Milton Friedman believed in free markets—and the power of debate.
Milton Friedman, AM’33, was not the founder of the Chicago School of economics—at least not in his view. But by the time of his November 16 death at age 94 (“Deaths”) the longtime Chicago professor and 1976 Nobelist, a monetary theorist and public intellectual who championed laissez-faire capitalism and personal freedoms, had become synonymous with Chicago economics—a term that, as he noted in a 1974 address to the University’s trustees, has been used as both epithet and accolade.
Brain trust: Friedman with fellow Chicago laureate George J. Stigler, PhD’38 (right).
“In discussions of economic policy,” Friedman told the trustees, ‘Chicago’ stands for belief in the efficacy of the free market as a means of organizing resources, for skepticism about government intervention into economic affairs, and for emphasis on the quantity of money as a key factor in producing inflation.
“In discussions of economic science,” he continued, “‘Chicago’ stands for an approach that takes seriously the use of economic theory as a tool for analyzing a startlingly wide range of concrete problems, rather than as an abstract mathematical structure of great beauty but little power; for an approach that insists on the empirical testing of theoretical generalizations and that rejects alike facts without theory and theory without facts.”
Arriving on the quads in fall 1932, Friedman met his future wife and research partner, Rose Director Friedman, PhB’32, when they were seated side by side in Economics 301: Price and Distribution Theory, taught by Jacob Viner—with Frank H. Knight, one of the progenitors of the Chicago approach. In Viner’s class Friedman encountered, as he wrote in a Nobel autobiography, a “vibrant intellectual atmosphere of a kind that I had never dreamed existed. I never recovered.”
Indeed, he became “the most important economist of the 20th century,” Nobelist Gary Becker, AM’53, PhD’55, Chicago’s University professor in economics, told the Chicago Chronicle. “He had enormous influence in economic science and indirectly on public policy. He clearly had important influence on President Ronald Reagan and other presidents as well as leaders in both parties through his work on the flat tax, school vouchers, flexible exchange rates, stable monetary policy, and the voluntary military. He was on President Nixon’s commission to study that issue and was one of the strongest advocates for a voluntary enlistment. ”
Advocacy came naturally to Friedman, and that characteristic helped make him the era’s best-known economist. He advised presidents, wrote a Newsweek column for 17 years, and authored international best-sellers like Capitalism and Freedom (1962), his view of capitalism’s role in liberal society, and, with Rose Friedman, Free to Choose (1980), also rooted in the idea that political freedom stems from economic freedom.
In scholarly works like A Theory of the Consumption Function (1957), he emerged as a principal critic of Keynesian economics and the leader of the monetarist revival—the argument that money-supply fluctuations are the principal cause of business cycles and inflation. In A Monetary History of the United States (with Anna J. Schwartz, 1963), he contended that the Federal Reserve Board’s post–1929 monetary policy, rather than bringing the nation out of the Depression, actually slowed recovery.
That his ideas often met with criticism didn’t faze him. “Mr. Friedman loved to argue,” Graduate School of Business professor Austan Goolsbee wrote in the November 17 New York Times. “They say he was the greatest debater in all of economics.” In a 2000 PBS interview former Secretary of State George P. Schultz, a former Chicago colleague, recalled: “[T]here was a saying: Everybody loves to argue with Milton. Particularly when he isn’t there.”
“Chicago remains a place with an intensity without precedent in the world of economics, where we seem to eat, drink, and breathe economics,” Goolsbee wrote in the Times, “and Mr. Friedman’s personality has much to do with that.” Although it may have been cold comfort to presenters in the Money and Banking workshop he founded, Friedman saw debate as a theoretical proving ground: “You cannot be sure that you are right un-less you understand the arguments against your views better than your opponents do.”
At Chicago, where he taught for 30 years, Friedman opened each price-theory class with a real-world question, recalled Nobelist Robert Lucas Jr., AB’59, PhD’64, at a November 20 GSB panel discussion of Friedman’s legacy (a University memorial service will be held at Rockefeller Chapel January 29). “The question would involve some policy problem, some crazy newspaper editorial, or Monday morning stock-market nonsense. Then we’d have to sort out the economics in these statements and work them out.” The lesson was clear: price theory applies to everything. “Over and over again, we came out of this class with the notion that we were now in possession of a hugely powerful intellectual tool.”
This past July, asked by a Wall Street Journal writer to assemble a list of his favorite economists for an intimate dinner, Milton, with Rose at his side, quickly picked four guests. First came two ideological forebears: Adam Smith and Alfred Marshall. Next came John Maynard Keynes. And the fourth? Friend and colleague George Stigler, PhD’38. It would have been a real Chicago meal: eating, drinking, and breathing economics.