The Indispensable Milton Friedman, edited by Lanny Ebenstein, Regnery Books, 257 pages, $27.95
Milton Friedman’s biographer Lanny Ebenstein has edited a delightful collection of mostly un-anthologized essays by Friedman, titled The Indispensable Milton Friedman. The book strives to be more original than essential—more a B-sides collection than a Greatest Hits—so the title refers more reliably to the author than the book. Still, Friedman fans will enjoy what’s here, scholars will appreciate having these far-flung essays gathered in one place, and those trying to understand the scope and evolution of libertarian thought since World War II will find this book illuminating.
The collection includes, among other things, essays on the value of free-market health care and drug legalization (the latter framed as a letter to conservative drug warrior Bill Bennett), reminiscences and rethinkings from a distance about Friedman’s own major works Capitalism and Freedom and A Monetary History of the United States, and somewhat abstruse (for the popular reader) analyses of aspects of the economics of Wesley Mitchell, Leon Walras, Henry Simons, and John Maynard Keynes.
The book wraps up nicely with transcripts from interviews that Friedman did for Commanding Heights, a PBS series that summed up the evolution and successes of pro-market thought in the West after World War II. In those transcripts, Friedman discusses the major intellectual and political figures of his time, the controversies surrounding the Chicago School of Economics’ connections with Chile under Pinochet, and his belief that the intellectual battle has moved substantially in the direction of free markets, although “I don’t think we can regard the war as won by any manner.”
It isn’t clear if Ebenstein intended to tell a story by arranging the essays chronologically within its two sections, “Politics” and “Economics.” But he does. It’s the tale of a man whose beliefs got tougher, more comprehensive, and more libertarian with more thought and wider knowledge.
The book’s first chapter is a well-lit display of the reasons why Murray Rothbard, defender of the anarcho-libertarian flame, contemptuously called Friedman a “court libertarian.” In a 1951 essay called “Neo-Liberalism and its Prospects,” Friedman bends over backwards to stress the state’s importance, while Rothbard thought it the duty of a true libertarian to “hate the state.” Friedman wrote then that it was a “basic error in nineteenth-century individualist philosophy” to have “assigned almost no role to the state other than the maintenance of order and the enforcement of contracts” and questioned liberalism’s belief that “Laissez-Faire must be the rule.” He had high praise for the Sherman Antitrust Act and declares that the “provision of money...cannot be left to competition and has always been recognized as an appropriate function of the state.”
In the second essay, from 1955, Friedman smartly sums up the devolution of liberalism from the philosophy of “defenses against arbitrary government and...protect[ing] individual freedom” to one of strengthening the “power of the government to do ‘good’ ‘for’ the people.” But he’s still a big believer in the idea that neighborhood effects or externalities—actions that give either costs or benefits to people not involved in the transaction—are good reasons for government action. He admits, in the style that drove Rothbard nuts, that while any “extension of state action involves an encroachment on individual freedom,” the true liberal “regards this as...by no means a fatal obstacle to” such state action, as long as a cost-benefit analysis indicates good would come of it.
A couple decades later, Friedman was a much more ferocious libertarian. In a 1976 lecture on Adam Smith given at a Mont Pelerin Society meeting, he identifies himself as one “who...preach[es] laissez faire” and explains that the neighborhood effect argument for the state is tricky and overreaching, and that government actions themselves have bad external effects that “externality” devotees ignore. He also writes that “superficially scientific cost-benefit analysis” to justify state action “has proved a veritable Trojan horse.”
Friedman the monetary economist, in Ebenstein’s selections, shows sides misunderstood or missed entirely by those who focus only on the Friedman who advocated a rule-based rise in government-issued fiat money within the current Federal Reserve system. Friedman was also, like Rothbard, an advocate of an ideal banking system of 100 percent reserves, where banks lacked the power to essentially make new money by loaning out most of its depositors’ money at interest.
Despite his earlier statement that government paper currency monopolies were necessary, as this book’s 1984 essay “Freezing High-Powered Money” shows, the later Friedman was as radical as Ron Paul in his opposition to the Fed. Friedman called for elimination of the Federal Reserve’s role in “determining the quantity of money” and says its regulatory and service role to the banking system “could, if desired, be continued, preferably by combining it with the similar roles of the FDIC.” In other words, End the Fed!
The same essay stated that Friedman “would favor the deregulation of financial institutions, thereby incorporating a major element of Hayek’s proposed competitive financial system” and then end “the prohibition of the issuance of...currency by private institutions.” These ideas go with the later Friedman’s move away from favoring a steady rule-based growth in paper money toward support for freezing the existing quantity at whatever point it was when this policy was instituted.
Friedman told me in 1995 that his increased understanding of the facts led him to abandon his belief in compulsory education as well. In this volume, Friedman tells a similar story while eulogizing his best friend and University of Chicago colleague George Stigler, an economist who became more opposed to the very antitrust laws the 1951 Friedman lauded earlier in the book the more he learned about them.
Whether or not this was Ebenstein’s intention, this volume is a great opportunity to consider the ways this Nobel laureate, beloved by Republican luminaries from Goldwater to Nixon to Reagan, got more radical even as he got more respectable.