Professor Milton Friedman, who died on Wednesday aged 94, was the leader of the Chicago School of laissez-faire economics and one of the early gurus of Thatcherism. Friedman tirelessly championed the moral virtues of the free market and opposed all forms of state intervention. When he first came to prominence at the University of Chicago in the late 1940s, he was one of a tiny minority who ventured to question the prevailing wisdom of Keynesianism. But by the mid-1970s — as inflation was let rip and state-dominated economies slid into decline — Friedman's ideas were central to the new current of thought being developed on this side of the Atlantic by Keith Joseph and in due course to be given practical expression by Margaret Thatcher. By the beginning of the 1990s, Friedmanite thinking held sway, to varying degrees, in corridors of power throughout eastern Europe and Latin America. If he received, in the later part of his life, less credit than he deserved for economic reform around the world, it was perhaps because there was such a gulf between the logical purity of what he told governments they should or should not do, and how far they were willing to follow his advice in practice. The starting point of Friedman's beliefs was the classical "quantity theory of money", which held sway among US economists before the shift to Keynesianism which inspired Franklin Roosevelt's New Deal in the 1930s. Quantity theory said that the amount of money in circulation was the dominant factor in the shaping of economic events, whereas John Maynard Keynes taught that economies could and should be managed by manipulation of taxes and government spending. Inflation has risen constantly since Keynes formulated his general theory of it. Underpinning Friedman's economic principles was a belief, shared with contemporaries such as Friedrich von Hayek (who in 1950 moved to Chicago from the LSE), in the moral values of individual freedom. "The preservation of freedom," Friedman wrote, "requires limiting narrowly the role of government and placing primary reliance on private property, free markets and voluntary arrangements." He believed that tax-funded government spending was appropriate only to the most limited set of "public goods", such as national defence, and spoke wistfully of the pre-1914 era when only three per cent of America's national income was in the hands of the state; on his 80th birthday in 1992, he observed that the proportion had reached 44 per cent, and that America had unwittingly become "half-socialist". He was opposed to welfare in all its manifestations, proposing instead a system of negative income tax (partially adopted by Lyndon Johnson) to provide cash for individuals in poverty while doing away with the expensive and inefficient machinery of direct welfare provision. He also disapproved of America's public (state) school system, arguing that, as a socialised monopoly, its product was the educational equivalent of East Germany's Trabant car. In California (a state which was, he said, "governed by the bureaucrats for the bureaucrats"), he campaigned for education vouchers as a first step towards the ideal of a private education industry competing vigorously to offer parents a choice of schools to suit different pupils. As to business, Friedman believed that entrepreneurs would always find ways to circumvent excessive tax and regulation. "An overtaxed economy breathes through the loopholes," he said, "as grass grows through concrete." He had no time for minimum wage laws, rent controls, federal regulatory agencies, securities regulation or licensing boards for occupations and professions. This line of argument led him into one controversy in which he disagreed with Right-wingers less dedicated than himself to the purest logic of laissez-faire: he espoused the legalisation of cannabis and other drugs. Making comparisons with the Prohibition era, he argued that as long as there is demand for drugs, there will be entrepreneurs willing to exploit it and efforts to resist market forces will simply force prices upwards. A diminutive figure with a cheerfully combative disposition, Friedman was unshaken by the tides of hostility and criticism which came his way on this and many other issues. He was a relentless debater and a demanding teacher: "Everything you could say, he could say better," one student recalled. In old age, he remained optimistic about "the struggle for economic and political freedom" even though he had lived long enough to see his ideas tried, abandoned, disputed or mangled by economists and politicians in many parts of the world. In Britain, for example, he observed that: "As far as I can see, monetarism has come to be a term of abuse, applied to whatever Mrs Thatcher was thought to be in favour of at any given moment." He was, according to one of Margaret Thatcher's biographers, a "sympathetic irregular" among her constellation of advisers, and he considered her "an extraordinarily able woman, a godsend for the British. I just wish she had exercised a little better control of her government." They did not always agree: on the question of exchange rates, for instance, the Prime Minister was, according to her Chancellor of the Exchequer Nigel Lawson, a free floater in principle but by instinct deeply averse from a falling pound — "most definitely not Milton Friedman in drag". In Friedman's own view, monetarist theory in its purest form — requiring governments to set unbreachable limits on monetary growth by limiting the supply of currency and credit to banks — was never fully tested, even in the Reagan-Thatcher era, because the people in power lost their nerve and could not resist tinkering with other instruments of economic management — particularly interest rates. Those thus accused responded that Friedman had over-simplified the difficulties of controlling the money supply, and that his predictions of inflation or slump when monetary movements strayed from his chosen narrow path had generally proved far too extreme. But he remained utterly convinced of his own rightness. "I stand for the values of freedom, not just the practical benefits. Even if free market economics was not the most efficient system, I'd still be in favour of it, because of the human values it represents of choice, challenge and risk. I see economics as a means to an end not an end in itself. It so happens that free markets are the most efficient. And that is a good job, because if they weren't, they would not last for a moment." Milton Friedman was born in Brooklyn on July 31 1912, the son of a merchant and a sempstress who were immigrants from Austria-Hungary. He was educated at Rahway High School, New Jersey, and took a first degree in economics at Rutgers University in 1932. He went on to take an MA at the University of Chicago with a thesis on "Factors Influencing Railroad Stock Prices". At high school Friedman had fallen in love with mathematics. In his early years as an academic he did distinguished work in the field of statistical method, and wanted to be an insurance actuary. But in 1932, in the depth of the Depression, he formed the view that "becoming an economist seemed more relevant to the burning issues of the day than becoming an applied mathematician". In the late 1930s and during the Second World War Friedman worked as an economist in government agencies in Washington, while teaching part-time at Columbia University. In 1946 he returned to Chicago, becoming a full professor there in 1948 and beginning to attract attention as a brilliant iconoclast and scourge of Keynesianism. While Chicago emerged as the centre of a distinctive laissez-faire school of thought, Friedman also developed an international network of like-minded contacts through the Mont Pelerin Society, a group of intellectuals led by Hayek and including Karl Popper, which first met in 1947 at a Swiss spa. In the 1950s Friedman and his friends were "a small beleaguered minority regarded as eccentrics by our fellow intellectuals". Conventional economics textbooks confined him to quizzical footnotes. But by 1976, the year in which he was awarded the Nobel Prize for Economic Science, he had become probably the best-known economist in the world. His ideas had first reached a wider public through his best-seller Capitalism and Freedom (1962), but he was to achieve real international celebrity through Free to Choose (1980), which was written with his wife and turned into a television series. In Washington, Friedman served as economic adviser to Senator Barry Goldwater in his unsuccessful campaign for the Presidency in 1964 — Goldwater urged radical cuts in tax and government spending, but baulked at Friedman's proposal that he should also campaign for a floating exchange rate and the removal of all barriers to free trade. Friedman also advised Presidents Nixon and Reagan — and it was estimated that 80 per cent of the economists on Reagan's staff had been Friedman pupils. He was awarded the National Medal of Science and the Presidential Medal of Freedom in 1988, and also held the Japanese Order of the Sacred Treasure. He was a past president of the American Economic Association, the Western Economic Association, and the Mont Pelerin Society. He taught at the University of Chicago until 1976 and retained an emeritus professorship there until the end of his life. During the 1980s, he was a research fellow of the Hoover Institute at Stamford, California. His other major publications include A Theory of the Consumption Function (1957), A Monetary History of the United States 1867-1960 (1963), The Optimum Quantity of Money and Other Essays (1969) and Bright Promises, Dismal Performance: An Economist's Protest (1983). Friedman's foremost intellectual opponent — and frequent television adversary — was JK Galbraith, the high priest of American liberalism, who accused him, among many other things, of making expenditure on urban sanitation "an infringement of personal liberty". Galbraith also succeeded in intercepting an invitation to Friedman to advise the Indian government, telling the Indian officials concerned that "to ask Friedman to advise on economic planning was like asking the Holy Father to counsel on the operations of a birth control clinic". Friedman in turn unsuccessfully opposed Galbraith's nomination as president of the American Economic Association. Friedman married, in 1938, his fellow economist Rose Director; they had a son and a daughter. |