwig von Mises and Friedrich Hayek: “By contrast with this dismal picture [the Austrian laissez-faire prescription], the news seeping out of Cambridge (England) about Keynes’s interpretation of the depression and of the right policy to cure it must have come like a flash of light on a dark night. It offered a far less hopeless diagnosis of the disease. More importantly, it offered a more immediate, less painful, and more effective cure in the forms of budget deficits. It is easy to see how a young, vigorous, and generous mind would have been attracted to it” (Friedman 1974, p. 136).
This is a far cry from what other market-friendly economists have said about Keynes. Henry Hazlitt refers to Keynesian economics as “the most subtle and mischievous assault on orthodox capitalism and free enterprise that has appeared in the English language” (Hazlitt 1977, p. 345) and W. H. Hutt called Keynesian economics to be “the most serious blow that the authority of orthodox economics has yet suffered” (Hutt 1979, p. 12).
Friedman’s views are quite sympathetic, however. “I believe that Keynes’s theory is the right kind of theory in its simplicity, its concentration on a few key magnitudes, its potential fruitfulness,” he wrote, but then backtracked: “I have been led to reject it because I believe that it has been contradicted by experience” (Friedman 1986, pp. 48, 52).
When Keynes was put on the cover of Time magazine in 1965, Friedman was quoted as saying, “We are all Keynesians now.” Later he said he was quoted out of context. “In one sense, we are all Keynesians now; in another, no one is a Keynesian any longer. We all use the Keynesian language and apparatus; none of us any accepts the initial Keynesian conclusions” (Friedman 1968, p. 15).
Is the American Economy Depression Proof?
In 1954, Friedman gave a lecture in Stockholm, Sweden, entitled “Why the American Economy is Depression Proof?” (Friedman 1968). It is highly Keynesian in nature. He makes his base based on federal bank deposit insurance, the abandonment of the gold standard, the adoption of a generous welfare state as a “built in stabilizer,” and the Federal Reserve acting as a lender of last resort, all forms of heavy government intervention.
Friedman as a Monetary Keynesian?
Several economists consider Friedman a Keynesian monetarist. Don Patinkin, Harry Johnson, and Roger Garrison “see Friedman’s monetary theory as an extension of the ideas commonly associated with Keynes” (Garrison 1992, p. 132). Don Patinkin, who completed his PhD at Chicago, argued that Friedman’s monetary framework resembled Keynes’s theory of liquidity preference (Patinkin 1969).
Whenever there’s a financial crisis or economic contraction, what is the popular solution? Whether Keynesian or Monetarist, the answer is always the same, an activist fiscal and monetary policy: “Run a deficit” and “Inject liquidity.” During a recession, the focus in on aggregate or macro statistics—increase government spending and the money supply. Fiscal and monetary policy are two sides of the same coin, government stimulus.
In 1997 Friedman wrote a column, “Rx for Japan,” in the Wall Street Journal. What would be the best way to encourage Japan to grow again? Should they cut taxes, deregulate the economy, make their domestic savings plan more productive through a better banking system, or open their borders to immigrants? No. Friedman had only one solution: Print more yen! He wrote, “The surest road to a healthy economic recovery is to increase the rate of monetary growth, to shift from tight money to easier money–to a rate of monetary growth closer to that which prevailed in the golden ’80s, but without again overdoing it….There is no limit to the extent to which the Bank of Japan can increase the money supply if it wishes to do so. Higher monetary growth will have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow; and after another delay, inflation will increase moderately. A return to the conditions of the late ’80s would rejuvenate Japan and help shore up the rest of Asia” (Friedman 1997).
I confronted him about this column at the Mont Pelerin Society meeting in Vancouver, Canada, asking if “easy money” wasn’t just an example of “creeping socialism” and a “free lunch,” he responded with considerable anger, “a free disaster!” Afterwards, Prof. Jim Gwartney came up to me and said, “You attacked God today!”
Friedman and Keynes Share a Distaste for Gold
This is why both Friedman and Keynes opposed the gold standard—it would keep them from engaging in inflationary fiscal and monetary policies during a crisis or recession/depression.
In 1998, Friedman spoke at the New Orleans Investment Conference, and afterwards I took Rose and him out to dinner at Commander’s Palace, where we got into a big fight over gold vs paper money. I won’t go into this story at this time; you can read it in my essay, “My Friendly Fights with Milton Friedman,” but I do keep in my wallet his torn up $20 bill to remind me of that debate that almost destroyed our friendship.
This is one area where Friedman and the Chicago school differ from Ludwig von Mises and the Austrian school. Most Austrians defend the classical gold standard.
At the end of the conference, I asked Friedman publicly, “Who is the better economist, Keynes or Mises?” He did not hesitate: “Keynes.”
Friedman’s (and Keynes’s) Blind Spot
Both Keynes and Friedman ignore the structure of production in the economy, and are critical of the Austrian theory of the business cycle and largely dismiss the possibility of malinvestment and unsustainable asset bubbles that could generate a financial collapse.
Friedman did not live to witness the financial crisis of 2008. But Anna Schwartz did. Interestingly, Friedman’s famous chapter, “The Great Contraction, 1929-1933,” taken from his magnum opus, “A Monetary History of the United States, 1869-1960” (Princeton University Press, 1963), was reprinted in 2007, with a new introduction by his co-author, Anna J. Schwartz. The short book had long been out of print, and was brought back just before the financial crisis started in 2008 and after Milton Friedman died. It was perfect timing as we were about to witness the worst economic debacle since the Great Depression. Yet Professor Schwartz was oblivious to any evidence of a collapse. She wrote, “As the federal funds rate moves in a low and narrow range in response to low and stable inflation, volatility of the business cycle and real economy has moderated.”[2] She couldn’t have been more wrong.
This is the flaw in Chicago macroeconomics – its macroeconomics is too aggregate to see the malinvestments developing inside the economy, in this case, the real estate boom and bust.
Friedman and the Economic Freedom Index
I was glad to see Burns make a brief reference to a major project that Milton and Rose Friedman were involved in: the creation of the Economic Freedom Index in the 1980s and 1990s. (See pp. 448-449.) The Friedmans played a critical role in advancing the use of empirical evidence in support of the Adam Smith “system of natural liberty.” It was brainchild of Michael Walker, the founder of the Fraser Institute.
He wrote me the following: “I had some conversations with my friends Milton and Rose Friedman and they agreed that it would be interesting to try to make measurements of the state of economic freedom and if I could raise the money they would participate in a program of academic meetings dedicated to exploring the concept of economic freedom and how it could be measured. I then contacted the President of Liberty Fund in the US, Neil Mcleod who had been born in Canada. Liberty Fund agreed to fund a series of three meetings which produced a number of book length explorations of Economic Freedom aiming at the foundations of a measurement methodology.”[3]
The Fraser Institute states:
“In 1986, the first of a series of Fraser Institute conferences, sponsored by Liberty Fund Inc. and hosted by then Fraser Institute executive director Michael Walker along with Milton and Rose Friedman, focused on the development of a clearly defined measurement of economic freedom. In addition to the Friedmans, several of the world’s leading economists including Douglass North, Gary Becker, William Niskanen, and Gordon Tullock participated in the conferences. These conferences held from 1986 to 1994 culminated with the initial publication of Economic Freedom of the World (Gwartney, Lawson, and Block, 1996). From the beginning, conference participants sought to carefully define economic freedom and develop an accurate measure for a large set of countries that was as fully transparent and objective as possible. We did not want our subjective views to influence the rating of any country so all data are taken from third party sources.”[4]
The Economic Freedom Index, produced by both the Fraser Institute and the Heritage Foundation, has gone on to have growing influence around the world. The Friedmans’ essential role in this remarkable index should not be ignored.
Friedman and Political Labels
I don’t think Friedman went out of his way to use political labels to describe himself. He once said, “I’m not a monetarist economist, I’m not a supply-side economist, I’m an economist” (Friedman 1982, p. 53). Above all, he believed that economics could be a “positive science,” separate from a “normative science” through the scientific method (such as price theory). (Friedman 1946)
There’s lots of examples of Friedman’s views and policy prescriptions that don’t fit neatly into “right” or “left,” “liberal” or “conservative.” Examples include the negative income tax, flexible exchange rates, free trade, immigration control, and ending the draft.
In conclusion, was Milton Friedman a “conservative”? If you take the first and last words of Jennifer Burns’ book, I have my doubts. He was always “In…change.”
References
Burns, Jennifer. 2023. Milton Friedman, The Last Conservative. New York: Farrar, Straus and Giroux).
Ebenstein, Lanny. 2007. Milton Friedman, A Biography. New York: Palgrave Macmillan.
Friedman, Milton. 1946. “The Methodology of Positive Economics” in Essays in Positive Economics. University of Chicago Press, 1953.
Friedman, Milton. 1954. “Why the American Economy is Depression Proof,” in Dollars and Deficits. Englewood Cliffs, NJ: Prentice Hall, 1968, pp. 72-96.
Friedman, Milton. 1974. “Comments on the Critics.” In Milton Friedman’s Monetary Framework, ed. by Robert J. Gordon, pp. 132-137. Chicago: University of Chicago Press.
Friedman, Milton. 1982 [1962]. Capitalism and Freedom. University of Chicago Press.
Friedman, Milton. 1982. “Supply-side Policies,” in Supply-Side Economics in the 1980s, pp. 53-63. Federal Reserve Bank of Atlanta.
Friedman, Milton. 1986. “Keynes’s Political Legacy,” in Keynes’s General Theory: Fifty Years On, ed. John Burton. London: Institute of Economic Affairs.
Friedman, Milton. 1997. “Rx for Japan.” Wall Street Journal (December 17).
Friedman, Milton and Rose. 1998. Two Lucky People, A Memoir. University of Chicago Press.
Garrison, Roger B. 1992. “Is Milton Friedman a Keynesian?” in Dissent on Keynes, ed. by Mark Skousen. New York: Praeger Press.
Hazlitt, Henry. 1977 [1960]. The Critics of Keynesian Economics, 2nd ed. New York: Arlington House.
Hutt, W. H. 1979. The Keynesian Episode: A Reassessment. Indianapolis: Liberty Press.
Patinkin, Don. 1969. “The Chicago Tradition, the Quantity Theory, and Friedman.” Journal of Money, Credit, and Banking 1 (1):46-70.
Skousen, Mark. 2005. Vienna and Chicago, Friends or Foes? Washington DC: Capital Press.
Skousen, Mark. 2022 [2001]. The Making of Modern Economics, 4th ed. Routledge.
Endnotes
[1] See My Friendly Fights with Dr. Friedman – MSKOUSEN.COM
[2] Anna Jacobson Schwartz, “New Preface,” The Great Contraction, 1929-1933 (Princeton University Press, 2007), p. xi.
[3] Email dated February 15, 2024.
[4] https://www.fraserinstitute.org/economic-freedom/history-of-free-the-world
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