Ryan Bourne is Head of Economic Research at the Centre for Policy Studies, which hosted the event ‘Friedman at 100’ on July 3rd. The full transcript from the event can be found here, and the videos of it are available at our YouTube channel.
Today would have been the great economist Milton Friedman’s 100th birthday — he was the most significant and effective proponent of free market economics we’ve ever seen. Though he died in November 2006, his ideas have had a lasting effect on the great fight for economic and personal freedom.
Earlier this month, the Centre for Policy Studies hosted a high-profile event to discuss the legacy of his work. It’s easy to forget just how much he achieved. A Nobel prize winner in Economics, Friedman’s work advanced the subject in many areas. His work on individuals’ consumption patterns remain a cornerstone of almost all applied economics. He advocated floating exchange rates following the collapse of the Bretton-Woods system. He debunked the idea of the Phillips curve — that Governments could manage policy in the long-run by trading off inflation and unemployment — and was subsequently vindicated during the stagflation of the 1970s.
But it is his work on the Great Depression, with the recently departed Anna Schwartz, for which he is best remembered academically. He concluded that a collapse in the broad money supply had exacerbated the Great Depression in the 1930s, and that expansionary monetary policy was the only tool in town in depression-like conditions.
His position on this is often misrepresented in current debates. For Friedman, money mattered. He knew that “inflation is always and everywhere a monetary phenomenon”. He would have been in favour of the initial QE that was undertaken to stop a collapse in the broad money supply and the onset of price deflation. Indeed, Ben Bernanke thanked Friedman in advance of the crisis for his insight, and promised Milton that, having read his great book, he would never let a Great Depression occur again. But his policy prescription after that would have then been to try to keep a constant growth of broad money at a low level. As Deepak Lal explained at our event, instead broad money both here and in the US has been volatile, and Governments and central banks have become obsessed with enhancing credit rather than merely keeping money growth stable.
The breadth of his academic insight shows Friedman’s giant intellect. But it was his ability to popularise and market his free-market ideas that make him stand out. He was a regular presenter on PBS, and presented Free to Choose, a ten part series that aired in the early 80s, which brought the concepts of economic freedom direct to millions of living rooms. He penned a column for Newsweek for an astonishing 18 years. And, as Niall Ferguson explained earlier this mornth, Friedman used his column inches to advocate economically and socially liberal policies, most of which have since been implemented. Whether it be against rent controls or farm subsidies and tariffs, expounding free-trade, suggesting that tradable pollution permits are preferable to crude state intervention, highlighting the failure of state schooling, advancing civil liberties issues ,helping to overturn conscripted armed forces in the US, or calling for the legalisation of drugs, Friedman consistently pursued freedom for the individual.
What, then would he make of the current debates? As mentioned above, he’d lament the failure of central banks to pursue stable broad money growth in favour of inflation targeting. He’d reject what Ken Rogoff has described as the naïve Keynesian view of stimulus spending and would have supported genuine attempts to cut the size of government. He would be arguing that we return to the principles of economic liberalism: free-trade, removal of government regulations, and a competitive tax system. He’d disagree with the Government’s stance on tax avoidance, and suggest that law, rather than public trial, should be the basis of a functioning tax system. He’d speak out against those who claim that both Cameron and Romney are ill-equipped to govern because they are well off. Indeed, he once quipped : “Is there one of you who is going to say that you don't want a doctor to treat you for cancer unless he himself has had cancer?”
And while Friedman was masterful in attacking government failures, it’s clear that he, like Adam Smith, also recognised the failings of businessmen and the shortcomings of capitalists as a class.
In his 1999 lecture to the Cato Institute, The Business Community’s Suicidal Impulse, he sought to outline many of the ways in which capitalists undertake irrational action. Why do oil companies donate to left-leaning environmental groups which want to destroy the oil industry? Why don’t successful businessmen more actively advocate private education voucher systems, given the failures of the state system? I imagine he’d now add to that list, why did certain top bankers allow a culture to develop which left the viability of the business dependent on such high risk?
He rejected the hypothesis that as corporations got really large, they became centrally planned and socialistic, and eradicate the competitive elements which enable capitalism to flourish. More likely, he thought, it was the effect of distortions created by government intervention or a misguided belief that government knew how to solve problems.
At the time, he concluded that we had largely overcome the idea that government knew best, and suggested that the next big field of study for free-marketeers was to research why more capitalists did things that undermined the market when it was not in their interest to do so.
Unfortunately, in the aftermath of the crisis and with governments fighting to create regulation upon regulation in the belief that it was a lack of regulation that caused the crash, we seem to be going backwards. People seem to have no qualms in highlighting areas in which the market appears to have not led to desirable consequences, but yet never really explain why more government involvement will achieve anything better.
‘One of the great mistakes’ Milton Friedman wrote, ‘is to judge policies and programmes by their intentions rather than their results.’ This seems a highly appropriate thought to bear in mind today. Friedman spent his entire career, as an economist and a public intellectual, pointing out the devastating effects of misguided government action. We could do with him today.