INTRODUCTION
In many ways Milton Friedman was a devil figure in my youth … I grew to see the issue as more nuanced.
—LARRY SUMMERS, 2001
Rumpled and unpretentious, standing barely five feet tall, peering through thick glasses with an expression of amusement and wonder, Milton Friedman seemed an unlikely figure to inspire awe or rage. But love him and hate him they did. In Wisconsin there were picket lines to protest his firing; in Louisiana, picket lines to welcome him to town (also to urge that the post office be privatized); in Stockholm, picket lines to chase him away. There was even a picket line at his granddaughter’s nursery school. Friedman was an economist in a century that gave economists extraordinary power, which accounts for some of the reaction. But for a time—and even today—Friedman’s name conjured not just a person, but an entire constellation of ideas. On the 1980s TV show Family Ties, the smarmy Republican son of ex-hippie parents, Alex P. Keaton, loves Milton Friedman. Nearly fifteen years after Friedman’s death, on the campaign trail in 2020 Joe Biden declared, “Milton Friedman isn’t running the show anymore!” Both references point to one of Friedman’s major legacies: crafting the basic intellectual consensus about free markets and limited government that powered twentieth-century American conservatism. It is true that Friedman was there on the ground for major developments in Republican politics. He advised the presidential candidate Barry Goldwater, took to the ski slopes with National Review’s founder, William F. Buckley Jr., set up a back channel to allies in the Nixon White House, and cheered as Ronald Reagan folded his ideas about the “magic of the market” into a new establishment. As an economist, Friedman led a successful intellectual movement against Keynesian economics, which was closely linked with the Democratic Party. By the end of his career, as one rival admitted, “the age of John Maynard Keynes gave way to the age of Milton Friedman.”1 Yet as scholars increasingly recognize, although Friedman’s political allegiances lay firmly with the Republican Party, his ideas shaped thinking across the partisan divide.2
Friedman was more than an economist; he offered a philosophy of freedom that made a tremendous political impact in a liberty-loving country. Many aspects of our contemporary world that today seem commonplace have their origins in one of Friedman’s seemingly crazy ideas. If you’ve had taxes withheld from a paycheck, planned or postponed a foreign holiday due to the exchange rate, considered the military as a career, wondered if the Federal Reserve really knows what it’s doing, worked at or enrolled your child in a charter school, or gotten into an argument about the pros and cons of universal basic income, you’ve had a brush with Friedman. Nor does it matter if you are an American. Friedman’s ideas about capitalism, limited government, and inflation were taken up across the globe, from London to Santiago to Shanghai. He was a prime mover in the central economic transitions of the century: the decline of New Deal liberalism, the fall of the postwar currency regime of Bretton Woods, the shift to free trade, and the battle against inflation that gripped industrialized nations in the 1970s and 1980s. Friedman’s monetarism, which he summarized with the dictum “Inflation is always and everywhere a monetary phenomenon,” became a guiding philosophy of central banks across the world, despite its checkered record as a detailed guide for policy-makers. Applied as a broader statement of political economy, monetarism contributed to decades of low inflation, which persisted through 2020. Friedman himself became a major symbol of the hope for a more prosperous, free, and open world after the fall of Communism in the 1990s.
Friedman was born in 1912 and died in 2006, and thus his life tracks major events of the twentieth century. He became an economist as a young man living through the Great Depression of the 1930s, when he wrestled with fundamental questions of the age: Could capitalism guarantee broad prosperity, or was it doomed to unremitting cycles of boom and bust? How could nations support those in need without choking off the dynamic energies of economic growth? Did liberal democracy have a future, or were ideals of classical liberalism—limited, representative government; individual freedom; and unrestricted trade—relics of the past? Most economists of his generation answered these questions by looking to Keynesian economics, which called for greater state involvement in economic affairs, primarily through the taxing and spending powers of the federal government. But from the start, Friedman worried these solutions were economically unsustainable and, worse, endangered individual liberty. This was of course a shibboleth of the reactionary conservatives who hated Franklin D. Roosevelt. In contrast, Friedman supported critical aspects of the New Deal, particularly its early response to the economic crisis. And throughout his life, he remained preoccupied by the problems of the 1930s and ’40s, national and global. As it did for many American Jews, the Holocaust loomed large in Friedman’s imagination. Characteristically, Friedman took this awareness in an unusual direction, seeing anti-Semitism as a ready lesson in the dangers of the state. Among his great triumphs as an economist was authoring, with the indispensable Anna Schwartz, a reinterpretation of the Great Depression that remains essential for scholarship on the downturn. At the same time, Friedman spent the bulk of his career working to erect an alternative to the political landscape carved by the Great Depression, the New Deal, and then World War II.
The decades after the war were a time of tremendous intellectual creativity for Friedman, as he set out a new policy framework centered on rules-based management of the monetary system and the free play of price and contract within all other markets. Recognizing that a larger government was here to stay, Friedman nonetheless sought to limit its scope and reach. In some cases he advocated outright repeal of established regulations, including rent control, price supports for agriculture, tariffs and import quotas, and controls on gas and oil production. In other areas of state involvement, Friedman often suggested that government function by dispersing financial resources directly to recipients, so that retirees, unemployed workers, or low-income families could bypass bureaucracy and buy what they needed in the market. Alternatively, he proposed that state enterprises like the U.S. Postal Service face private competition—a reform eventually implemented piecemeal across the 1970s and ’80s that led to the rise of FedEx, DHL, and other overnight mail services. Overall, Friedman encouraged the state to structure and harness market forces rather than intervene directly in their operation. Again and again, he suggested that the price system—the free interaction of buyers and sellers—could produce better social outcomes than the decisions of politicians and regulators. Yet Friedman did not simply propose technical fixes to policy problems. He set his economic ideas within a broader philosophy of individual freedom that served as the moral grounding for his work. And he articulated a vision of the state that was starkly at odds with the one that emerged from the New Deal and the crisis of the 1930s.
Today, scholars describe this intellectual approach with the broad moniker of “neoliberalism,” and have traced its influence across every continent. By the final decades of the twentieth century, Friedman’s ideas helped a new political order emerge, as countries abandoned top-down economic planning in favor of market-based approaches. The disintegration of Bretton Woods and the overthrow of Chile’s socialist government were early markers along the path. The political successes of Ronald Reagan and Margaret Thatcher were culminating events. In each case, the turn to markets had its own internal dynamics, powered by local and regional histories, political institutions, and resentments of class, caste, and religion. But in all of them were also traces of Friedman. Inevitably, he was somewhere in the mix, moonlighting as an adviser, beaming out from state TV, sitting down with the finance minister.3
Critically, Friedman’s monetary economics accepted that the gold standard, abandoned during World War II, was not coming back. In many ways Friedman picked up where Keynes left off (due to his early death) in thinking through the risks and rewards of global fiat currency. Why did monetary systems sometimes break down catastrophically, as in the raging hyperinflation that preceded Hitler’s rise? What about the opposite problem, when some sort of gravitational compression took over and shrank an economy from the inside out? Friedman had lived through that during the Great Depression, and would make explaining it his life’s work. Perhaps even more important was the basic problem of keeping a modern monetary economy on a steady growth path. While Keynes himself considered money fundamental to these questions, many of his early American followers did not. As they looked increasingly to federal spending and regulation, Friedman was left nearly alone to focus on the role of money. The solution he proposed—a policy rule dictating a fixed rate of growth in the money supply—aspired to re-create the stability of the gold standard without its dangerous rigidities. Monetarism was compatible with Friedman’s broader political economy, in that it suggested that many of the state interventions developed since the Depression were unjustified or unnecessary. At the same time, it was also a freestanding analysis of the necessary conditions for economic stability and growth. Friedman’s monetarism has been revised, reformulated, and reinterpreted many times over, as monetary institutions and economic knowledge have evolved. Yet remarkably, it remains an essential starting point for understanding inflation and deflation.
Also like Keynes, Friedman was among the last economists shaped by the dying tradition of political economy, which blended economic, social, and ethical questions. His most bitter fights were with economists who fancied themselves practitioners of hard science, akin to being mathematicians or physicists. And his closest intellectual companions were economists working far from the disciplinary mainstream, like F. A. Hayek, who is most famous as a political philosopher; his lifelong friend George Stigler, a historian of economics; and his brother-in-law, Aaron Director, a professor of law. For nearly a quarter century—from 1946 until the early 1970s—Friedman counted himself an outsider to the main currents of economic thought. But as the basic assumptions of postwar economics were suddenly turned upside down by stagflation, the simultaneous arrival of high inflation and high unemployment, Friedman found a new audience for his views. In the last decades of his professional life, Friedman was no more a lonely voice speaking only to conservative audiences and fellow economists. He launched an extraordinary public career as a spokesman for a general rethinking of how nation-states and multinational organizations should—or should not—stimulate economic growth and manage economic calamity. As the author of numerous best-selling books, a columnist for the influential magazine Newsweek, and a television star, Friedman had tremendous reach.
Friedman’s research on money, inflation, and currency regimes made him an indispensable thinker during the 1970s and ’80s as the tectonic plates of economic regimes began to shift. The solutions that worked in 1945—Bretton Woods, social democracy, redistributive welfare states—were cracking apart.4 All of these maladies had one obvious symptom: inflation. From Europe to the Middle East to South America, surging prices destabilized old international alliances, weakened political leaders, sharpened class divisions, and sent waves of discontent and uncertainty through business owners, workers, and shoppers alike. In retrospect, it was not just the old order dying but a new form of global capitalism being born. Inflation was the wrecking ball, coming to finish off social and political forms weakened by the upheavals of the 1960s, from the nuclear family to the union job to the factory pumping out goods made in the USA. The ironies were considerable. What Friedman had so long tried to prevent—more than a decade of consistently rising prices—ushered in a world closer to his ideal, where capital moved freely across borders, governments retrenched from social spending, and a culture of expressive individualism celebrated freedom above all else.
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The reputation of any great thinker is never static, and Friedman is no exception. Raised in a household of Keynesian economists, the former Treasury secretary and Harvard president emeritus Larry Summers once recalled that Friedman was “a devil figure in my youth.” Over time, though, Summers came “to have enormous respect for Friedman’s views on a range of questions. That’s a respect that is born of the power of his arguments as one considers them more and more deeply.” I began my research in the aftermath of the 2008 financial crisis, when Friedman remained a formidable figure, a sort of skeleton key to historic events. After all, it was Friedman’s academic research that the chair of the Federal Reserve invoked to justify the government’s response, Friedman the champion of deregulation who appeared to others the ultimate source of the problem.5
Over the next years, Friedman’s reputation dipped, in part because of the unconventional monetary policy that followed the recession. To many observers—including many economists inspired by Friedman—the extraordinary low interest rates of the aughts were a recipe for inflation. When none emerged, Friedman’s ideas seemed irrelevant and his followers’ prophecies fell flat. Then as I began writing this book, the other field of Friedman’s influence—political conservatism—went through a profound transformation. The GOP establishment that had lionized Friedman, focused on low taxes, low regulation, and free trade, was challenged by Donald J. Trump. Scholars have yet to settle—and probably never will—whether Trump should be considered an outgrowth of the former Republican Party or a deviation from its essence. But undoubtedly a new set of ideas that were emerging on the right, focused on immigration restriction, industrial policy, and state support of traditional values, stood firmly opposed to the “dead consensus” Friedman once embodied. Amid resurgent socialism on the left and rising nationalism on the right, it seemed there was no place for Friedman’s ideas anymore.6
Still, Friedman never left the conversation entirely, because taking sides on Friedman involves taking sides on the last fifty years of American life. Do you judge that free trade has been, on balance, good for the world, helping to lift billions out of poverty? Then you may well regard Friedman as a saint. If free trade appears, by contrast, to have been a conspiracy by capitalists of the global north against the downtrodden, disempowered worker, then Friedman appears close to an evil genius. Within the contours of American political debate, similar dynamics emerge. Are the thirty-odd years after Friedman’s ideas became dominant “the Great Moderation,” a long and welcome stretch of economic stability, free of the awful recessions that obliterate years of accumulated wealth overnight? Or are they a time of increasing inequality, socially devastating deindustrialization, irreversible environmental degradation, and rising deaths of despair? Did Friedman’s low-tax, limited-government ideology, taken up in a bipartisan move to deregulate key industries and cope with a new inflationary landscape, loose the creative destruction of capitalism? Or did it hollow out state capacity, weakening Americans’ ability to build critical infrastructure and fund basic science, while leaving the vulnerable to fend for themselves? Friedman alone cannot be credited or blamed for these deep structural changes, however they are understood. Nonetheless, his presence at so many turning points of the modern era is remarkable. Understanding the origins of Friedman’s ideas, and how they intersected with the broader surrounding world, opens a path to answering these fundamental questions.
The return of inflation in 2021—increasingly understood as the result of a textbook Friedman-style “helicopter drop” of money—suggests the time is ripe for another rethinking of his legacy. Friedman’s monetarism will not be resurrected whole cloth. But no more will concerns about the money supply be dismissed, or greeted by Fed officials with gentle condescension.7 Paradoxically, the bipartisan assault on Friedman in recent years has opened the possibility of seeing his work anew. For example, one of the most fertile progressive policy experiments in recent times is universal basic income, an idea that traces its modern origins to a 1939 paper by Friedman. In his lifetime, Friedman’s tight identification with conservatism muted the countervailing currents in his own thinking. Even conservative advocates of guaranteed-income-style policies seem unaware of Friedman’s role in its history. As he increasingly came to symbolize a political movement, the nuance and complexity of his ideas was lost. At times, Friedman himself reduced his own ideas to slogans. At other points, the dynamics of professional economic debate were lost on outsiders. One goal of this book is to restore the fullness of Friedman’s thought to his public image.
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This book is the first full-length biography of Friedman based upon archival research. I weave together notes from his graduate classes, letters from lifelong collaborators and friends, rough drafts, political memos, and his extensive published works to show a mind in motion, at first reacting to the headlines of the day and then eventually shaping them. The story starts with Friedman’s immigrant family in Rahway, New Jersey, follows his intellectual trajectory from an oddball misfit to the dominant force in economics, and finishes with his role in the global turn toward markets after the fall of Bretton Woods. For nearly a decade, I have immersed myself in his voluminous archive of more than two hundred paper-stuffed boxes, housed at Stanford University’s Hoover Institution, where Friedman was a research fellow in the last decades of his life. As a faculty member in the history department at Stanford, I’ve benefited from near daily access to this material, as well as research support from the Hoover Institution and regular contact with Friedman’s former colleagues and students. Many have been generous in explaining the fine points of his economics, but none have attempted to steer my research or conclusions. I approach Friedman as a scholar, intent on setting his ideas in context and making his achievements legible for a new generation, either friend or foe. As an intellectual historian, I strive to summarize and explain economic ideas, their transformation over time, and their broader social impact, meaning readers need no special background or expertise to follow the narrative. Many chapters focus on a relationship between Friedman and a central figure of his time—some of whose names are still familiar, like the British prime minister Margaret Thatcher, and some who have become less famous over time, like the Federal Reserve chairman Arthur Burns.
This book is also a partial biography of economics, the master discipline of the twentieth century. Growing out of the older tradition of political economy, modern economics employed graphs and equations to make human behavior in markets tractable and the terms of analysis uniform. Although Friedman was part of this change, he also stood apart from it. Many of his most important works were not technical papers but books that still repay reading and rereading. In an important sense Friedman remained a political economist, concerned with questions of governance, ethics, and justice. Nonetheless, he made his way as a professional economist, earning the field’s highest laurels, including the Clark Medal, the Nobel Prize, and the presidency of the American Economic Association.
I focus particularly on two strains of economic thinking that Friedman embraced, revitalized, and popularized: Chicago price theory and monetarism. At the most basic level, Chicago price theory—named after its roots in the University of Chicago, where Friedman was educated and taught for decades—was simply microeconomics, the analysis of rational human choice under conditions of scarcity. It approximates what any economics student still encounters in college. But the “Chicago” version was different, for it refused to keep economic analysis within its traditional boundaries. Taking price theory out of the classroom, Friedman crafted a dizzying array of policies with a consistent theme: setting prices free. This idea underlay everything, from Friedman’s support of school vouchers and his calls to abolish the draft to his insistence that governments stop controlling the price of their currencies. Despite its influence, Chicago price theory was for many decades a heterodox current in economics. Readers may be surprised to learn how vigorously Friedman resisted his discipline’s turn to ever more sophisticated mathematics.
Within economics, Friedman was known primarily as a monetarist—the name he grudgingly accepted for his school of economics, centered on the quantity theory of money. At its most basic, the quantity theory was an equation that linked the price level to the amount of money in an economy. But Friedman expanded it into an entire heterodox school of economics, centered on the idea that money was a tidal force in economic life. Mocked for this seemingly obsessive focus on money, he was one of the few economists to see stagflation coming in the 1970s. As a result, monetarism birthed the modern study of inflation, with important legacies that persist today. Friedman’s impact on the discipline came from leveraging the methodologies, approaches, and mediums that modern economics rejected. Burrowing deep into data, checking theory against measurement, and using history as a natural experiment, Friedman was fearless in his intellectual quest—never afraid to be wrong and, more important, never afraid to be unpopular.
There is an overlooked secret to Friedman’s success that I am the first to highlight: a coterie of women economists critical to every stage in his career. Shy and retiring, Friedman’s wife, Rose Director Friedman, did her best to stay a hidden figure—she burned the couple’s correspondence and left no trace in his vast archive, which she helped organize and arrange. Nonetheless, I have sought to reconstruct her role in both Friedman’s technical economics and his emergence as a public intellectual. Friedman’s most important intellectual partner was Anna Jacobson Schwartz, a creative thinker and sophisticated researcher relegated to the role of worker bee by her male colleagues. Alone among his peers, Friedman grasped Schwartz’s potential, and together they authored the landmark book A Monetary History of the United States—yet only Friedman was lauded in the Nobel Prize citation it garnered him. I illuminate this decades-long partnership, showing how Schwartz’s love of history and narrative transformed a doorstop statistical study into a modern classic. And I rescue from anonymity an entire circle of women economists, regular visitors to the Friedmans’ summer home, who in long midnight conversations hashed out a new set of ideas on consumption that helped restore Friedman’s faltering reputation in economics.
Another wellspring of Friedman’s power was the tight-knit male fraternity of Chicago economists. They ranged from Rose’s brother, Aaron Director, another hidden figure, to the world-renowned Austrian economist F. A. Hayek, who connected Friedman to wealthy businessmen set on defeating the New Deal. There is also Friedman’s mentor Henry Simons. Mercurial and brilliant, Simons was at once an outspoken defender of free markets, an advocate of higher taxes, and a crusader for increased government regulation in key economic sectors. With his tragic suicide, this seemingly impossible combination faded as a force in Friedman’s thinking.
Throughout the book I do my best to honestly address Friedman’s blind spots and imperfections, among which must be counted his attitudes toward civil rights. His vocal opposition to the 1964 Civil Rights Act, the sweeping legislation that outlawed racial discrimination in hiring and public accommodations, casts a shadow over his legacy. While disagreeing profoundly with Friedman’s stance, I have nonetheless tried to accurately depict how he came to this view, given his beliefs, life experiences, and social context.
Copyright © 2023 by Jennifer Burns