Two Lucky People: Memoirs
By Milton and Rose D. Friedman
The University of Chicago Press
Milton was not the scion of an intellectual family, in the tradition
of a John Stuart Mill whose father was James Mill, nor of a John
Maurice Clark, whose father was John Bates Clark. Only as a graduate
student did he discover economics as an empire to be conquered.
From that beginning, without an inherited intellectual advantage,
economics became the central passion of his life. This feature of
Milton's life is reminiscent of the life of David Ricardo, another
great economist who had no early introduction to the discipline.
Milton is often described as a conservative economist, but that's
a misrepresentation. He is a radical, in the sense of being disposed
to change existing views, habits and institutions because they don't
measure up to what he envisions they could be. He is responsible
for fundamental changes in two broad areas: monetary thought and
perceptions about free markets. His ideas have been influential
in changing the content of monetary economics as it existed and
also in changing the way central banks operate. In the broader area
of economic and social organization, he has argued persuasively
for expanding individual freedom by limiting government and has
succeeded in making inroads against the opposing view.
When I first met Milton, he was an economics professor with a
reputation of brilliance, particularly in innovating statistical
methods, but he had not yet become a world celebrity. What has always
fascinated me about Milton's life is how and why this transformation
occurred. He started out by teaching standard economics courses
on business cycles, price theory, and money and banking. For him,
as for others in the profession, teaching was a foundation for many
of the rewards doing it well offered. With experience came mastery
of subject matter and ease of presentation. Supervising students'
dissertations not only advanced his own research, but also helped
train the next generation of economists. A separate reward was the
opportunity to write papers and books that expanded the boundaries
of the discipline. All these aspects of teaching Milton embraced,
as did others who taught economics. As his reputation as an outstanding
academic grew, members of congressional committees and executive
branch agencies sought his advice.
Somehow, all these activities were not enough for Milton. Unlike
others who taught economics, he sought a larger arena, and there
he offered his views on the organization of society, not simply
limiting himself to the subject matter of the courses he taught.
In the 1950s he gave lectures on public policy on various college
campuses that Rose Friedman assembled in Capitalism and Freedom.
As the memoirs describe, he lectured "in a hostile intellectual
climate," since he "was at odds with the reigning orthodoxy about
both public policy and economic theory: about welfare-state and
socialist views in public policy, and Keynesianism in economic theory."
That book became the vehicle for the spread of Milton's ideas not
only in English but in translation to readers on all continents.
Milton chose to oppose beliefs that since the 1930s had become
ingrained in society at large. They dominated not only economic
and political discourse but also literature, drama, visual arts
and the movies. A short story, "Communist," by Philip Roth in the
Aug. 3, 1998, New Yorker magazine gives the flavor
of prevailing beliefs. The story takes place in 1948 during the
presidential election campaign, when Henry Wallace was the Progressive
Party candidate, opposing Harry Truman and Thomas E. Dewey. Communists
had taken over the Progressive Party. Nathan Zuckerman, Roth's protagonist,
a high school senior, has come under the influence of a somewhat
older man, who has invited him to a Progressive Party rally. The
father is suspicious of the older man's interest in his son, and
questions him about whether he is a Communist Party member. He falsely
denies his membership. The father then relates "that back before
Roosevelt I was so disgusted with the way things were going in this
country ... how the Republicans scorned the unfortunate in this
country, and with how the greed of big business was milking the
people of this country to death. ... And in the next election Franklin
Roosevelt became the President, and ... capitalism began to get
an overhaul the likes of which this country had never seen. A great
man saved this country's capitalism from the capitalists ..."
In the popular view that Philip Roth's story expresses, the economy
was inherently unstable. It broke down during the Great Depression
because of the absence of government intervention. The economy improved
after the war, on this view, because of government intervention.
Milton changed this mindset. He did so by radically altering the
popular understanding of the Great Depression. He highlighted the
one-third fall in the quantity of money between 1929 and 1933 as
the explanation of the unprecedented unemployment, falling prices
and negative economic growth that characterized those years. The
Federal Reserve System produced the economic collapse, not the failings
of a market economy. The economic system was inherently stable,
but mistaken policies by monetary authorities and other government
agencies could destabilize it.
Defense of capitalism and freedom became identified with Milton's
name. In describing the operation of a free-enterprise exchange
economy, he emphasized the importance of private rather than collective
ownership of resources. The price system provided information by
signaling what it was profitable for owners of resources to produce
and, by determining the claims of individuals on the economy's output,
supplied incentives to produce it.
What made Milton enter the larger arena of public policy debate?
He never sought public office and turned down suggestions that he
accept appointment to key economic agencies. In this respect he
was unlike David Ricardo, who got himself a seat in Parliament,
representing a rotten borough. Yet Milton's fame grew as a man of
ideas that challenged the prevailing climate of beliefs.
The conundrum of Milton's life that I want to explore is, first
of all, his uniqueness. He set out on the course of a maverick,
I think, because he is basically an evangelical, with crusading
zeal to make readers and listeners understand his vision. He believes
that reasoned argument will carry the day.
Another question is why he succeeded. He persevered in the 1950s
and 1960s in making his case for market solutions despite lack of
external support. Most people would have been discouraged. He wasn't.
Is there something in the details of his life story that provides
an answer? Was it the message or the messenger that altered professional
and popular beliefs about the impotence of monetary policy and the
widespread perception of market solutions as the enemy of the public
good and of government as the benevolent promoter of the public
Milton first directed the message to economists, who resisted
it. They may have admired him for his debating skills but they remained
unconvinced. The message certainly never won over the generation
that headed the profession when Milton began teaching. In time Milton
became influential with the generation that were grandchildren of
his first students. He succeeded with them, I think, because he
framed his arguments in the form of testable hypotheses.
Although the economics profession and wider intellectual community
largely rejected the ideas that Milton espoused, those ideas were
grounded in traditional scholarship. Milton has traced his monetary
views to ideas he imbibed as a graduate student at Chicago from
Lloyd Mints, Henry Simons and Jacob Viner. His recollections aroused
an enormous controversy (Patinkin (1969), Johnson (1971), Laidler
(1993), Tavlas (1997). Milton was accused of discovering a quantity
theory tradition that did not exist at Chicago during his student
years. That controversy may now subside because of an accumulation
of detailed evidence supporting Milton's recollections.
His broader views on economic organization also had antecedents.
In their memoirs, both Rose and Milton refer affectionately to their
teacher Frank Knight, although they do not attribute to him their
core intellectual disposition. According to David Fand (1997), a
student of Milton's in the late 1940s, "At the most basic levelin
the deepest philosophical senseFriedman was a disciple of
Knight especially in his efforts to use economic theory to help
define and fashion a liberal and free society. ... Accordingly,
in his overarching approach to economic theory and economic philosophy,
Friedman was following Knight's famous course in economic theory."
There were antecedents not just to the larger themes that Milton
stood for. He also worked on ideas in common with associates. For
example, Rose, Dorothy Brady and Margaret Reid were all studying
savings and consumption behavior. They clearly contributed to the
construction of the permanent-transitory income hypothesis. Milton's
participation, however, meant that the hypothesis would be explored
at a much deeper level than would have been the case had he not
been involved. Moreover, he gave the hypothesis a testable formulation.
Still, the common intellectual enterprise with these associates
gave Milton a camaraderie that was absent when he presented his
views to the wider world. There during the first two decades of
teaching at Chicago, he was on his own, isolated from the mainstream.
Even if Milton emerged from his student days with the imprint
on him of Chicago's teachers of money and banking and of Frank Knight,
there was a crucial difference between his economics and that of
his predecessors. Unlike them, he was an empiricist. He insisted
that theory was only part of the process of economic analysis. Theory
served as the source of hypotheses, but hypotheses had to be submitted
to the test of evidence. If the evidence did not bear out a hypothesis,
it had to be discarded. Tested knowledge was the goal. I think the
generation that responded to Milton's teachings did so because of
his empirical emphasis.
What was the source of his fortitude in defending the crucial
importance of stable money and of free markets and against government
intervention? Friends and colleagues, of course, did not regard
Milton's views as unorthodox. They held similar views. So the support
of his associates must have been a reason for him to persevere despite
the disbelief of his audience.
His participation in Mont Pelerin Society meetings, where those
present shared his basic values, probably also counteracted any
discouragement provoked by the experience of speaking to listeners
unwilling to believe his judgments.
By the 1970s, however, the climate had changed. Even if he was
a skilled indoctrinator and the message itself was powerful, external
conditions also played a role. From 1965 to 1982 the country experienced
high and rising inflation and periodic recessions. More than anyone
else, Milton explained the events of the period as consequences
of the behavior of the Federal Reserve. Audiences found the logic
of his arguments convincing. A change in economic conditions that
Milton predicted would occur gave his words the weight of validated
prophecy. Inflation stayed high in the late 1960s and early 1970s
but, as he had predicted, unemployment did not stay low. Instead,
there was stagflation. In a broader sense, the collapse of collectivist
regimes in the past decade underscored his celebration of free enterprise
The 1970s brought Milton prominence on two fronts. He was awarded
the Nobel Prize, and Rose and he took advantage of the opportunity
to illustrate key ideas about market economies in a series of lectures
televised on PBS. Videotapes and transcripts of the lectures, published
in a book, Free to Choose, reached out to a greater audience than
had previously been exposed to these ideas. This was a receptive
Milton occupies a unique position among economists. Younger economists
acknowledge his teaching that inflation is always and everywhere
a monetary phenomenoncentral banks cause inflationthat
monetary authorities should follow a rule rather than exercise discretionactivist
monetary policy is a source of instabilitythat fixed exchange
rates are a source of instability, that monetary collapse causes
depression, that misperceptions about the price level can lead to
deviations of output from what it would otherwise be, that in the
long run there is no relation between the rate of inflation and
the rate of unemployment, that unemployment returns to its normal
rate, regardless of the rate of inflation, that centrally planned
economies cannot operate efficiently.
In addition to his teachings, Milton has offered an astounding
range of public policy ideas. He can claim credit for the decision
by many central banks to forgo fine-tuning in favor of the objective
of low inflation. He was an important backer of a volunteer army
rather than a draft. The world has by and large embraced his positions:
for low tariffs, against import quotas, foreign exchange restrictions,
price supports, rent controls and interest rate ceilings. His opposition
to minimum wages, however, has had recent setbacks. Milton and Rose
are ardent advocates of a voucher system of payments to parents
for schooling their children, permitting them to pay tuition at
private or public schools, as they prefer, but the future of this
proposal is still to be determined. Likewise, Milton's support for
a flat-rate tax with no deductions allowed has not yet won general
approval, although his espousal of a negative income taxtax
creditshas. Long before the current awareness of the need
to reform Social Security, Milton argued for the purchase of a retirement
plan from private or public insurers, as a voluntary act, rather
than the compulsory purchase of the Social Security System government
Milton thus combines technical mastery of economics with the gift
of communicating ideas about business and society that, until he
addressed them, intelligent people had not been exposed to. The
ideas were beyond the pale at the outset of Milton's career. Ultimately
they made sense of the major economic events of the past three decades
in a way that conventional wisdom could not, and so his ideas were
vindicated. They were testable implications of Milton's economics.
His predictions came to pass.
Milton filled an intellectual vacuum. His persistence in challenging
views that were taken for granted since the 1930s is a tribute to
his belief that rational thought can displace fallacious thinking.
At the same time rational thought for Milton is the seedbed for
the many ways that he has proposed to improve human existence. The
messenger has been persuasive because of the intellectual force
of his ideas, and because at home and abroad events have not falsified
Professor Schwartz is a Distinguished Fellow of
the American Economic Association, a research associate with
the National Bureau of Economic Research in New York and an
adjunct professor of Economics at the Graduate School of the
City University of New York. Among her many works, she co-authored,
along with Friedman, the seminal A Monetary History of
the United States, 1867-1960 (1963), as well as
Monetary Statistics of the United States (1970) and Monetary
Trends in the United States and the United Kingdom: Their Relation
to Income, Prices, and Interest Rates, 1867-1975 (1982).