Eamonn Butler is Director of the Adam Smith Institute and author of Milton Friedman: A Concise Guide.
There are very few people whose ideas change the direction of civilisation. The engaging, diminutive American economist Milton Friedman (1912-2006), who died ten years ago today, was such a person.
For most of Friedman’s professional career, from the 1930s to the 1980s, state planning, management and control dominated the world. But at last, thanks in large part to Friedman, new ideas came through: his ideas of free markets, open trade, deregulation, freedom and capitalism; ideas that now fuel the growing prosperity of billions of the world’s citizens.
When the Berlin Wall fell, the young Prime Minister of Estonia, Mart Laar, turned to the only Western economics book then available – Friedman’s Free to Choose. Facing 1000 per cent inflation and 35 per cent unemployment, he simply adopted Friedman’s ideas: they worked far better than anyone expected. China’s adoption of market mechanisms rocketed it up the world league table. India has taken off since the economic liberalisation of the 1990s, which ended price controls, cut taxes, abolished state monopolies and scrapped regulations – all ideas that Friedman had advocated. On the other side of the world, much the same happened in Chile, which went from Marxist basket case to Latin America’s most successful, open and competitive economy.
Friedman fought in the most bitter but pivotal economic conflicts of his time. From the upheavals of the 1930s, through the New Deal, to the postwar ‘fine-tuning’ and planning, most Western commentators accepted that state control of the economy was both essential and inevitable, while Russia exported communism round the globe. Though these sweeping movements seemed irresistible, Friedman fought them with enthusiasm. Relishing a good argument, he stated his alternative with a cheery optimism that won him many supporters. A naturally brilliant teacher and communicator, he spoke not just to his profession, but to the wider public – in books such as Capitalism and Freedom, his Newsweek magazine columns, his TV series Free to Choose, and in talks, panels and interviews.
The postwar consensus was that the way out of an economic slump was for the government to print and spend lots of money. It was up to Friedman to revive a forgotten idea, the Quantity Theory of Money. The more you have of something, the more worthless it becomes, and money is no exception. The result of print-and-spend policies, said Friedman, was money losing its value – in other words, inflation.
The disease was dire: when the Berlin Wall fell in 1989, world inflation was a staggering 19 per cent and rising. World prices doubled every four years. But the prescription was misguided, said Friedman: like a drug, inflation might stimulate trade and employment in the short term, but the high soon wears off, requiring more of the inflation drug to sustain it. That is ruinous.
His own diagnosis was simple: “Inflation is always and everywhere a monetary phenomenon.” Governments must take more care with money. And as more and more of them did, world inflation plummeted, from a peak of 24 per cent in 1994 to just over three per cent a decade later. With that came a significant rise in peace and prosperity. And most of the credit belongs solely to Milton Friedman.
Friedman would have been shocked by the financial crisis of 2008, and by the policies that central banks used to contain it. He would diagnose the cause as years of reckless money and credit creation. And though he would have argued for an immediate quantitative-easing boost to head off total meltdown, he would be arguing that by now, the authorities should be bringing us back to reality, not still plying us with a hair of the dog.
Armed with an arsenal of facts, his hugely engaging manner, and an optimistic, moral belief in the genius of free people, Friedman never doubted for one moment that the free society was effortlessly superior to any other. The world will always throw up new problems. But if we remember Milton Friedman, we can solve them.