Free Minds & Free Markets

The Life and Times of Milton Friedman

Remembering the 20th century's most influential libertarian.

When Milton Friedman stepped forward on December 10, 1976, to receive the Nobel Memorial Prize in Economic Sciences from the King of Sweden, he needed bodyguards. His moment of glory was marred by a mob of protesters outside gathering to condemn Friedman’s alleged complicity in the crimes of the military regime ruling Chile, which allegedly lived and died according to his theories. One heckler even slipped inside, shouting “down with capitalism, freedom for Chile” from the balcony.

It was a telling moment in a controversial career. Despite being a professional academic, Friedman had never locked himself away in an ivory tower. Until his death at the age of 94 on November 16, 2006, he remained an intellectual warrior for ideas in the day-to-day world, and he helped change that world in important and positive ways. Along the way he made a lot of enemies, some of whom shouted their insults from places more respectable than a mob outside the Stockholm Concert Hall.

Writing in The Washington Post, the journalist Bernard Nossiter claimed Friedman won only because the Nobel in economics, rather than being one of the original prizes established in Alfred Nobel’s will, was a later addition financed by the Swedish Central Bank—and central banks, he declared, adored Friedman. In fact, Friedman had long advocated the abolition of the U.S. Federal Reserve, the world’s mightiest central bank. He thought it better to replace its control over interest rates and the money supply with a mechanical rule for monetary growth.

In The New Republic, in those days the leading voice of American liberalism, Melville J. Ulmer likened Friedman’s economics prize to a peace prize for Idi Amin or a literature prize for Spiro Agnew. While acknowledging that no economist seemed surprised or appalled at Friedman’s laurel, Ulmer claimed that “much of the world” bridled at his winning. Despite his pique, Ulmer did accurately summarize what Friedman represented for the millions of people who read his popular column of political and economic commentary in Newsweek and the hundreds of thousands who had read his 1962 book Capitalism and Freedom, which argued that free markets were an essential part of any truly free society.

“Friedman,” Ulmer wrote, “is best known as a tireless, peppery advocate of liberalism in the 19th century European sense, perhaps the nation’s outstanding intellectual exponent of laissez-faire.…He opposes government activity of practically all kinds.…He would abolish virtually all regulations on industry, working conditions, and the professions. He would turn over to private industry the nation’s schools, highways, federal parks, the post office and all other publicly operated services like water supply, local buses and subways. He would scrap Social Security, the entire welfare system and the progressive income tax schedule. Few, if any, measures to protect the environment or the consumer would win his approval. He would terminate all government efforts to stabilize the economy through fiscal and monetary policies, public works or other means. He would leave presidential candidates, and I suppose all other candidates for public office, with nothing to talk about.” (Italics in original.)

Friedman did call for all that, and the intellectual acumen that won him the Nobel helped him become the most widely heeded and influential advocate for libertarian ideas in the 20th century. Because of his successes, we now live, to a delightful degree, in Friedman’s world. Beyond his specific policy victories on matters such as ending the draft and curbing inflation, on a higher level he lived to see communism, the antithesis of his economic and social beliefs, die. Smuggled copies of Friedman’s writings helped inspire and educate dissidents in the Soviet bloc, and the most economically successful former republic of the USSR, Estonia, achieved its growth with policies inspired directly by Friedman’s work.

Throughout his life, Friedman spoke bravely and compellingly for the idea that the world should be shaped by our free choices. Reviewing his life and career as an economist and polemicist, we find a story of unexpected, unprecedented success promoting ideas that pushed against the Zeitgeist and in many ways managed to change it.

Friedman the Young Scholar

Milton Friedman was born in Brooklyn on July 31, 1912, the son of two Jewish immigrants from Carpatho-Ruthenia, now part of Ukraine. Both of his parents worked as dry goods merchants when they moved to Rahway, New Jersey, shortly after Milton was born.

Friedman originally intended to be a mathematician, and later an actuary. He studied at Rutgers under two professors who imbued him with a passion for economics: Arthur Burns, who later became chairman of Friedman’s bete noire, the Federal Reserve, and Homer Jones, who was pursuing a doctorate at the University of Chicago while teaching at Rutgers. Jones helped Friedman win a scholarship to pursue a master’s degree in economics at Chicago, which Friedman chose over an offer to study mathematics at Brown. His choice was inspired by the ongoing Great Depression and his belief that economists could help solve it. That decision guided the rest of Friedman’s career, as his reputation would be forever intertwined with the University of Chicago, the colleagues and students he met there, and the intellectual tradition its economics department came to represent.

Friedman started at Chicago in the fall of 1932; there he met his future wife and writing partner, Rose Director. He earned his master’s degree at Chicago in 1933 and took a graduate fellowship at Columbia University, where the influential statistician Harold Hotelling gave him a grounding in that discipline. He initially found it hard to land an academic teaching post—in part, he suspected, because of anti-Semitism. So in 1935 he began a two-year stint in the federal government, on the Natural Resources Committee, doing what he described in a 1995 interview with this author as “work on the New Deal…just [as] technical statisticians and economists, not anything that had any policy role.”

In 1937 Friedman began his long affiliation with the National Bureau of Economic Research (NBER). There he began the work that led to his doctoral dissertation and the first of many controversies over conclusions too libertarian for some of his colleagues. Working with future Nobel laureate and national income statistics pioneer Simon Kuznets, Friedman produced a study that bothered an official on an NBER review board. (It doubled as his doctoral thesis at Columbia, which gave him his Ph.D. in 1946.) The official, who worked in the pharmaceutical business, delayed publication of the work for more than three years because he objected to its assertion that professional licensing was used to restrict entry and thus raise income for licensed doctors.

Friedman lectured at Columbia during the late 1930s and taught for one year at the University of Wisconsin in 1940–41. In 1941 he was offered a position at the U.S. Treasury’s tax research division, where he worked until 1943. There he was partially responsible for developing the withholding system for paying income tax. Many libertarians, including his own wife, have excoriated Friedman for this. “We were paying almost no attention to the postwar consequences of anything we did,” Friedman admitted years later. “We were just asking ourselves: What can we do to win the war? I have no apologies for it, but I really wish we hadn’t found it necessary to do that and I wish there were some way of abolishing withholding now.”

It was at the Treasury Department that Friedman discovered a feature of bureaucracies that later became a central theme in his 1984 book The Tyranny of the Status Quo: They are loath to change. The Internal Revenue Service, Friedman later recalled, was the biggest opponent of the withholding idea, insisting there was no way it could work. Today, alas, it takes a different view.

For the remainder of the war, Friedman did statistical work at the Division of War Research at Columbia. He and his colleagues came up with a sampling technique, known as sequential sampling, which became, in the words of The New Palgrave Dictionary of Economics, “the standard analysis of quality control inspection.” The dictionary adds: “Like many of Friedman’s contributions, in retrospect it seems remarkably simple and obvious to apply basic economic ideas to quality control; that however is a measure of his genius.” He was also a key member of the team that developed a new proximity fuse for anti-aircraft projectiles, preventing bombs from going off unless they are near the object they are meant to destroy.

After the war, Friedman taught at Chicago from 1946 to 1976, with occasional stints as a visiting professor at other institutions. At Chicago he was not only a teacher but a prime intellectual mentor to generations of young economists who tended to approach both economics and politics in a Friedmanite manner, making the “Chicago school” America’s most influential brand of pro-market economic thought.

Friedman the Libertarian

In 1962 Friedman published Capitalism and Freedom, a comprehensive exposition of the libertarian position. The book made his first major splash outside his academic discipline. It was launched into a barren environment for individualist thought. As Friedman later noted, though it was “destined to sell more than 400,000 copies in the next 18 years, written by an established professor at a leading university and published by a leading university press…it was not reviewed in a single popular American publication.”

Capitalism and Freedom contained almost all the themes Friedman would stress during his career as a public intellectual. It emphasized the connection between economic and political freedom—a familiar idea today but not in the early 1960s, when the dream of democratic socialism was still prevalent. It explained how markets permit unanimity without conformity—that they allow us all, for the most part, to get the products and services we want, even if they aren’t the same as what the majority wants. It gave some credence to the danger of monopolies but still argued that an unregulated private monopoly is a lesser evil than government attempts to regulate it, on the grounds that “dynamic changes are highly likely to undermine” private monopolies, while government programs and regulations tend to last forever. Friedman granted that certain market actions might have neighborhood effects—harms, such as pollution, that affect third parties—and that those might warrant government action. But he advised that the initial presumption must always be against such action.

Friedman explained how unions help cartelize industry, to the consumer’s detriment. He attacked the idea of “corporate responsibility.” (Friedman believed a corporation’s responsibility to its shareholders is simply to make profits, and that individual shareholders should be able to decide for themselves how much of their money they want to give to other causes, not have that decision made for them by corporate executives.) He showed how occupational licensing allows professionals to block competition and neither ensures quality nor helps consumers. He accepted the idea of a government-set income floor but advocated a negative income tax—a set stipend that you could spend as you wished—as a replacement for all current welfare programs. That, he insisted, is the cheapest and least bureaucratic way to assist the poor, and the method that leaves them with the greatest personal autonomy. This idea entered the policy debate over poverty programs before the decade ended and influenced the earned income tax credit we now have.

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    What did Friedman work out for the populations trapped by unregulated monopolies that destroyed their prosperity and left them economic and political slaves?

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