Academic journal article The Cato Journal

Milton Friedman: Perspectives, Particularly on Monetary Policy

Academic journal article The Cato Journal

Milton Friedman: Perspectives, Particularly on Monetary Policy

Article excerpt

When my son Jason was an economics Ph.D. student at Harvard in the 1990s, he said: "I have observed that only two economists can push you around, Milton Friedman and Gary Becker." I agreed but argued that it was a good thing. Everyone needed heroes, and Gary had only Milton. Milton had no one, except Ronald Reagan in the 1980s, but Reagan did not really qualify as an economist. Arthur Burns may once have been the economist hero--as an instructor at Rutgers, he apparently helped to persuade the undergraduate Milton not to be an actuary. However, Burns's exalted status ended in 1971 when he went over to the dark side by endorsing Richard Nixon's outrageous price controls. Milton told me that Frank Knight was also his "god," presumably between 1932 and 1935 when Milton was a graduate student at the University of Chicago and after 1946, when Milton joined the Chicago faculty.

Longtime friend George Stigler told the story of how Milton got his faculty appointment at Chicago. The two were together in 1945-46 on the faculty of the University of Minnesota. Stigler says:

   In the spring of 1946 I received the offer of a professorship from
   the University of Chicago, and of course was delighted at the
   prospect. The offer was contingent upon approval by the central
   administration after a personal interview. I went to Chicago, met
   with the President, Ernest Colwell, because Chancellor Robert
   Hutchins was ill that day, and I was vetoed! I was too empirical,
   Colwell said, and no doubt that day I was. So the professorship was
   offered to Milton Friedman, and President Colwell and I had
   launched the new Chicago School. We both deserve credit for that
   appointment, although for a long time I was not inclined to share
   it with Colwell. (1)

It was not until 1958 that Stigler left Columbia to accept the lucrative Walgreen Professorship and was then reunited with Milton in Chicago.

Views on Money

The only person to rival Milton for policy influence in the 20th century was John Maynard Keynes, who had a strikingly different view of the role of government. Keynes advocated more government intervention into what he perceived as poorly functioning private economies caught up in the global depression of the 1930s. In contrast, Milton--particularly in his work with Anna Schwartz--put the primary blame for the U.S. depression (as well as the 1937-38 recession) on government failure, especially the Federal Reserve's monetary policy. Hence, the existence of the Great Depression posed no dilemma for Milton's broad preference for small government, and he found in the Fed's failures to prevent deflation an argument in favor of monetary rules. As the world evolved--with price stability becoming the major mission of central banks and free markets and property rights becoming the key policies to promote economic growth--Milton surely won the intellectual and policy battles.

High esteem by the economics profession was not always Milton's status, and he had to endure a long march from pariah to priest. This transition culminated in the Nobel Prize in Economics in 1976, a great choice that confirmed the widespread impact of his economic ideas. In contrast, in the mid 1960s, when I started as a graduate student in economics at Harvard, my professors viewed Milton as a right-wing, Midwestern crank. (The Harvard economics department is much better now than it was then!) Surprisingly, Milton was most notorious for his work on money, especially for the dictum "Inflation is always and everywhere a monetary phenomenon." (2)

Milton laid out his views on money in "The Quantity of Money--A Restatement" (an essay in the 1956 book, Studies in the Quantity Theory of Money) and the epic A Monetary History of the United States (written in 1963 with Anna Schwartz). The Monetary History explores money-supply determination under different regimes, including the gold standard. …

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