The Weekly Sage hopes to regularly bring brief profiles of key contributors to thought and faith before a Christian audience for historical education and awareness of valuable resources.

Sometimes history brings together a special combination of resources and people that form a center of intellectual influence. The Weekly Sage will occasionally consider such “Schools” together. As such this is the fifth of a five-week series on Chicago-School Economists. This will be understood simply to mean uniquely impactful members of the faculty of economics at the University of Chicago in the 20^th century.

Milton Friedman

• “The Great Depression did much to instill and reinforce the widely held view that inherent instability of a private market economy has been responsible for the major periods of economic distress experienced by the United States. On this view, only a vigilant government, offsetting continuously the vagaries of the private economy, has prevented or can prevent such periods of instability. As I read the historical record, I draw almost the opposite conclusion. In almost every instance, major instability in the United States has been produced or, at the very least, greatly intensified by monetary instability. Monetary instability in its turn has generally arisen either from governmental intervention or from controversy about what governmental monetary policy should be. The failure of government to provide a stable monetary framework has been a major if not the major factor accounting for our really severe inflations and depressions. Perhaps the most remarkable feature of the record is the adaptability and flexibility that the private economy has so frequently shown under such extreme provocation.”[1]
• “In so far as a theory can be said to have ‘assumptions’ at all, and in so far as their ‘realism’ can be judged independently of the validity of predictions, the relation between the significance of a theory and the ‘realism’ of its ‘assumptions’ is almost the opposite of that suggested by the view under criticism. Truly important and significant hypotheses will be found to have ‘assumptions’ that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense). The reason is simple. A hypothesis is important if it ‘explains’ much by little, that is, if it abstracts the common and crucial elements from the mass of complex and detailed circumstances surrounding the phenomena to be explained and permits valid predictions on the basis of them alone. To be important, therefore, a hypothesis must be descriptively false in its assumptions; it takes account of, and accounts for, none of the many other attendant circumstances, since its very success shows them to be irrelevant for the phenomena to be explained.”[2]

Milton Friedman (1912 – 2006) was the foremost member of the Chicago School of Economics and an unsurpassed contributor to the technical and popular literature of twentieth century economics. His writing brought together a uniquely powerful mind with a witty and appealing style, but Friedman’s persuasive work was not limited to the page, including as well the Free to Choose television series and numerous recorded debates that remain relevant today in many cases.

As I’ve chronicled a portion of the Chicago School these past few weeks, Friedman’s influence has been powerfully revealed through the numerous thanks and references made by his many colleagues. They reference his insight and willingness to assist and guide other scholars, an unselfishness that was welcoming to trace in his writings, which were untinted by arrogance.

Nevertheless, if anyone was able to make a claim to prominence, authority, or respect in the field of economics, Friedman certainly could. The winner of the 1951 John Bates Clark medal for economic achievement under the age of 40 and the 1976 Nobel Prize in Economics, Friedman’s career recognition was supplemented by the Presidential Medal of Freedom in 1988.

Born in New York to Jewish immigrants, Friedman’s intellectual trajectory was always steep. Completing his undergraduate studies at Rutgers, Friedman quickly moved to graduate work in economics at the University of Chicago and Columbia. After a few years serving in New Deal agencies, Friedman returned to the University of Chicago in 1946, remaining there as a professor for three decades.

His empirical work covered an impressive range, touching on key concepts in the Keynesian hierarchy – such as the consumption function – while also developing unique ideas of his own in works such as A Monetary History of the United States: 1867 – 1960. These contributions built up Friedman’s reputation within the field, but his public influence grew through accessible works such as Capitalism and Freedom and Free to Choose. In the turbulent period of the 1960’s and 1970’s, when price controls and transitioning away from the gold standard brought attention to economics, Friedman’s perspective shaped the American understanding through these works and numerous other articles and debates.

Friedman’s legacy includes policies promoted, economists trained, and concepts honed. He influenced numerous leading politicians in his day, including Margaret Thatcher, Richard Nixon, and Ronald Reagan. The revival of monetary policy, focused on the banking system instead of federal taxation and spending, was a significant work of Friedman’s in the wake of the Keynesian revolution. Key concepts of his, such as the k-percent rule whereby the Federal Reserve would work to grow the money supply at a steady annual rate to promote economic stability, have become common currency in the field.

Milton Friedman’s books include a key set of emphases: the need for stable government policy, the value of freedom, the importance of common moral ground for society, the effectiveness of the free market system, and the imperfections of the bureaucratic political sphere. Simple affirmations, such as that inflation is always and everywhere a monetary phenomenon, when consistently supported with sound research in statistics and history, brought Friedman a public trust and influence that remain today. Young scholars can learn from his example, and anyone can gain a better understanding of the world of economics through his many and valuable writings. Hopefully a greater familiarity with Friedman will assist the next generation in fulfilling his dream of a free and flourishing society. As he wrote in the dedication of Capitalism and Freedom, new people of character and knowledge are needed to “carry the torch of liberty on its next lap.”

• “Suppose that some specific price (or set of prices), say, the price of steel, is prevented from rising. Holding down the price of steel does not make more steel available; on the contrary, given that other prices and costs are rising, it reduces the amount that producers can afford to spend in producing steel and is therefore likely to reduce the amount available from current production. Holding down the price of steel does not discourage buyers; on the contrary, it encourages consumption. If the suppressed price is effectively enforced and not evaded by any of the many channels that are available to ingenious sellers and buyers some potential buyers of steel must be frustrated – there is a rationing problem. Chance, favouritism, or bribery will have to decide which buyers succeed in getting the steel. Those who succeed pay less than they are willing to pay. They, instead of the steel producers, have the remainder to spend elsewhere. Those who fail will try to substitute other metals or products and so will divert their demand elsewhere; the excess pressure is shifted, not eliminated.”[3]
• “If the Japanese worker has a lower standard of living than the American, it is because he is less productive on the average than the American, given the training he has, the amount of capital and land and so on that he has to work with. If the American worker is, let us say, on the average four times as productive as the Japanese worker, it is wasteful to use him to produce any goods in the production of which he is less than four times as productive. It is better to produce those goods at which he is more productive and trade them for the goods at which he is less productive. Tariffs do not assist the Japanese worker to raise his standard of living or protect the high standard of the American worker. On the contrary, they lower the Japanese standard and keep the American standard from being as high as it could be….I believe that it would be far better for us to move to free trade unilaterally, as Britain did in the nineteenth century when it repealed the corn laws. We, as they did, would experience an enormous accession of political and economic power. We are a great nation and it ill behooves us to require reciprocal benefits from Luxembourg before we reduce a tariff on Luxembourg products, or to throw thousands of Chinese refugees suddenly out of work by imposing import quotas on textiles from Hong Kong. Let us live up to our destiny”.[4]

[1] Milton Friedman, A Program for Monetary Stability, (New York: Fordham University Press, 1960), 9.

[2] Milton Friedman, Essays in Positive Economics, (Chicago: University of Chicago Press, 1953), 14-15.

[3] Milton Friedman, Dollars and Deficits: Living with America’s Economic Problems, (New Jersey, Prentice-Hall Inc., 1968), 100 – 101.

[4] Milton Friedman, Capitalism and Freedom, (Chicago: University of Chicago Press, 1971), 72-73.