In 2002, three months after Milton Friedman turned ninety, a celebratory conference was convened at the school that had become synonymous with his ideas. Ben Bernanke, then a member of the Federal Reserve’s Board of Governors, delivered a talk at the University of Chicago on “Depression and Recovery.” It had been thirty-nine years since Friedman published “A Monetary History of the United States,” his blockbuster account of how the Fed’s missteps caused the Great Depression, and twenty-five years since he won the Nobel Prize. After Bernanke gave an encomium to Friedman’s long and storied career, he was moved to add a flourish, “abusing slightly my status as an official representative of the Federal Reserve.” “Regarding the Great Depression,” he told Friedman, “you’re right. We did it. We’re very sorry. But, thanks to you, we won’t do it again.”
It was an extraordinary statement from a leader of the Fed, which Friedman had spent his entire career critiquing. In Bernanke’s retelling, Friedman’s once outré argument, that the Fed should have aggressively expanded the money supply when people pulled money from banks in 1929, was now practically common sense. The hyperbolic praise from Bernanke, a future Fed chairman, epitomized Friedman’s stature as perhaps the most influential economist of the late twentieth century.
But Milton Friedman was never one for victory laps. He spent the final years of his life mostly complaining, in just about any forum that would have him. In a report published earlier that year, he lamented that the U.S. was a “nearly 40-percent enslaved state” because of outsized taxation. In 2004, he told Investor’s Business Daily that the extremely low interest rates of the new millennium were “fundamentally an indication of something wrong.” And, just a year before his death, in 2006, he bemoaned the rise of the euro (“a big source of problems, not a source of help”) and disparaged Social Security as a “Ponzi scheme.”
His lifelong pugilism didn’t persist in spite of his unprecedented success—it may have been the key to it. That’s the emergent lesson of “Milton Friedman: The Last Conservative,” a new intellectual biography by the Stanford historian Jennifer Burns. Burns, a fellow at the Hoover Institution, now home to Friedman’s papers, spent nearly a decade combing through his syllabi, correspondence, drafts, and notes to produce “the first full-length biography of Friedman based upon archival research.” Despite considerable access to sources, and even Friedman’s children, Burns never quite pulls back the veil on her subject’s psychology. But her exhaustive account of Friedman’s underdog decades does illuminate how the field of economics slowly polarized around his work.
Friedman’s influence is so pervasive today that it can be hard to unpack. His prescriptions informed everything from the end of the mandatory draft to the earned-income tax credit, and his theories transformed the economic policies of the U.S. and U.K. in the last quarter of the twentieth century. His extreme conception of free markets also influenced many developing countries’ economies during and after the Cold War, often with a mixed legacy of growth and austerity. The way he accomplished all this and more, per Burns’s account, was by picking ever-larger fights. In the course of the book, the diminutive economist, who stood just over five feet tall, comes to seem like nothing so much as a welterweight boxer.
The son of Jewish immigrants to central New Jersey, Friedman started his Ph.D. in Chicago in 1932, three years into the Great Depression. He had attended Rutgers on a scholarship and planned to become an actuary, but failed the exams and switched his major to economics. That’s how he met Arthur Burns—another future chairman of the Federal Reserve, but, at the time, a twenty-seven-year-old graduate student teaching a class on business cycles. Arthur Burns introduced Friedman to “Principles of Economics,” the seminal 1890 textbook by the British economist Alfred Marshall, which turned Friedman on to economics’ potential to answer society’s biggest questions. According to Marshall, prices could help explain almost everything: supply, demand, the impact of economic policies, the allocation of resources, the effects of negative externalities such as waste products.
Friedman declined a graduate offer in mathematics to start a Ph.D. in Chicago’s economics department. It was not without risk, because economics had not yet become what Burns calls the “master discipline of the 20th century.” The Depression had thrown the field into crisis, and only years later would professional economists become really ensconced in government. Friedman’s professors in Chicago were notable iconoclasts, including Frank Knight, a theorist of risk and a crusading antisocialist, and Jacob Viner, a professor of price theory and an early critic of the Fed. The variant of price theory taught at Chicago was so idiosyncratic that Burns refers to it as a “revealed truth” and its students as “converted.” In Viner’s course, Friedman sat next to one of his few female classmates, Rose Director, whom he married five years later.
He arrived at just the right time for the conversion experience of Chicago price theory, which emphasized free markets and pointed skepticism of government regulation. Friedman soon fell in with students who were passionately critical of the fledgling New Deal. They gathered in a dusty storeroom dubbed Room 7 to pore over Knight’s lectures, and Friedman also read more broadly from the classical-liberal canon. He quickly grasped even wider implications for price theory than what he was being taught. Starting from an unassuming place—the quantity-theory equation, which links the price level to the amount of money in the economy—he landed on the grander claim that every major inflation was produced by monetary expansion. And he zoned in on fighting inflation as the government’s most important task, to be carried out by its central bank. This emerging school of thought would be called monetarism.
Monetarism was a direct challenge to New Deal liberalism, which prioritized employment over managing inflation. Thus, it also challenged the fiscal revolution of John Maynard Keynes, the British economist whose notions about government spending during recessions animated the New Deal, and who was, for many years, the most influential economist in the Anglo-American world. Keynes’s Whiggish vision of less work and greater leisure was resonant during times of plenty, but it was vulnerable when inflation reared its head. Friedman’s counter-revolution focussed on an almost patronizingly simplistic directive for the government: rather than underwrite a welfare state, just try to stabilize the money supply. At one point, he ballparked a whole-number target for money-supply growth: four per cent per year.
Positioning himself thus against the economic orthodoxy of the times, Friedman had to be an attack dog from the jump, and he loved it. One early paper—penned in 1934, when he was still a twenty-two-year-old graduate student—attacked the English economist Arthur Pigou so pointedly that Keynes personally wrote the rejection note from the journal he edited. Another early controversy, in 1938—from a paper attacking the American Medical Association as a cartel that artificially inflated doctors’ wages—prompted Friedman to remark, “There is no significant study in the field of economics whose results are not likely to be used in public controversy.”
The Chicago faculty hired him in 1946, and Friedman wasted no time in waging a “guerrilla war” to help secure faculty appointments for his former Room 7 gang, as well as sabotaging funding for left-leaning colleagues. “Harvard had launched the fiscal revolution; Wisconsin had pioneered Progressive reform; [and] MIT was spreading mathematical techniques,” Burns writes. Friedman put Chicago on the map as a fortress of the free market. Its Gothic quadrangles were his haven, even when his early-career scholarship was “mocked before Congress,” in the fifties, and through the sixties, when “mere mentions of Friedman’s name brought laughter to the room” in Harvard seminars.
Friedman’s appetite for a brawl enlarged Chicago’s reputation as a new economics powerhouse, and the journals and institutions of the expanding discipline ate it up. One of Friedman’s major opponents in the sixties and seventies was James Tobin, a neo-Keynesian at Yale. At times, Burns writes, it seemed like economics evolved “in six-month cycles of Friedman and Tobin reading and rebutting each other’s most recent paper.” Such rivalry could have taken up most economists’ careers—indeed, Tobin is still remembered as a Friedman critic—but he was just one of many adversaries. In 1963, Friedman and a graduate student sparred with two more Keynesian economists, Albert Ando and Franco Modigliani; their debate spread to nearly a hundred pages of the American Economic Review, and led to twenty-six published papers. In 1967, Friedman locked horns with the M.I.T. economists Paul Samuelson and Robert Solow over their proposition that a little inflation might be harmless; within months, New York University staged a conference on the topic, in which Friedman forcefully countered that inflation had a dangerous momentum of its own.
Later that year, in his Christmas address to the American Economic Association, of which he had just been elected president, Friedman didn’t offer bland holiday benediction. Instead, he proposed a radical new concept: the “natural” rate of unemployment, which would remain even when the economy was in equilibrium. The speech, Burns writes, “was the academic equivalent of a high dive.” Tobin fired off a rebuttal, but it took him years to back it up with formal modelling, as recounted by the economist Thomas Palley. By then, the profession had moved on.
In his old age, Friedman could be seen driving around the Bay Area with a license plate that he had customized, with tape, to spell out the quantity-theory equation: MV = PY. But that was about as much math as he typically allowed into his public persona. Despite the quantitative turn in his field, Friedman grasped that storytelling would help him bring monetarism outside the ivory tower. And he told stories both through popular books (many of which he co-authored with Rose) and in an influential Newsweek column (ghostwritten by Rose), from 1966 to 1984. In their first general-audience book, “Capitalism and Freedom,” published in 1962, the Friedmans provided a sort of shadow agenda to Kennedy-era progressivism, denouncing everything from Social Security (a “large-scale invasion”) and rent control to toll roads in favor of privatized alternatives. It was “both the ultimate logic of price theory and a contrarian rejection of the status quo,” Burns writes.
Friedman also started embracing his role as a campus culture warrior, avant la lettre. At Harvard, in 1964, Friedman launched into a diatribe against the Civil Rights Act. At Haverford College, where Friedman gave a talk on “Capitalism and Freedom,” the student newspaper marvelled at how he delivered the opposite of “the usual espousal of big government and the welfare state that all intelligent people—especially intelligent economists—are known to support.” Friedman’s polemicism was buoyed by the new conservative realignment of the nineteen-sixties, which included figures and groups like William F. Buckley, Jr., and the John Birch Society. Though Friedman stood under this broad new conservative umbrella, he was promiscuous in his attachments to specific politicians, in part because his theory of getting things done hinged on the government’s incompetence.
Barry Goldwater, the maverick Republican senator from Arizona, was the first major Friedman-curious politician. His run for President, in the 1964 election, coincided with the publication of “A Monetary History of the United States,” a surprise—at more than eight hundred pages—runaway hit. Goldwater’s run turned the media on to Friedmanomics, but his subsequent loss to Lyndon B. Johnson became a boon for it, too. L.B.J.’s Great Society welfare expansion allowed Friedman to return to his favorite role, the attack dog.
Friedman’s doomsaying was easy to caricature in the relatively prosperous mid-century. In 1966, Solow, the rival economist, memorably cracked, “Everything reminds Milton of the money supply. Well, everything reminds me of sex, but I keep it out of the paper.” Friedman pushed on. In 1968, he published another influential paper arguing that all government attempts to lower unemployment below the natural rate would lead to inflation. That happened to be right around the time that L.B.J.’s welfare expansion intersected with a civilian tax cut and increased military spending in Vietnam. Inflation skyrocketed. Suddenly, the whole country looked like a “natural experiment” for Friedman’s theories. The economy crashed, and the Presidency changed hands to Richard Nixon, who had been a Friedman acolyte since his wilderness years after the Dwight D. Eisenhower Vice-Presidency.
People started looking to Friedman for answers. In 1969, he was on the cover of Time, prophet-like, under the banner “Will There Be a Recession?” After the 1973 oil crisis, Friedman seemed like the only economist who could explain the devastating stagflation that rocked the U.S. and U.K. In 1980, the election of Ronald Reagan in the U.S. and Margaret Thatcher in the U.K., both hugely sympathetic to Friedman, ushered in a decade in which his ideas truly became, as Burns writes, conventional wisdom.
But, throughout this decade mirabilis, Friedman maintained his remarkable tendency to look a gift horse in the mouth. In October, 1979, amid soaring inflation, Paul Volcker, the new chairman of the Fed, announced that the board would stop controlling interest rates—a seemingly direct response to Friedman’s August Newsweek column, which argued that Volcker should do exactly that. Volcker’s whole tenure was Friedman-inflected; in April, 1980, he said, of Fed policy, that “people of monetarist persuasion will believe it more than others.” The resulting “Volcker shock” sent unemployment soaring, but the Fed stuck it out “through foul weather and fair,” and the economy dramatically recovered in 1984, just in time for Reagan’s reëlection. What’s more, unemployment rates eventually went down, which seemed to prove another key Friedman contention—that there didn’t have to be a trade-off between unemployment and inflation. It seemed like monetarism’s finest hour.