The Increasingly Libertarian Milton Friedman

The most respectable libertarian got more radical with age.


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.

NEXT: June G-8 Meeting to Be Held in Northern Ireland

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. In those transcripts, Friedman discusses the major intellectual and political figures of his time

    That includes Naomi Klein, right?

    1. I completely forgot about her. She became irrelevant as soon as Obama can into office. Same with Al Gore.

    2. You're so funny:-)

  2. By arranging the essays chronologically within its two sections, the editor has presented the tale of a man whose beliefs got tougher, more comprehensive, and more libertarian with more thought and wider knowledge.

    .. got more radical even as he got more respectable.

    That trend seems to have continued with his son and grandson.

    1. It's a good strategy for economists. Work your way into the mainstream first, then go from there. Krugman used it too.

      1. I think Krugman wishes he was a lefty Milton Friedman. He's probably hoping for some Friedmanesque PBS specials to come his way any day now.


  4. As a Treasury spokesman during 1942 he advocated a Keynesian policy of taxation. He helped to invent the payroll withholding tax system, since the federal government badly needed money in order to fight the war. He later said, "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."

    This Friedman? Not libertarian as far as I can tell.

    1. We were at war at the time. In later years we learned to ramp up the printing presses to pay for wars, but back then you either borrowed or taxed to pay for war. And by most accounts it was a necessary war.

      If you were an economist fresh out of college and drafted into finding ways of increase war funding, there weren't many options.

      His actions didn't mean he wasn't libertarian, only that he wasn't an LRC approved 100% pure anarcho-pacifist.

  5. "The Increasingly Libertarian Milton Friedman"

    Really, dude, all you had to do was read the title.

    But even so, I have trouble deciding what's less libertarian, payroll withholding or federally-mandated 100% reserve requirements.

    1. In reply to Ptah-Hotep.

      1. I read the title. I simply do not think he deserves the title of libertarian. And especially not the title of "most respectable."

        1. Although Milton was a (blrgh!) monetarist, he extolled the virtues (not just practicalities) of markets incessantly. His work on school choice is foundational, and has been vital in moving us past the tipping point in this area.

          I forgive him for creating withholding because he tho't it necessary to "win" WWII. I cut neocons a break on this issue if they are sufficiently hard core every where else, as Milton increasingly was.

          (Clearly WWII was a catastrophe for liberty and should not have been supported, but the lies were running thick, there was no internet, and the factual basis was hard to discern - not so today.)

    2. Fractional reserve banking only works with government support.


      1. What color is the sky on your planet, Christina?

      2. Poppycock. Fractional reserve banking has been the rule (common practice) since, like, forever. Rothbard ran into problems in his polemic when he failed to research the legal difference between "deposit" and "bailment". A deposit transfers legal title to the bank. This allows the bank to hypothecate title again and make its money. This is why the bank pays you interest for a deposit. A bailment does not transfer legal title, just possession, and the property must be returned to the bailor unchanged, unless so agreed upon. This is why one must pay for services of a private vault.

    3. The idea with full reserve is that you can't have essentially two title claims to the same thing. However, rather than a mandate, one can rely on consequential pressure and determination to "enforce" it, IF we had a free banking system i.e. in a bank run, all the money better be there.

      I'd also clarify Brian's statement about:

      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.

      Rothbard and many other full reserve advocates distinguish between demand deposits, like checking accounts, and time deposits, like CDs. The issue with M3 expansion lies in the former. The later does not create new money and is equivalent to using banks as a kind of loan intermediary or investment manager, so you can still have 100% reserve with time deposits.

      The only 100% reserve banks I'm aware of currently are the Free Lakota Bank and Euro Pacific Bank

      1. One way to allow fractional reserve demand deposits is to simply advertise and not guarantee your money or principal. This removes the fraudulent nature of it. Some libertarian theorists liken it overbooking parking spaces, or overbooking airline seats. If you just state so and treat it like a lottery upfront, then it's alright.

        1. Even more than that, when you put money into a bank expecting to receive interest, you are effectively loaning your money to the bank. You expect them to invest the money and give you part of the proceeds. If you have competing banks, some will be more cautious and others less so, giving you different risk/reward ratios. So, if you change "bank" to "investment house," it would seem to me that Rothbard would find this less objectionable.

          I feel like I must be missing something here, as Rothbard probably thought of this objection.

          1. If I understand you correctly, I think he would agree from what I've read, since he discussed that banks, insofar as being a place to securely store your money, originating from a warehouse of hard money like gold and silver, that would issue receipts or titles for them--bank notes--that could then be exchanged or used as money substitutes. Specie payment between banks would be where one redeems the note or "warehouse receipt" for the hard money from another bank. Various panics and smaller booms/busts have come about in the 19th century because of regular government suppression of such specie redemption (so banks just continue to issue more warehouse receipts/bank notes than the gold backing them)

            An investment firm on the other hand is clearly different, where there is expectation of potential loss. A bank can also invest, but such funds would be clearly separate from traditional (checking/demand deposit) accounts.

          2. Rothbard didn't think of it because Rothbard had a bank fixation. He didn't have a problem with time deposits, but demand deposits made his brain go off the rails. He was unwilling to allow private individuals to knowingly and voluntarily deposit their money with fractional reserve banks.

        2. Many historical private banks had clauses in their deposit contracts (and even banknotes) that said essentially "payment in full on demand *OR* at our discretion payment in full with interest after thirty days".

          This is very similar to airline tickets. Go read the fine print. It may be irksome to find out you've been bumped from a flight, but if you're an religious Orthodox Rothbardian who believes that contracts are sacred and inviolable texts, then you should have read the fine print.

        3. Nonsense. (see previous post.) I am allowed to guarantee whatever I want. Fraud is the misrepresentation of a material fact and the inducement of another in reliance upon it to part with a valuable thing or legal right. As a fractional reserve bank, that is advertised as such, what is the misrepresentation?

          1. Except it wasn't advertised as such. It's advertised that all your money is guaranteed, which it isn't. Well, it is now with the FDIC to 250k (up from 100k not long ago), but beyond that it isn't. However, the point is pretty much moot currently.

            Prior to that, with hard money and bank notes representing titles to it, it was certainly fraudulent. You did not hand over ownership of money to the bank. The whole point of a bank as a vaulting service of money, and how it was (and still is) advertised, is that you do NOT have counterparty risk.

            Your point is only made in a free banking system which we do not have now. There's no one to bail them out and no suppression of redemption (from other banks) or withdrawals. So they MUST be explicit that they cannot guarantee depositors money at all. That all depositors share risk for fractional reserve banks or banks with such accounts.

            1. It's like overbooking or overselling parking space tickets. So long as it's explicitly sold that way, you are not guaranteed a parking spot, that in some cases you won't get it despite paying for it, then yes, that is legitimate.

              However, banks currently are not advertising "your money belongs to us and not yours anymore once deposited and we do not guarantee its availability". They would certainly get less customers that way, without some much higher reward/interest, compared to a competing 100% reserve bank. But as I said, the point is pretty much moot now, every bank being a client of the Fed (or client of its client).

              That kind of upfront claim would certainly be a requirement to remove any liability of fraud in a free banking, non-fiat money system.

              1. Here is the thing. Banks lend short term and borrow long term, that is basically what they do.
                If all the people run to the bank to get their money, there isnt any money, not because banks committed fraud (althoug some of them sometimes do) but because the money is lended. Thus, the banks go broke, M3 collapses, and so does the price level. (M.V=P.T)
                That is what happened during the great depression.

    4. With all respect, you dont know what your are talking about. If you`ve got a fractional reserve banking system then either you need a central bank to bail out banks in case of a bank run or let them fail and face monstrous deflation (that is what happened in the great depression, when the money supply contracted by 33% in four years)

  6. The modern bi-polar Friedmans are people like Joe Stiglitz and Christine Romer, who vacillate between Keynesiansism and the "Chicago" school, who are always shocked when "moderate" stimulus and regulation and Fed intervention doesn't work. They can't ignore that freedom (with property rights enforced) causes wealth, but they compromise with pure Keynesians like Paul Krugman and Larry Summers, theorizing that SOME intervention SHOULD help...then, oh shit, it didn't. So then Krugman says "It wasnt enough stimulus / printing!!!"

    The only sane economists out there ate the Austrians,...Murray Rothbard (RIP), Peter Schiff, Walter Block. But no one will listen to them until AFTER a major collapse and probably a civil war.

    1. They ate the Austrians? Those bastards.

    2. Paul Krugman!!

      Eee gads, I plastered a big photo of Paul Krugman's smiling countenance to the bottom of my cat's litterbox (My cat is named Milton Friedman).

      Paul Krugman is chock full of cat crap!

    3. Your presumption is incorrect. Keynesianism is not about some stimulus but about a precisely developed diagnostics when a particular stimulus is needed. Keynes would never allow stimulus now, because it is no longer a state/government problem.

      Our problem is a problem of equity, liquidity, and of the chaos of the banking institution (also thanks to the "free market" idea). This is a very different problem from what Keynes was dealing with. If it would work, it would have been used.But we can just observe a complete ignorance and inability of them. How to fight a current crisis still remains a mystery to all of us. Austerity did not work. Stimulus won?t be efficient enough. What next?

  7. Thanks for the article. For more articles about/reviewed by Friedman that show where he ended up and info on people using voluntary Libertarian tools on similar and other issues worldwide, please see the non-partisan Libertarian International Organization @ http://www.Libertarian-International.org ....

  8. Huge fan of Friedman!!!

    1. I love him so much I named my cat "Milton Friedman". Some may think it blasphemous, but as a dog-person, the whole idea of adopting a cat was a huge hurdle to overcome. So I gave him the name of someone I admired and respected and hoped the love of cat would flow from there (it did).

      Alas, while I thought "everyone" knew of
      Milton Friedman, it apparently is not so.
      My cat's vet said "Milton Friedman? Isn't that a character on the Simpson's?"

      Maybe Milton Friedman can spread the word of Milton Friedman:-)

  9. I didnt know about Milton being sponsered by Ron Paul's father philosophical group, the John Birch Society, or the United Fruit Company that got with the U.S. govt to over throw a democractically elected official. Read on...

    Is this true Brian?

    1. You're kidding I hope. From the link:
      "So in 1946, this same Herbert Nelson turned to the Foundation for Economic Education to manufacture some propaganda to help the National Association of Real Estate Boards fight rent control laws."

      1. According to this article and the guys sources, if they are authentic, it is true. Friedman is a smart guy. But he is also a hack. This is something the Libertarians do not talk about.

  10. Hi, I think this is a good place to ask this question. Was Friedman against the Gold standard? His arguments about the Great Depression seem to lay some of the blame at the feet of the Gold standard (although most blame went to the Fed). A lot of modern conservatives like James Grant and Steve Forbes advocate a return to the gold standard. But I think Friedman would be against it. I think he said the money supply should be managed by a computer (I'd be willing to write the program). What do people think?

  11. This is why one must pay for services of a private vault.

  12. And some of the more placid scenes that http://www.nikefootballcleatstrade.com/ follow?Pi's boat becalmed on a mirror-smooth sea, and lit up at night by an armada of bioluminescent jellyfish?have a radiant beauty. As Pi struggles to stay alive, there are also leaping porpoises, a squadron of flying fish (sushi is served!), and a http://www.drdrebeatsbydreau.com/ gargantuan whale rocketing up from the depths.

  13. We have been combing through classified and unclassified documents and have tough questions about State Department threat assessments and decision-making on Benghazi. This requires a public http://www.cheapbeatsbydreonau.com/ appearance by the Secretary of State herself.

Please to post comments

Comments are closed.