“Proper and Desired” vs “What it is”: Legacy of Milton Friedman

By Boris A. Borovoy, edited by Rachel B. Borovaya

 

Introduction

 

... Luis Buñuel's film "Discreet Charm of the Bourgeoisie" ends with an amazing scene: the hall where respectable elite held their formal dinner, the terrorists are breaking in and starting a wild, pointless, stupid massacre. One of the elitists manages to hide under the table during the slaughter, continues to shove a piece of ham into his mouth. The great art often puts it’s eerie glow prophecy: Buñuel, of course, did not know that  the well-groomed gentlemen with the right tailored and ironed clothes who are not willing to part with ham even when the blood of their wives and friends has already spread out on the floor, would mark the reality with what we are dealing with today. The elite are not attempting to oppose imminent danger, just trying to get that last piece of delicatessen...

 

I can not show a huge appreciation for the bourgeoisie, to be frank. What confuses me is that the most outrageous changes of the last two centuries have been accomplished under the banner of struggle for social justice. Rediscover history, the Great French Revolution, for a true example. The "Bloody Tyrant" Louis, guillotined by order of the Convent, was, perhaps awful, lazy and a fat loafer, but during his life, he signed a very limited number of death sentences, and languished in the Bastille less than a dozen detainees. The same Revolutionary People, who were driven by conscientious and unusually sensitive fighter for social justice, supported Robespierre, who during his term executed tens of thousands of completely innocent people, and so densely filled the prisons, so to compare this to royal tyranny is quite a bitter joke.

 

Professional left-wingers loved the Russian people so much, and so fiercely fought for social justice, that Russia still can not stand on its feet. Look at the heart-bleeding elite who are launching Chinese, Cambodian, Korean, Cuban socialist experiments - they are very lovely and truly beautiful humanists...

 

So, how after all these atrocities the Left Idea remains unspoiled?! Today, in a “polite society” no one can say about himself: I am a fascist, but any person can be regarded as a noble socialist. Nobody can be cited as an admirer of the Rosenberg and Goebbels, without risking being ostracized. But nobody would not be ashamed to discuss ideas, rooted in the writings of the classics of Marxism-Leninism. Especially - the Economical Part.

 

Socialist idea has remained powerful, and you can continue to curse and blaspheme the name of Hitler and Mussolini, but not Stalin, Lenin or Robespierre. After serious communicating with modern American youth, I was convinced that they knew almost nothing about Lenin’s terror, neither Stalin's camps, nor of Maoism, or about Pol Pot and Yeng Sari regime, and most importantly - they knew nothing about the ideological and economical basis of these nightmares. But I know that firsthand and sometimes I’m wondering - will history repeat itself, my dear American fellows?

 

Thanks to the current President, the United States of America is in for a rude awakening, many folks are starting fight against the Socialism right now. Besides anger, we would need something more - right ideology and, say, a realistic economical platform. No need to search overseas - we have our own economist, our own Karl Marx, the great Milton Friedman.

 

 Youth and the early years

 

Friedman was born in Brooklyn, New York, to recent Jewish immigrants Jenő Friedman and Sára Landau from Beregszász in Hungary (now Berehove, part of Ukraine). Shortly after Milton's birth, the family relocated to Rahway, New Jersey. A talented student, Friedman graduated from Rahway High School in 1928, soon before his 16th birthday.

 

 

Friedman graduated from Rutgers University in New Jersey, where he specialized in mathematics and initially intended to become an actuary. During his time at Rutgers, Friedman became influenced by two economics professors, Arthur F. Burns and Homer Jones, who convinced him that modern economics could help end the Great Depression. Friedman did graduate earned a M.A from Chicago University in 1933. It was in Chicago that Friedman met his future wife, economist Rose Director. During 1933–34 he had a fellowship at Columbia University, where he studied statistics with renowned statistician and economist Harold Hotelling. He was back in Chicago for 1934–35, spending the year working as a research assistant for Henry Schultz, who was then working on Theory and Measurement of Demand.

 

 Great Depression and WWII

 

Friedman was initially unable to find academic employment, so during 1935; he followed his friend W. Allen Wallis to Washington, where Franklin D. Roosevelt's New Deal was "a lifesaver" for many young economists. At this stage, Friedman said that he and his wife "regarded the job-creation programs as appropriate responses to the critical situation", but not "the price- and wage-fixing measures of the National Recovery Administration and the Agricultural Adjustment Administration". Foreshadowing his later ideas, he believed price controls interfered with an essential signaling mechanism to help resources be used where they were most valued. Indeed, Friedman later concluded that all government intervention associated with the New Deal was "the wrong cure for the wrong disease", arguing that the money supply should simply have been expanded, instead of contracted. In the publication Monetary History of the United States by Friedman and Anna Schwartz, they argue that the Great Depression was caused by monetary contraction, which were the consequence of poor policy-making by the Federal Reserve and the continuous crises of the banking system.

 

 

During 1935, he began work for the National Resources Committee, which was then working on a large consumer budget survey. Ideas from this project later became a part of his Theory of the Consumption Function. Friedman began employment with the National Bureau of Economic Research during autumn 1937 to assist Simon Kuznets in his work on professional income. This work resulted in their jointly authored publication Incomes from Independent Professional Practice, which introduced the concepts of permanent and transitory income, a major component of the Permanent Income Hypothesis that Friedman worked out in greater detail in the 1950s. The book hypothesizes that professional licensing artificially restricts the supply of services and raises prices.

 

As Friedman grew older, he reversed himself; during 2006 he observed, "You know, it's a mystery as to why people think Roosevelt's policies pulled us out of the Depression. The problem was that you had unemployed machines and unemployed people. How do you get them together by forming industrial cartels and keeping prices and wages up?"

 

Postwar years

 

In 1946, Friedman accepted an offer to teach economic theory at the University of Chicago. Friedman would work for the University of Chicago for the next 30 years. There he helped build an intellectual community that produced a number of Nobel Prize winners, known collectively as the Chicago School of Economics.

 

 

At that time, Arthur Burns, who was then the head of the National Bureau of Economic Research, asked Friedman to rejoin the Bureau's staff. He accepted the invitation, and assumed responsibility for the Bureau's inquiry into the role of money in the business cycle. As a result, he initiated the "Workshop in Money and Banking" (the "Chicago Workshop"), which promoted a revival of monetary studies. During the latter half of the 1940s, Friedman began collaboration with Anna Schwartz, an economic historian at the Bureau, which would ultimately result in the 1963 publication of a book co-authored by Friedman and Schwartz.

 

 

Friedman spent the 1954–55 academic year as a Fulbright Visiting Fellow at Gonville and Caius College, Cambridge. At the time, the Cambridge economics faculty was divided into a Keynesian majority (including Joan Robinson and Richard Kahn) and an anti-Keynesian minority (headed by Dennis Robertson). Friedman speculates that he “was invited to the fellowship because his views were unacceptable to both of the Cambridge factions”. Friedman was also an economic adviser to Republican presidential candidate Barry Goldwater during 1964, which, unfortunately, lost to Lyndon Johnson.

 

 Fame

 

In 1976, Friedman won the Nobel Memorial Prize in Economics "for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy". In 1977, at age 65, Friedman retired from the University of Chicago after teaching there for 30 years. During the same year, Friedman was approached by the Free To Choose Network and asked to create a television program presenting his economic and social philosophy. The Friedman worked on this project for the next three years, and during 1980, the ten-part series, titled Free to Choose, was broadcast by the Public Broadcasting Service (PBS). The book that accompanies the series, also titled Free To Choose, was the bestselling nonfiction book of 1980 and has since been translated into 14 foreign languages.

 

Milton Friedman and President Ronald Reagan
 

Friedman served as an unofficial adviser to Ronald Reagan during his 1980 presidential campaign, and then served on the President's Economic Policy Advisory Board for the rest of the Reagan Administration. During 1988, he received the National Medal of Science and Reagan honored him with the Presidential Medal of Freedom. Milton Friedman is known now as one of the most influential economists of the 20th century.

 

 Achievements and thoughts

 

Friedman was best known for reviving interest in the money supply as a determinant of the nominal value of output, that is, the quantity theory of money. Monetarism is the set of views associated with modern quantity theory. Its origins can be traced back to the 16th-century School of Salamanca or even further but Friedman's contribution is largely responsible for its modern popularization. Several regression studies with David Meiselman during the 1960s suggested the primacy of the money supply over investment and government spending in determining consumption and output. These challenged a prevailing but largely untested view on their relative importance.

 

 

Friedman was the main proponent of the monetarist school of economics. He maintained that there is a close and stable association between price inflation and the money supply, mainly that price inflation should be regulated with monetary deflation and price deflation with monetary inflation. He famously quipped that price deflation can be fought by "dropping money out of a helicopter”. His arguments were designed to counter popular claims that price inflation at the time was the result of increases in the price of oil, or increases in wages: as he wrote,

 

“Inflation is always and everywhere a monetary phenomenon”.

 

Friedman rejected the use of fiscal policy as a tool of demand management. Friedman wrote extensively on the Great Depression, which he termed the Great Contraction, arguing that it had been caused by an ordinary financial shock whose duration and seriousness were greatly increased by the subsequent contraction of the money supply caused by the misguided policies of the directors of the Federal Reserve.

 

 

...The Fed was largely responsible for converting what might have been a garden-variety recession, although perhaps a fairly severe one, into a major catastrophe. Instead of using its powers to offset the depression, it presided over a decline in the quantity of money by one-third from 1929 to 1933 ... Far from the depression being a failure of the free-enterprise system; it was a tragic failure of government.

—Milton and Rose Friedman, Two Lucky People, 233

 

Friedman also argued for the cessation of government intervention in currency markets, thereby spawning an enormous literature on the subject, as well as promoting the practice of freely floating exchange rates. Milton was also known for his work on the consumption function. This work contended that rational consumers would spend a proportional amount of what they perceived to be their permanent income. Tax reductions likewise, as rational consumers would predict that taxes would have to increase later to balance public finances. Other important contributions include his critique of the Phillips curve and the concept of the natural rate of unemployment. This critique associated his name, together with that of Edmund Phelps, with the insight that a government that brings about greater inflation cannot permanently reduce unemployment by doing so.

 

 

Friedman was in favor of abolishing the Federal Reserve System, but believed that if the money supply was to be centrally controlled that the preferable way to do it would be with a mechanical system that would keep the quantity of money increasing at a steady rate. However, instead of government involvement at all, he supported a "real," non-government, gold standard where money is produced by the private market: "A real gold standard is thoroughly consistent with [classical] liberal principles and I, for one, am entirely in favor of measures promoting its development."

 

 

He served as a member of President Reagan's Economic Policy Advisory Board during 1981. During 1988, he received the Presidential Medal of Freedom and the National Medal of Science. He said that he was a libertarian philosophically, but a member of the U.S. Republican Party for the sake of "expediency" ("I am a libertarian with a small 'l' and a Republican with a capital 'R.' And I am a Republican with a capital 'R' on grounds of expediency, not on principle.") But, he said, "I think the term classical liberal is also equally applicable. I don't really care very much what I'm called. I'm much more interested in having people thinking about the ideas, rather than the person."

 

 

Friedman was supportive of the state provision of some public goods that private businesses are not considered as being able to provide. However, he argued that many of the services performed by government could be performed better by the private sector. Above all, if some public goods are provided by the state, he believed that they should not be a legal monopoly where private competition is prohibited. For, example, in response to the United States Post Office's legal monopoly of mail, he said

 

Economical freedom fighter

 

There is no way to justify our present public monopoly of the post office. It may be argued that the carrying of mail is a technical monopoly and that a government monopoly is the least of evils. Along these lines, one could perhaps justify a government post office, but not the present law, which makes it illegal for anybody else to carry the mail. If the delivery of mail is a technical monopoly, no one else will be able to succeed in competition with the government. If it is not, there is no reason why the government should be engaged in it. The only way to find out is to leave other people free to enter.

— Milton and Rose Friedman. Capitalism and Freedom, University of Chicago Press, 1982, 29

 

 

Friedman made newspaper headlines by proposing a negative income tax to replace the existing welfare system, and then opposing a bill to implement it because the bill merely proposed to supplement the existing system rather than replace it. During 2005, Friedman and more than 500 other economists advocated discussions regarding the economic benefits of the legalization of marijuana.

 

 

Along with sixteen other distinguished economists he opposed the Copyright Term Extension Act. Friedman argued for stronger basic legal (constitutional) protection of economic rights and freedoms in order to further promote industrial-commercial growth and prosperity and buttress democracy and freedom and the rule of law generally in society.

 

 

Friedman allowed the Cato Institute to use his name for its biannual Milton Friedman Prize for Advancing Liberty beginning in 2001. A Friedman Prize was given to the late British economist Peter Bauer during 2002, Peruvian economist Hernando de Soto during 2004, Mart Laar, former Estonian Prime Minister during 2006 and a young Venezuelan student Yon Goicoechea during 2008. His wife Rose, sister of Aaron Director, with whom he initiated the Friedman Foundation for Educational Choice, served on the international selection committee.

 

 

Friedman wrote extensively of his life and experiences, especially in his memoirs with his wife Rose, titled Two Lucky People during 1998. He died of heart failure at the age of 94 years in San Francisco on November 16, 2006. He was survived by his wife, (who died on August 18, 2009) and their two children, Janet and David, who is a philosopher and economist. David's son, Patri Friedman, is also an economist and the executive director of the Seasteading Institute

 

 Postmortem

 

 After Friedman's death, Keynesian Nobel laureate Paul Krugman, while regarding Friedman as a "great economist and a great man," criticized him during 2007 by writing that "he slipped all too easily into claiming both that markets always work and that only markets work. It's extremely hard to find cases in which Friedman acknowledged the possibility that markets could go wrong, or that government intervention could serve a useful purpose."

 

 

However, according to economists Anna Schwartz (Friedman's long-time colleague and co-author) and Edward Nelson of the Centre for Economic Policy Research, Krugman "double talks throughout his essay", and asked "How can he say Friedman was a great economist and a great man, if he believes Friedman to have been intellectually dishonest?"

 

During the Financial crisis of 2007–2010, several Keynesian economists such as James Galbraith and Joseph Stiglitz blamed the free market philosophy of Friedman and the Chicago school for the economic turmoil. In response to these criticisms, University of Chicago Magazine noted that Chicago's Rajan, Thaler, and Vishney warned the US government that regulations are needed and, “The Chicago School never said we wanted blind deregulation ... We should really ask who were the people in 2000 who decided markets don’t need regulating. Those were not Chicago economists. Some of them were Clinton officials, and some of them are now advising Obama”

 

 Conclusion

 

 

Different times, the same left-wing tactics - blame somebody else for their own unfortunate mistakes... When you’re engaging in discussions with a radical leftist demagogue, you’re starting a bad conversation, and obviously the blame will be put on your back. “Are you against peace and for war? So, you're against social justice and for the exploitation of man by man?!” Pathetic mumbling, like “In real life you do not have to choose between the good and the better, but between evil and lesser evil”, no longer sounds right. The position of late Milton Friedman is clear: “I'm not against severe governmental regulations; I'm just against the allegations that such a good regulations anywhere in any noticeable amounts are existing”. He tried to push a discussion with the axis, rotating around the dichotomy of "good-evil" to the debate in terms of "truth-lie." And I would not hide preferences for precisely this type of deal.

 

Would you leave the “proper and desired” to the rest and start doing something about “what it is”?

 

Answer me, please! The time is NOW.