The Little Giant
Standing at exactly
five feet, Milton Friedman was short in stature, but very tall intellect.
Stanford historian Jennifer Burns has written a very readable biography of one
of the great intellectual giants of the 20th century. From humble
beginnings in Rahway, New Jersey we witness Milton Friedman scaling the heights
of the economics profession as his once controversial ideas move from the
fringes to the mainstream of thought that would ultimately have great effect on
public policy.
In many respects, I
am a child of his ideas. While as an undergraduate at Baruch College, I learned
of the Friedman-Savage utility function, price theory from his workbook, the
permanent income hypothesis, and the quantity theory of money through “A
Monetary History of the United States.”
I also studied the works of his graduate students, in particular Gary
Becker on human capital and David Meiselman on the term structure of interest
rates. That was quite an economics education for an undergrad in the early
1960’s.
Friedman was blessed
by having great mentors. At Rutgers and Columbia, he fell under the wing of
Arthur Burns and at the University of Chicago he was fortunate to learn from
Henry Simons and it certainly did not hurt to have Aaron Director, his wife
Rose’s older brother in his corner. The University of Chicago was a hot house
of ideas standing athwart the New Deal and Freidman was in the middle of it
all. Much of this was discussed in George Tavlas’ “The Monetarists” which I
previously reviewed.
There is much here
that I did not know about Friedman. I knew he was involved in crafting payroll
withholding at the Treasury Department during World War II, but I did not know
he continuously represented the department at congressional hearings. Interestingly
Burns makes a strong case that although Freidman took full credit for the
permanent income hypothesis, it was really a joint effort of his wife, Rose and
economists Dorothy Brady and Margaret Reid. Those three women had worked on
family consumption patterns in the late 1930’s and the 1940’s. Perhaps most
troubling was an episode in 1955 when his wife was raped in their Chicago home
while Friedman was travelling in India. Initially he did not want to return
home, but he had to be talked into it by Arthur Burns.
His conservative
ideas brought him close to power as he advised Republicans Goldwater, Nixon,
and Reagan. His conduit to Nixon and Reagan was Chicago dean and high
government official, George Schultz. His fame brings him to Chile where his
students were leading the charge to reform that nation’s economy. When he was
there to advise the government, he turned a blind eye to the atrocities of the
Pinochet dictatorship.
During the 1970’s
heyday of monetarism, Friedman was the most famous economist in the world. His
1967 presidential address to the American Economic Association correctly
outlined the thesis that there was no long run trade-off between unemployment
and inflation proved to be correct in the stagflating 1970’s. However as
financial deregulation changed the definition of money the crude MV=PY equation
lost its effectiveness as a guidepost to the economy.
The world we live in
today is very much the product of Friedman’s ideas characterized by Jennifer Burns
as Chicago price theory. Those ideas include floating exchange rates, the
volunteer army, the negative income tax, school vouchers and the deregulation
of licensing requirements. This is the legacy that she writes so well about.
For the full Amazon URL see: The Little Giant (amazon.com)
