Wednesday, July 31, marks the 90th birthday of Milton Friedman,
the most influential economist of the second half of the 20th century.
Almost single-handedly, he rejuvenated the free market among professional
economists, after a long period in which planning and socialism held sway.
The economic reforms of Ronald Reagan and Margaret Thatcher would not have
been possible without the intellectual foundation laid by Friedman.
Historically, economists had always been free-market oriented.
The great classical economists like Adam Smith, David Ricardo and John
Stuart Mill were all deeply skeptical of government intervention in the
economy. Government's job was to maintain the peace, enforce contracts and
provide a limited number of public goods. Beyond that, it should stay out of
the way and let the private economy operate freely.
In the wake of the Great Depression, however, voters and
politicians lost faith in the free market. Indeed, many viewed the
depression itself as a failure of the free market and demanded government
intervention to fix its perceived flaws. This led to a vast expansion of
government in all Western countries. Industries were nationalized,
cradle-to-grave welfare programs were introduced, taxes and spending
skyrocketed, and huge government regulatory agencies were established.
The most influential economist of this period was John Maynard
Keynes. He argued that governments could moderate or even eliminate business
cycles by increasing the budget deficit to stimulate demand during downturns
and raising taxes to reduce demand when inflation emerged. This philosophy
became an article of faith among all democratic leaders in the postwar era.
Although there were a few voices in the wilderness saying that
Keynesian economics was unsustainable, such as Ludwig von Mises and
Friedrich Hayek, they were dismissed as reactionaries. The preponderance of
economists accepted the Keynesian system. It reached a high point under John
F. Kennedy, who studied Keynesian economics at Harvard and surrounded
himself with Keynesian economists. The 1964 tax cut was viewed as a triumph
of Keynesian economics, and Keynes even made the cover of Time Magazine in
1965, even though he had been dead for 20 years.
However, even as Keynesian economics was celebrating a victory,
Milton Friedman and his followers were eating away at its foundation. He was
more successful than Mises and Hayek because he fought the Keynesians on
their own terms, with rigorous mathematical and statistical studies. For
example, Friedman's studies showed conclusively, contrary to Keynesian
theory, that consumers did not change their buying habits automatically in
response to changes in their disposable income. He also showed that mistakes
by the Federal Reserve were primarily responsible for the Great Depression,
But Friedman went beyond merely undermining the theoretical
foundations of Keynesian economics. He knew that when it collapsed of its
own contradictions, there had to be something to replace it. Toward this
end, Friedman resurrected the free market as a guiding principle. It was the
only approach to economics that was consistent with a free society, he
argued, and was vastly more effective at increasing wealth than any other
One reason Friedman was so effective at promoting the free
market is that he always tied it to specific policy proposals. Thus, rather
than just criticizing government provision of education, he was the first to
propose vouchers to allow private schools to compete with public schools.
Friedman also proposed a "negative" income tax to replace welfare, an idea
that led to creation of the Earned Income Tax Credit.
Furthermore, Friedman did not only debate his fellow economists
in the pages of obscure academic journals. He had a regular column in
Newsweek for many years and also hosted a popular television program on
economics, called "Free to Choose." A book based on this program was a major
Friedman was rewarded by his peers by being elected president of
the American Economic Association in 1967 and receiving the Nobel Prize in
Economics in 1976. He trained many students at the University of Chicago who
carry on his work. And even in retirement, Friedman has continued to write
and speak on the issues of the day, always bringing clarity and perception
I have always had a special affinity for Milton Friedman because
we both graduated from Rutgers University. When I was an undergraduate
there, 40 years after he was, Friedman was one of the few economists I could
cite in class in support of free market policies who wasn't automatically
dismissed as irrelevant. I learned far more economics from his books than
the justly forgotten texts I was forced to study. I like to think that makes
me as much a Friedman student as those who had the privilege of sitting in