"And now this great master has left us. No one who has been close to him both professionally and scientifically would be able to describe the feeling that lies heavy on all of us. No words can express what he has been to us, and few of us if any will have yet resigned ourselves to the realization that from now on there is to be an impenetrable wall separating us from him, from his advice, his encouragement, his critical guidance—and that the road ahead will have to be traveled without him."
So wrote economist Joseph Schumpeter upon the death of his teacher, Eugen von Bohm-Bawerk in 1914. The words apply equally well to another great master who has left us, Milton Friedman. Unquestionably the most important and influential economist of the second half of the 20th century, Friedman's work will live on for as long as the field of economics continues to be studied.
Friedman was born on July 31, 1912 in Brooklyn, New York. His path toward economics began at Rutgers University, from which he graduated in 1932. There, he came under the influence of Arthur Burns, an important economist who became chairman of the Federal Reserve Board under Richard Nixon. Friedman later called Burns the "guiding influence of my subsequent career."
Friedman started his graduate work at the University of Chicago, completing it at Columbia University. During World War II, he worked on tax policy at the U.S. Treasury Department in Washington. Following the war, Friedman joined the economics department at the University of Chicago, where he became the dominant expositor of what came to be called the Chicago School of Economics.
The 1950s were the high point of Friedman's scientific work in economics. His main accomplishment during this period was to resurrect the role of monetary policy in the economy. At that time, economists generally followed the theories of British economist John Maynard Keynes, who believed that fiscal policy (taxing and spending) was government's most powerful tool for influencing growth, inflation and business cycles. In the Keynesian model, the Federal Reserve's monetary policy (credit and interest rates) was essentially passive, with little direct economic impact.
Eventually, Friedman was successful in convincing most economists that Keynes was wrong. The Friedman view became known as monetarism and was instrumental in overturning the Keynesian orthodoxy in the 1970s. But Friedman's other scientific work also contributed to this development. This would include the "permanent income hypothesis," which says that temporary changes in incomes do not affect consumer spending, only permanent changes do. Friedman also was instrumental in debunking the idea that higher inflation would lower unemployment, as the Keynesians believed. Any such effect was temporary at best, Friedman argued. In the long run, inflation raises unemployment, he said, a view proven correct in the 1970s.
In the 1960s, Friedman became more active in politics and public policy. He was an adviser to Republican presidential candidates Barry Goldwater in 1964 and Nixon in 1968. In 1966, Friedman began a regular column for Newsweek that became must-reading for free-market economists until he gave it up in the early 1980s.
Friedman's most influential publication was the slender volume, Capitalism and Freedom, based on lectures given in 1956 but not published until 1962. In that book, he put forward one of the most powerful cases for the free market ever written. Its greatest virtues were the clarity and vigor of Friedman's exposition. It had enormous impact in making free market economics respectable once again, after being falsely blamed for the Great Depression. In his Monetary History of the United States, Friedman put principal blame for that disaster on the Federal Reserve, which allowed the money stock to shrink by one third, bringing on a massive deflation.
In 1976, Friedman was awarded the Nobel Prize in economics. The Royal Swedish Academy of Sciences cited his achievements in the fields of consumption analysis, monetary history and theory, and stabilization policy. The following year, Friedman retired from active teaching and took up residence at Stanford's Hoover Institution. Although retired, he continued working until the very end. In 1980, Friedman probably achieved his greatest renown with the best-selling book and PBS television series, "Free To Choose," which explained to average people why free markets work best.
A key reason for Friedman's enormous output and influence is that he was blessed with a gifted partner, his wife Rose. A distinguished economist in her own right, she contributed heavily to her husband's thinking, most evident in their co-written memoir, Two Lucky People, published in 1998.
We mourn the death of Milton Friedman, who died in San Francisco on Nov. 16 at age 94. But we also celebrate his life and accomplishments, which will continue to provide guidance and inspiration. The master may be gone, but his work lives on.