Best of Both Worlds: An Interview with Milton Friedman

Milton Friedman reminisces about his career as an economist and his lifetime "avocation" as a spokesman for freedom.


Milton Friedman needs little introduction. His career as one of the world's preeminent economists and advocates of freedom has won him many accolades, best-selling books, and a Nobel Prize.

It has also brought him much satisfaction. Now, in what he is acutely conscious are probably the last years of his life, he and his wife and longtime writing partner Rose Friedman are working on their memoirs.

I met Friedman in January in his elegant high-rise San Francisco condo, with an absorbing view of both the Pacific Ocean and the San Francisco Bay. His study is filled, but not cluttered, with his own books and economics reference works. While some Great Men in his position in life might refuse nuisances like interviewers entirely, Friedman is friendly and mostly forthcoming, speaking with the slow assurance of a lifelong professor and teacher very comfortable with explaining things. He welcomed me cordially but with a distinct set of limits, both in time and in subject matter. He has a large project to finish, and not much time to finish it in; and he refuses to psychoanalyze himself, largely avoids indulging in discussion of personalities, and wants to save some stories for his memoirs.

Friedman is used to discussing policy, but except for his assessment of the new Congress's potential, we wandered far afield into reminiscence; assessment of his intellectual development; and his thoughts on the history, significance, and successes of the intellectual movement for freedom that he has served so staunchly.

Reason: You've long advocated many of the ideas the new Congress is pushing, such as balanced budget amendments and flat taxes. Do you think Congress will make your dreams come true?

Milton Friedman: I'm skeptical. The talk is good. But I expected so much out of the Reagan administration and was disappointed. I'm a great admirer of Ronald Reagan himself, and I suspect he would have gotten much more done if it hadn't been for the Cold War and the problem of Nicaragua and El Salvador.

But nonetheless, there's no doubt that while he talked about cutting down the size of government, he did not succeed. He did slow it down—you've got to give him credit for some achievements. But not the massive reduction that he hoped for and planned for. That makes me hesitant now.

Congress wants to talk in this direction. Would they really want to move in that direction? The most important reform would be term limits, six-year limits. Because from an economic point of view, one of the worst features of our system is that you have a new tax law every year or every two years. However bad the tax law is, if you didn't change it for five years it would do less harm. Why do you keep changing it? Because that's the most effective way to raise campaign funds. Lobbyists will pay you to put loopholes in; they will pay you to take them out.

If you can get a flat tax with no exemptions or deductions—the Armey plan I suppose would be fine—its main advantage would not be the greater equity of a flat tax or less interference in private incentives. It would be to end this business of changing the whole tax system every few years and keeping prosperous these hordes of tax lawyers.

Reason: You were involved in the development of the withholding tax when you were doing tax work for the government in 1941–43?

Friedman: I was an employee at the Treasury Department. We were in a wartime situation. How do you raise the enormous amount of taxes you need for wartime? We were all in favor of cutting inflation. I wasn't as sophisticated about how to do it then as I would be now, but there's no doubt that one of the ways to avoid inflation was to finance as large a fraction of current spending with tax money as possible.

In World War I, a very small fraction of the total war expenditure was financed by taxes, so we had a doubling of prices during the war and after the war. At the outbreak of World War II, the Treasury was determined not to make the same mistake again.

You could not do that during wartime or peacetime without withholding. And so people at the Treasury tax research department, where I was working, investigated various methods of withholding. I was one of the small technical group that worked on developing it.

One of the major opponents of the idea was the IRS. Because every organization knows that the only way you can do anything is the way they've always been doing it. This was something new, and they kept telling us how impossible it was. It was a very interesting and very challenging intellectual task. I played a significant role, no question about it, in introducing withholding. I think it's a great mistake for peacetime, but in 1941–43, all of us were concentrating on the war.

I have no apologies for it, but I really wish we hadn't found it necessary and I wish there were some way of abolishing withholding now.

Reason: You've also had some history of advising candidates and presidents. How did you get involved in the Goldwater campaign?

Friedman: Through Bill Baroody at the American Enterprise Institute. The American Enterprise Institute was originally the American Enterprise Association, and had established a board of academic advisers to advise them on their publications. I had been a member of that I think since its inception, and Baroody arranged sometime in the early '60s a number of dinners at his house at which Goldwater was present. Baroody was the brain trust for Goldwater. I was also at some of those dinners, so I got to meet Goldwater. And then when the campaign came along, Baroody asked me to serve as economic adviser. I didn't go on the campaign trail. I sat at home and wrote memos.

Reason: Were you impressed with Goldwater's acumen?

Friedman: It depends on what you mean by acumen. There's no doubt whatsoever that he's a man of principle and strong character. His IQ is perfectly reasonable but it's not outstanding among the various politicians I've met, and that shows why IQ is not a good measure. The highest IQ was Richard Nixon's and he was a terrible president.

While I was never a governmental official, I was a member of an economic advisory group that Nixon appointed of which Arthur Burns was chairman. I saw Nixon from time to time when he was president, until he imposed price controls. I saw him only once after that.

Reason: Did you stop giving him advice?

Friedman: I kept giving him advice from Newsweek, but not personally.

Reason: Do you have a clear memory of how your political philosophy formed? Was it any specific teacher you encountered, book you read, or experience?

Friedman: I'm sure it was a combination of all of those. I was exposed as an undergraduate at Rutgers to two very strong influences: Homer Jones, who was a student of Frank Knight's from Chicago, and Arthur Burns. They both had a considerable influence on me as an undergraduate in my thinking and my writing.

But it would be hard to say what philosophy that left me with. One of the things I regretted all my life is that when I graduated from Rutgers and came home, I wrote out a statement of my beliefs. I put that away in a drawer somewhere in my mother's home and I've never been able to find the damn thing! I'd love to have it! So I can't really tell you what I believed at that time.

But obviously my ideas were not very well formed. I was an innocent youngster and what I was impressed by, of course, was the Great Depression, and the belief that somehow or another there ought to be something that can prevent any such thing from happening.

Thanks to Homer, I was offered a scholarship at the University of Chicago and I went to Chicago and studied with Frank Knight, Jacob Viner, Henry Schultz, and so on. The atmosphere in Chicago in 1932 was very lively and active and encouraging. Of course, I got a very good grounding in economic theory and statistics as well.

Next year, I managed to get a fellowship to Columbia. I spent a year at Columbia mainly to study with Harold Hotelling, who was a mathematical economist and statistician.

Then I went back to Chicago for one year and was a research assistant to Henry Schultz. There were a group of students in Chicago who were very, very important. George Stigler, Allen Wallis, Rose Director, and myself. We ate almost every lunch and dinner together. We spent all the time discussing economics, both economic theory and economic policy. And we were very close for the rest of our lives. George died about two years ago. Allen, I'm glad to say, is still alive.

In the 1930s, both Rose and I at separate times went to Washington and worked on the New Deal, but we were technical statisticians and economists, not anything that had any policy role.

Throughout my career, I spent most of my time on technical economics. This policy stuff has been a strict avocation. If you really want to engage in policy activity, don't make that your vocation. Make it your avocation. Get a job. Get a secure base of income. Otherwise, you're going to get corrupted and destroyed. How are you going to get support? You're only going to get support from people who are ideologically motivated. And you're not going to be as free as you think you're going to be.

One of the most important things in my career is that I always had a major vocation which was not policy. I don't regard what I've done in the field of monetary policy as on the same level as what I've done about trying to get rid of the draft or legalizing drugs. One is a technical byproduct of scientific work, and so that's the only sense in which my vocation has affected my policy. But by having a good firm position in the academic world, I was perfectly free to be my own person in the world of policy. I didn't have to worry about losing my job. I didn't have to worry about being persecuted.

I think you'll make a mistake if you're going to spend your life as a policy wonk. I've seen some of my students who have done this. And some of them are fine, and some of them, especially those who have gone to Washington and stayed, are not.

Reason: How did you come to enter the world of policy writing?

Friedman: What really got me started in policy and what led to Capitalism and Freedom was, in an indirect way, the Mont Pelerin Society. The first Mont Pelerin Society meeting was in 1947 in Switzerland. Hayek arranged it. It was his idea.

Mont Pelerin was the first time that I came into contact with people like Hayek, Lionel Robbins, and the European contingent of that time. That widened my perspective about issues and policy.

The Mont Pelerin Society was people who were deeply concerned about issues. It was people with whom you shared a basic common belief, who at home were isolated. Its great contribution was that it provided a week when people like that could get together and open their hearts and minds and not have to worry about whether somebody was going to stick a knife in their back—especially for people in countries where they were isolated.

The reason the Society ever happened was that Hayek had written The Road to Serfdom, which attracted the attention of the Volker Foundation, and it was the Volker Foundation that financed the American participation in the Mont Pelerin Society. A Swiss group financed the Swiss and European participation.

In the middle '50s, the Volker Foundation undertook a program of summer institutes for junior academics who were favorably inclined toward a free-market point of view or were interested in such issues. Capitalism and Freedom was based on a series of lectures that I gave at one of those seminars. Those seminars forced me to systematize my thoughts and present them in a coherent way. And they also provided a very good audience because the people who were there were lively, outspoken, didn't hesitate to criticize. It was a very good audience. There was a lot of free time as well for discussions outside of the formal seminar. And I learned a great deal, not only from the students who were there, but also the fellow lecturers.

And then my wife, Rose, took the transcribed tapes of the lectures and reworked them and that's what became Capitalism and Freedom.

Reason: Did you have any hesitation about publishing that book?

Friedman: None whatsoever. Why should I have had any hesitation? Remember, I was a tenured professor.

Another thing that helped form my policy orientation was when Hayek came to Chicago in 1950. He attracted quite a number of very able students, Sam Peltzman, Ron Hamowy, Ralph Raico, Shirley Letwin. There were quite a group of them. Hayek drew very high quality people. I was an adviser to their New Individualist Review and contributed articles to it. They were a very lively group that had organized discussion sessions and so on, which was part of the atmosphere.

I was persuaded at that time in the early 1960s that we were on the verge of developing a strong libertarian movement. These were libertarians, all of them, though Hayek would not have labeled himself a libertarian. As you know, he always avoided the term conservative, too. He would call himself an Old Whig. The others would have called themselves libertarians.

That's how I was able to develop my own ideas. What shaped them was the interaction with all these other people at lunches and dinners and lectures.

Ayn Rand was receiving increasing attention at that time. I believed a big upsurge in the libertarian philosophy and views was pending. And to some extent it was. You had the Randian group, and the Murray Rothbard group. But the developing libertarian movement was repressed by the Vietnam War and what it led to. You've only got room for one big movement at a time.

Reason: Why do you think you had more initial success as a public proselytizer—you had a regular column in Newsweek—than other prominent libertarians?

Friedman: I really don't know how to answer that. I was basically trained in economic science. I was interested in the history of thought and where it came from. I thought I was going back to some fundamentals rather than creating anything new. Ayn Rand had no use for the past. She was going to invent the world anew. She was an utterly intolerant and dogmatic person who did a great deal of good. But I could never feel comfortable with her. I don't mean with her personally—I never met her personally. I'm only talking about her writings.

Rothbard was a very different character. I had some contact with Murray early on, but very little contact with him overall. That's primarily because I deliberately kept from getting involved in the Libertarian Party affairs; partly because I always thought Murray, like Rand, was a cult builder, and a dogmatist. Partly because whenever he's had the chance he's been nasty to me and my work. I don't mind that but I didn't have to mix with him. And so there is no ideological reason why I kept separate from him, really a personal reason.

Reason: In seeing yourself as harkening back to 19th-century liberalism, you never became a system-builder like Rand or Rothbard….

Friedman: Exactly. I'd rather use the term liberal than libertarian.

Reason: I see you occasionally use the word libertarian.

Friedman: Oh, I do.

Reason: As a concession to accepted usage?

Friedman: That's right. Because now liberal is so misinterpreted. So I am a Republican with a capital "r" and a libertarian with a small "l." I have a party membership as a Republican, not because they have any principles, but because that's the way I am the most useful and have most influence. My philosophy is clearly libertarian.

However, libertarian is not a self-defining term. There are many varieties of libertarians. There's a zero-government libertarian, an anarchist. There's a limited-government libertarianism. They share a lot in terms of their fundamental values. If you trace them to their ultimate roots, they are different. It doesn't matter in practice, because we both want to work in the same direction.

I would like to be a zero-government libertarian.

Reason: Why aren't you?

Friedman: Because I don't think it's a feasible social structure. I look over history, and outside of perhaps Iceland, where else can you find any historical examples of that kind of a system developing?

Reason: One could argue the same thing about minimal-state libertarianism: that historically it seems to not be stable.

Friedman: I agree. I wrote an article once arguing that a free society is an unstable equilibrium. Fundamentally, I'm of the opinion that it is. Though we want to try to keep that unstable equilibrium as long as we can! The United States from 1780 to 1929 is not a bad example of a limited-government libertarianism that lasted for a long time.

Reason: Is feeling like part of a larger movement important to you? Would you have been able to do the work you did had you not felt part of a community of like-minded scholars?

Friedman: I've been very fortunate in being part of two communities of scholars: the community of economists on the one hand, and the community of libertarians on the other. And that combination has been very productive so far as I'm concerned, but I can't really tell you why. One thing is that it's very hard for somebody on his own to be sure that he's thought of all the angles. Discussion among people helps an enormous amount. And particularly able, good people.

If you have a person isolated in an environment unfriendly to his ideas and thoughts, he tends to turn bitter and self-directed. But the same person with three or four other people around—it doesn't have to be a lot of people—will be in a wholly different position since he will receive support from the others.

You remind me of one incident where in a sense the two worlds interacted. Back in the 1960s, my daughter was an undergraduate at Bryn Mawr, and I was invited by Haverford, I think it was, to spend three days giving talks on mathematical economics. Absolutely no policy involved, pure mathematical economics. And because my daughter was at Bryn Mawr, I agreed.

After I had agreed, they asked if I would also be willing to give a chapel talk on political matters. I said sure and I gave a title, something having to do with freedom. Then I discovered that chapel at Haverford was compulsory. I wrote to the president and said that I was very much disturbed at giving a talk on freedom to a compulsory audience.

When it was time to go to the chapel, I asked the president, "How do they count attendance?" And he said, "At the beginning of the hour there are people going around in the balcony and looking down. Everybody has an assigned seat, and they count."

When I got up to talk, I spoke up to the people in the balcony and said that those who were counting attendance, please let me know when they're through because I don't like the idea of speaking about freedom to a compulsory audience. I'm going to sit down and give the people who want to leave the chance to leave. And I did. Now, the students hadn't really thought that I was going to do it and when I did, about one or two people got up to leave and the rest of them booed them because obviously, I was talking on their level. As a result, I've seldom had a student audience who were so completely on my side as that group, even though the political atmosphere at Haverford was very much to the left. That's one of the greatest coups I've ever had as a public speaker.

Reason: Do you think you've become more radically libertarian in your political views over the years?

Friedman: The difference between me and people like Murray Rothbard is that, though I want to know what my ideal is, I think I also have to be willing to discuss changes that are less than ideal so long as they point me in that direction. So while I'd like to abolish the Fed, I've written many pages on how the Fed, if it does exist, should be run.

Murray used to berate me for my stand on education vouchers. I would like to see the government out of the education business entirely. In that area, I have become more extreme, not because of any change of philosophy, but because of a change in my knowledge of the factual situation and history.

I used to argue that I could justify compulsory schooling on the ground of external effects. But then I discovered from work that E.G. West and others did, that before compulsory schooling something over 90 percent of people got schooled. The big distinction you have to make is between marginal benefit and average benefit. The marginal benefit from having 91 percent of people in school rather than 90 percent does not justify making it compulsory. But if in the absence of compulsory education, only 50 percent would be literate, then I can regard it as appropriate.

Some issues are open and shut. Tariffs, property rights. No, not property rights, because you have to define property rights. But education is not open and shut. In Capitalism and Freedom we came out on the side of favoring compulsory schooling and in Free To Choose we came out against it. So I have become more radical in that sense. Murray used to call me a statist because I was willing to have government money involved. But I see the voucher as a step in moving away from a government system to a private system. Now maybe I'm wrong, maybe it wouldn't have that effect, but that's the reason I favor it.

Reason: Would you agree with the proposition that you have been the most successful and important proselytizer for libertarianism?

Friedman: I don't think that I've had the most influence. I think the most influential person was Hayek. The effect of The Road to Serfdom was really critical. In another area, Bill Buckley has certainly been very important on national policy.

Buckley's not a libertarian. But he's also not a socialist. And if you look at the political scene, his National Review has had a tremendous influence in providing a base for collaboration between the libertarians on the one side and the free-market conservatives on the other. That was epitomized in its most obvious form by Frank Meyer when he was with National Review. They've helped that coalition to form and hold together and have influence; Bill Buckley played an enormously important role.

I might have more public influence than ideologues like Rand or Murray Rothbard, the libertarians in that strict sense. And I believe that the reason is because they have been so intolerant.

Reason: You wrote an essay in Liberty about the intolerance of Rand and Ludwig von Mises. You say you never met Rand….

Friedman: I was never to my knowledge in the same place as she was; I was in Chicago, she was in New York. I'm sure if I had been in New York, I would have met her. It was not because of any objection on my part. I think she was a fascinating woman and had a great influence. As I always have said, she had an extremely good influence on all those who did not become Randians. But if they became Randians, they were hopeless.

Reason: But you knew Mises personally. Did you see the intolerance that you find in his method also in his personal behavior?

Friedman: No question. The story I remember best happened at the initial Mont Pelerin meeting when he got up and said, "You're all a bunch of socialists." We were discussing the distribution of income, and whether you should have progressive income taxes. Some of the people there were expressing the view that there could be a justification for it.

Another occasion which is equally telling: Fritz Machlup was a student of Mises's, one of his most faithful disciples. At one of the Mont Pelerin meetings, Fritz gave a talk in which I think he questioned the idea of a gold standard; he came out in favor of floating exchange rates. Mises was so mad he wouldn't speak to him for three years. Some people had to come around and bring them together again. It's hard to understand; you can get some understanding of it by taking into account how people like Mises were persecuted in their lives.

Reason: You don't link yourself openly to certain aspects of the libertarian political movement….

Friedman: Well, you have to be more specific. Being very specific, I have not wanted to join the Libertarian Party simply because I have accumulated good working relationships with people in the Republican Party, and I think I can be more effective by being a Republican. That's the only reason. There are no other cases in which I have had any problem with the libertarian movement.

Reason: You certainly have a respectability and presence that most people and organizations labeled libertarian don't have….

Friedman: That's because of one thing only: I won the Nobel Prize. What, are you kidding yourself?

Reason: Your status preceded your winning the Nobel.

Friedman: I did have some of it, yes. It's because I have a firm root in something other than ideology. Because I was firmly based in a scientific academic discipline. I wasn't simply a preacher or an ideologue or an unconnected philosopher.

But I think the libertarian movement is doing fine. I think that REASON magazine has been remarkably good; it has been very effective. It takes many kinds of people to make a movement. And one of the most important things are publications. In any activity you have manufacturers, wholesalers, and retailers; and all three are essential and necessary. There are only a relatively small number of manufacturers of ideas. But there can be a very large number of wholesalers and retailers.

As I look around me I'm impressed by the fact that there's increasing attention paid to libertarian ideas. If you look at the picture now, compared with 30 years ago, there's no comparison. Now you've got much more. As far as journals are concerned, then we had the Foundation for Economic Education's Freeman; for a while we had the New Individualist Review in Chicago, but that was about it. Bill Buckley established National Review, which is in a different corner.

But look at the situation today. You have REASON magazine, you have Liberty magazine. You've got all of this stuff that spouts out from the Cato Institute and the Competitive Enterprise Institute and a half dozen other think tanks. In fact, I think there are too damn many think tanks now.

Reason: Why do you say there are too many?

Friedman: You don't have the talent for it.

Reason: Do you consider yourself in the libertarian mainstream on foreign policy issues?

Friedman: I don't believe that the libertarian philosophy dictates a foreign policy. In particular I don't think you can derive isolationism from libertarianism. I'm anti-interventionist, but I'm not an isolationist. I don't believe we ought to go without armaments. I'm sure we spend more money on armaments than we need to; that's a different question.

I don't believe that you can derive from libertarian views the notion that a nation has to bare itself to the outside without defense, or that a strong volunteer force would arise and defend the nation.

Reason: What did you think about the Gulf War?

Friedman: I always had misgivings about the Gulf War, but I never came to a firm decision. It was more nearly justified than other recent foreign interventions, and yet I was persuaded that the major argument used to support it was fallacious.

After all, if Iraq took over the oil, it would have to do something with it. If they don't want to eat it, they'd have to sell it. I don't think the price of oil would have been much affected. The more important consideration was the balance of power with Iran and Iraq. I have mixed feelings about that war; I wouldn't be willing to write a brief on either side.

Reason: What would you regard as your most important accomplishment?

Friedman: It depends on what you mean. I wrote an essay on methodology in 1953. It was published in my book Essays on Positive Economics. I had been working on it for years before that, so it goes way back to the middle '40s. It started to generate a lot of comments, but I decided I would rather do economics than talk about how economics are done. So I made a distinct point of not replying to any criticism of that essay. And I think that's why it's so commented on.

That methodology article has probably been reprinted more often and referred to more often than anything else I've written, though I would by no means regard it as the most important thing I've ever done.

In terms of sheer technical quality there's no doubt in my mind that the best thing I ever did was The Theory of the Consumption Function which, from a scientific point of view, is a carry on from the methodology article. I regard the theory of the consumption function as a demonstration of applying the methodology I explained there. But also it has a neatness about it and a specific theorem which has generated an enormous amount of work since then. When things like that originally come out, the status quo says, "Oh, that's a bunch of nonsense, we can't possibly work with that," but give it time. And by now it's part of conventional economics.

In the realm of policy, I regard eliminating the draft as my most important accomplishment.

Reason: Have you retired from economics?

Friedman: Well, not from economics, but from that kind of work. There's been a tremendous advance in specialization in economics, particularly in the econometrics area. I was just looking at recent working papers published by the Federal Reserve Bank of Chicago. These are clearly built on work of mine, going back to the 1970s. But there's been a new development in econometrics that I haven't kept up with. The techniques they've adopted here are all different from ours. I'm not an expert in them anymore; I really couldn't deal with this material on the level on which they are dealing with it, although I can understand the thrust of what they're doing.

I'm not making any pretense of trying to do any more basic, fundamental economics work. I believe that almost all important contributions of a scientist are made in the first 10 years after he enters the discipline. Not the first 10 years of his professional life; he may shift from one discipline to another. And I've been impressed as I've been going over my memoirs, that my basic contributions all have their roots in the early years of my work. I was reading over some preliminary professional papers in the 1950s, and I could see there the whole future of the next 30 years of work that I did; it was all outlined in there.

You add things to it, you change it, but the fundamental ideas come early. The 1940s–'60s was when I did my most important economic work, even though it wasn't all published then.

Reason: I read an article recently in the Washington Monthly that repeated all the silly ideas about inflation that you've been fighting your whole career. Are battles like this ever won?

Friedman: No. All battles are perpetual. You go back in the literature of economics, and you'll find the same kind of silly statements 100 years ago, 200 years ago. And you'll find the same sensible statements the other way.

Reason: Are those kind of mistakes still made among professional economists?

Friedman: If you look at the views of the profession as a whole, no. There's a great deal of agreement among economists, contrary to what people may think. You won't find much difference of opinion on the proposition that raising the minimum wage will cost jobs. You won't find much difference of opinion on the desirability of free trade. And you won't find any difference of opinion on the idea that you cannot have inflation without monetary expansion. There's no doubt that there's very widespread agreement about those simple ideas.

Reason: How do you make that consensus spread to the general public?

Friedman: You just have to keep on trying to do it. There's no short cut. There's no way in which you're going to end the discussion, because new generations arise; every group has the same crazy ideas. I get a great many letters from people who think that the way to solve budget problems and fiscal problems is to simply print money and pay off the debt. And there's almost no way of making those people realize just what a bunch of nonsense that is.

I'm inclined to think that there's no field so rife with cranks as currency and money, but I'm sure there are other fields that are just as bad. I'm just ignorant of them.