The New York Times
Milton Friedman in
1964.
Doug Mills/Associated Press
President Bush
honored Milton Friedman at a ceremony in 2002.
Chester Higgins Jr./The New York Times
Milton Friedman in
1977.
Conservative and liberal colleagues
alike viewed Mr. Friedman, a Nobel laureate, as one of the
20th century’s leading economic scholars, on a par with giants like John
Maynard Keynes and Paul Samuelson.
Flying the flag of economic
conservatism, Mr. Friedman led the postwar challenge to the hallowed theories
of Lord Keynes, the British economist who maintained that governments had a
duty to help capitalistic economies through periods of recession and to prevent
boom times from exploding into high inflation.
In Mr. Friedman’s view, government
had the opposite obligation: to keep its hands off the economy, to let the free
market do its work. He was a spiritual heir to Adam Smith, the 18th-century
founder of the science of economics and proponent of laissez-faire: that
government governs best which governs least.
The only economic lever that Mr.
Friedman would allow government to use was the one that controlled the supply
of money — a monetarist view that had gone out of favor when he embraced it in
the 1950s. He went on to record a signal achievement, predicting the
unprecedented combination of rising unemployment and rising inflation that came
to be called stagflation. His work earned him the Nobel Memorial Prize in
Economic Science in 1976.
Rarely, colleagues said, did anyone
have such impact on his own profession and on government. Though he never
served officially in the halls of power, he was around them, as an adviser and
theorist.
“Among economic scholars, Milton
Friedman had no peer,” Ben S. Bernanke, the Federal
Reserve chairman, said yesterday. “The direct and indirect influences of his
thinking on contemporary monetary economics would be difficult to overstate.”
Professor Friedman also fueled the
rise of the Chicago School of economics, a conservative group within the department
of economics at the University of Chicago. He
and his colleagues became a counterforce to their liberal peers at the Massachusetts
Institute of Technology and Harvard, influencing close to a dozen American
winners of the Nobel in economics.
It was not only Mr. Friedman’s
antistatist and free-market views that held sway over his colleagues. There was
also his willingness to create a place where independent thinkers could be
encouraged to take unconventional stands as long as they were prepared to do
battle to support them.
“Most economics departments are
like country clubs,” said James J. Heckman, a Chicago faculty member and Nobel
laureate. “But at Chicago you are only as good as your last paper.”
Alan Greenspan, the former
Federal Reserve chairman, said of Mr. Friedman in an interview Tuesday: “From a
longer-term point of view, it’s his academic achievements which will have
lasting import. But I would not dismiss the profound impact he has already had
on the American public’s view.”
To Mr. Greenspan, Mr. Friedman came
along at an opportune time. The Keynesian consensus among economists, he said —
one that had worked well from the 1930s — could not explain the stagflation of
the 1970s.
But he also said that Mr. Friedman
had made a broader political argument: that you have to have economic freedom
to have political freedom.
Mr. Friedman had a gift for
communicating complicated ideas in simple and lucid ways, and it served him
well as the author or co-author of more than a dozen books, as a columnist for
Newsweek from 1966 to 1983 and even as the star of a public television series.
He was a bridge between the academic and popular worlds, and his broader impact
stemmed in large part from the fact that he was preaching a gospel of
capitalism that fit neatly into American self-perceptions. He was pushing on an
open door.
A Staunch
Libertarian
As a libertarian, Mr. Friedman
advocated legalizing drugs and generally opposed public education and the
state’s power to license doctors, car drivers and others. He was criticized for
those views, but he stood by them, arguing that prohibiting, regulating or
licensing human behavior either does not work or creates inefficient
bureaucracies.
Mr. Friedman insisted that unimpeded
private competition produced better results than government systems. “Try
talking French with someone who studied it in public school,” he argued, “then
with a Berlitz graduate.”
Once, when accused of going
overboard in his antistatism, he said, “In every generation, there’s got to be
somebody who goes the whole way, and that’s why I believe as I do.”
In the long period of prosperity
after World War II, when Keynesian economics was riding high in the West, Mr.
Friedman alone warned of trouble ahead, asserting that policies based on
Keynesian theory were part of the problem.
Even as he was being dismissed as
an economic “flat-earther,” he predicted in the 1960s that the end of the boom
was at hand. Expect unemployment to grow, he said, and inflation to rise, at
the same time. The prediction was borne out in the 1970s. It was Paul Samuelson
who labeled the phenomenon stagflation.
Mr. Friedman’s analysis and
prediction were regarded as a stunning intellectual accomplishment and
contributed to his earning the Nobel for his monetary theories. He was also
cited for his analyses of consumer savings and of the causes of the Great
Depression: he blamed the Federal Reserve, accusing it of bad monetary policy
and saying it had bungled early chances for recovery. His prestige and that of
the Chicago school soared, and his analysis of the Depression changed the way
that the Fed thought about monetary policy.
Government leaders like President Ronald Reagan and Prime
Minister Margaret Thatcher of
Britain were heavily influenced by his views. So was the quietly building
opposition to communism within the East bloc.
As the end of the century
approached, Professor Friedman said events had made his views seem only more
valid than when he had first formed them. One event was the fall of communism.
In an introduction to the 50th-anniversary edition of Friedrich A. Hayek’s book
predicting totalitarian consequences from collectivist planning, “The Road to
Serfdom,” Mr. Friedman wrote it was clear that “progress could be achieved only
in an order in which government activity is limited primarily to establishing
the framework with which individuals are free to pursue their own objectives.”
“The free market is the only
mechanism that has ever been discovered for achieving participatory democracy,”
he said.
Professor Friedman was acknowledged
to be a brilliant statistician and logician. To his critics, however, he
sometimes pushed his data too far. To them, the debate over the advantages or
disadvantages of an unregulated free market was far from over.
Milton Friedman was born in
Brooklyn on July 31, 1912, the last of four children and only son of Jeno S.
Friedman and Sarah Landau Friedman. His parents worked briefly in New York
sweatshops, then moved their family to Rahway, N.J., where they opened a
clothing store.
Mr. Friedman’s father died in his
son’s senior year at Rahway High School. Young Milton later waited on tables
and clerked in stores to supplement a scholarship he had earned at Rutgers University. He entered Rutgers
in 1929, the year the stock market crashed and the Depression began.
Mr. Friedman attributed his success
to “accidents”: the immigration of his teen-age
parents from Czechoslovakia, enabling him to be an American and not the citizen
of a Soviet-bloc state; the skill of a high-school geometry teacher who showed
him a connection between Keats’s “Ode to a Grecian Urn” and the Pythagorean
theorem, allowing him to see mathematical beauty; the receipt of a scholarship
that enabled him to attend Rutgers and there have Arthur F. Burns and Homer
Jones as teachers.
He said Mr. Burns, who later became
chairman of the Federal Reserve, instilled in him a passion for scientific
integrity and accuracy in economics; Mr. Jones interested him in monetary
policy and a graduate school career at Chicago.
In his first economic-theory class
at Chicago, he was the beneficiary of another accident — the fact that his last
name began with an “F.” The class was seated alphabetically, and he was placed
next to Rose Director, a master’s-degree candidate from Portland, Ore. That
seating arrangement shaped his whole life, he said. He married Ms. Director six
years later. And she, after becoming an important economist in her own right,
helped Mr. Friedman form his ideas and maintain his intellectual rigor.
After he became something of a
celebrity, Mr. Friedman said, many people became reluctant to challenge him
directly. “They can’t come right out and say something stinks,” he said. “Rose
can.”
In 1998, he and his wife published
a memoir, “Two Lucky People” (University of Chicago Press), in which they
reveled in “having intellectual children throughout the world.”
His wife is among his survivors.
They also include a son, David, and a daughter, Janet Martel, four
grandchildren and three great-grandchildren.
A Fateful Class
That fateful class at the
University of Chicago also introduced him to Jacob Viner, regarded as a great
theorist and historian of economic thought. Professor Viner convinced Mr.
Friedman that economic theory need not be a mere set of disjointed propositions
but rather could be developed into a logical and coherent prescription for
action.
Mr. Friedman won a fellowship to do
his doctoral work at Columbia, where the emphasis was on statistics and
empirical evidence. He studied there with Simon Kuznets, another American Nobel
laureate. The two turned Mr. Friedman’s thesis into a book, “Income From
Independent Professional Practice.” It was the first of more than a dozen books
that Mr. Friedman wrote alone or with others.
It was also the first of many
“Friedman controversies.” One finding of the book was that the American Medical
Association exerted monopolistic pressure on the incomes of doctors; as a
result, the authors said, patients were unable to reap the benefits of lower
fees from any real price competition among doctors. The A.M.A., after obtaining
a galley copy of the book, challenged that conclusion and forced the publisher
to delay publication. But the authors did not budge. The book was eventually
published, unchanged.
During the first two years of World
War II, Mr. Friedman was an economist in the Treasury Department’s division of
taxation. “Rose has never forgiven me for the part I played in devising and
developing withholding for the income tax,” he said. “There is no doubt that it
would not have been possible to collect the amount of taxes imposed during
World War II without withholding taxes at the source.
“But it is also true,” he went on,
“that the existence of withholding has made it possible for taxes to be higher
after the war than they otherwise could have been. So I have a good deal of
sympathy for the view that, however necessary withholding may have been for
wartime purposes, its existence has had some negative effects in the postwar
period.”
After the war, he returned to the
University of Chicago, becoming a full professor in 1948 and commencing his
campaign against Keynesian economics. Robert M. Solow of M.I.T., a Nobel
laureate who often disagreed with Mr. Friedman, called him one of “the greatest
debaters of all time.” But his wisecracking style could infuriate opponents.
Mr. Samuelson, also of M.I.T., who
was not above wisecracking himself, had a standard line in his economics
classes that always brought down the house: “Just because Milton Friedman says
it doesn’t mean that it’s necessarily untrue.”
But Professor Samuelson said he
never joked in class unless he was serious — that his friend and opponent was,
in fact, often right when at first he sounded wrong.
Mr. Friedman’s opposition to rent
control after World War II, for example, incurred the wrath of many colleagues.
They took it as an unpatriotic criticism of economic policies that had been
successful in helping the nation mobilize for war. Later, Mr. Samuelson said,
“probably 98 percent of them would agree that he was right.”
In the early 1950s, Mr. Friedman
started flogging a “decomposing horse,” as Mrs. Thatcher’s chief economic
adviser, Alan Waters, later put it. The horse that most economists thought long
dead was the monetarist theory that the supply of money in circulation and
readily accessible in banks was the dominant force — or in Mr. Friedman’s view,
the only force — that should be used in shaping the economy.
In the 1963 book “A Monetary
History of the United States, 1867-1960,” which he wrote with Anna Jacobson
Schwartz, Mr. Friedman compiled statistics to buttress his theory that
recessions, as well as the Great Depression, had been preceded by declines in
the money supply. And it was an oversupply, he argued, that caused inflation.
In the late 1960s, Mr. Friedman
used his knowledge of empirical evidence and statistics to calculate that
Keynesian government programs had the effect of constantly increasing the money
supply, a practice that over time was seriously inflationary.
Paul Krugman, a Princeton University
economist and Op-Ed columnist for The New York Times, said Mr. Friedman then
managed “one of the decisive intellectual achievements of postwar economics,”
predicting the combination of rising unemployment and rising inflation that
came to be called stagflation.
In this regard, his Nobel award
cited his contribution to the now famous concept “the natural rate of
unemployment.” Under this thesis, the unemployment rate cannot be driven below
a certain level without provoking an acceleration in the inflation rate. Price
inflation was linked to wage inflation, and wage inflation depended on the
inflationary expectations of employers and workers in their bargaining.
A spiral developed. Wages and
prices rose until expectations came into line with reality, usually at the
natural rate of unemployment. Once that rate is achieved, any attempt to drive
down unemployment through expansionary government policies is inflationary,
according to Mr. Friedman’s thesis, which he unveiled in 1968.
For years economists have tried to
pinpoint the elusive natural rate, without much success, particularly in recent
years.
Mr. Friedman was right on the big
economic issue of that time — inflation. And his prescription — to have the
governors of the Federal Reserve System
keep the money supply growing steadily without big fluctuations — figured in
the thinking of policy makers around the world in the 1980s.
A Retort to
Kennedy
Mr. Friedman also pursued his
attack on Keynesianism in a more general way. He warned that a government
allowed to regulate the economy could not be trusted to keep its hands off
individual liberties.
He had first been exposed to this
line of attack through his association with Mr. Hayek, who was predicting in
the early 1940s that communism would lead inevitably to totalitarianism and the
crushing of individual rights. In an introduction to a 1971 German edition,
Professor Friedman called Mr. Hayek’s book “a revelation particularly to the young
men and women who had been in the armed forces during the war.”
“Their recent experience had
enhanced their appreciation of the value and meaning of individual freedom,” he
wrote.
In 1962, Mr. Friedman took on
President John F. Kennedy’s
popular inaugural exhortation: “Ask not what your country can do for you. Ask
what you can do for your country.” In an introduction to his classic book
“Capitalism and Freedom,” a collection of his writings and lectures, he said
President Kennedy had got it wrong: You should ask neither.
“What your country can do for you,”
Mr. Friedman said, implies that the government is the patron, the citizen the
ward; and “what you can do for your country” assumes that the government is the
master, the citizen the servant. Rather, he said, you should ask, “What I and
my compatriots can do through government to help discharge our individual
responsibilities, to achieve our several goals and purposes, and above all
protect our freedom.”
It was not that Mr. Friedman
believed in no government. He is credited with devising the negative income
tax, which in a modern variant — the earned-income tax credit — increases the
incomes of the working poor. He also argued that government should give the
poor vouchers to attend the private schools he thought superior to public ones.
In forums he would spar over the
role of government with his more liberal adversaries, including John Kenneth
Galbraith, who was also a longtime friend (and who died in April 2006). The two
would often share a stage, presenting a study in contrasts as much visual as
intellectual: Mr. Friedman stood 5 feet 3; Mr. Galbraith, 6 feet 8.
Though he had helped ignite the
conservative rebellion after World War II, together with intellectuals like
Russell Kirk, William F. Buckley Jr.
and Ayn Rand, Mr. Friedman had little or no influence on the administrations of
Presidents Dwight D. Eisenhower,
Kennedy, Lyndon B. Johnson and Richard M. Nixon.
President Nixon, in fact, once described himself as a Keynesian.
It was frustrating period for Mr.
Friedman. He said that during the Nixon years the talk was still of urban
crises solvable only by government programs that he was convinced would make
things worse, or of environmental problems produced by “rapacious businessmen
who were expected to discharge their social responsibility instead of simply
operating their enterprises to make the most profit.”
Rising With Reagan
But then, after the 1970s
stagflation, with Keynesian tools seemingly broken or outmoded, and with Ronald
Reagan headed for the White House, Mr. Friedman’s hour arrived. His power and
influence were acknowledged and celebrated in Washington.
With his wife, in 1978 he brought
out a best-selling general-interest book, “Free to Choose,” and went on an
18-month tour, from Hong Kong to Ottumwa, Iowa, preaching that government
regulation and interference in the free market was the stifling bane of modern
society. The tour became the subject and Mr. Friedman the star of a 10-part PBS series, “Free
to Choose,” in 1980.
In 1983, having retired from
teaching, he became a fellow at the Hoover Institution at Stanford University. Five
years later he was awarded the Presidential Medal of Freedom and the National
Medal of Science.
The economic expansion in the 1980s
resulted from the Reagan administration’s lowered tax rates and deregulation,
Professor Friedman said. But then the tide turned again. The expansion, he
argued, was halted when President George H. W. Bush imposed a
“reverse-Reaganomics” tax increase.
What was worse, by the mid-1980s,
as the finance and banking industries began undergoing upheavals and money
began shifting unpredictably, Mr. Friedman’s own monetarist predictions — of
what would happen to the economy and inflation as a result of specific
increases in the money supply — failed to hold up. Confidence in his monetarism
theory waned.
Prof. Robert Solow of M.I.T., a
Nobel laureate himself, and other liberal economists continued to raise
questions about Mr. Friedman’s theories: Did not President Reagan, and by
extension Professor Friedman, they asked, revert to Keynesianism once in power?
“The boom that lasted from 1982 to
1990 was engineered by the Reagan administration in a straightforward Keynesian
way by rising spending and lowered taxes, a classic case of an expansionary
budget deficit,” Mr. Solow said. “In fairness to Milton, however, it should be
said that one of the reasons for his wanting a tax reduction was to force the
spending cuts that he presumed would follow.” Professor Samuelson said that
“Milton Friedman thought of himself as a man of science but was in fact more
full of passion than he knew.”
Mr. Friedman remained the guiding
light to American conservatives. It was he, for example, who provided the
economic theory behind “prescriptions for action,” as his onetime professor,
Jacob Viner, put it, like the landslide Republican victory in the off-year
Congressional elections of 1994.
By then Professor Friedman had
grown into a giant of economics abroad as well. He was sharply criticized for
his role in providing intellectual guidance on economic matters to the military
regime in Chile that engineered a coup in the early 1970s against the democratically
elected president, Salvador Allende. But for Mr. Friedman that was just a bump
in the road.
In Vietnam, where the Constitution
was amended in 1986 to guarantee the rights of private property, the writings
of Mr. Friedman were circulated at the highest levels of government.
“Privatize,” he told Chinese scholars at a meeting at Fudan University in
Shanghai; and he told those in Moscow and elsewhere in Eastern Europe: “Speed
the conversion of state-run enterprises to private ownership.” They did.
Mr. Friedman had long since ceased
to be called a flat-earther by anyone. “What was really so important about
him,” said W. Allen Wallis, a former classmate and later faculty colleague at
the University of Chicago, “was his tremendous basic intelligence, his ingenuity,
perseverance — his way of getting to the bottom of things, of looking at them
in a new way.”