It is a dream for many individuals to transform the national debate in their direction. As an economics professor at the University of Chicago, Milton Friedman was one of those individuals that achieved this dream. On what would have been his 100th birthday, I memorialize a few of this Nobel laureate's numerous contributions to economics and liberty.
After John Maynard Keynes infiltrated the economic debate towards increased government intervention during the Great Depression, few individuals were more articulate, concise, and steadfast about preserving liberty through limited government than Friedman. He was in favor of free markets, school choice, rule-abiding Federal Reserve, lower tax rates, and reductions in government expenditures at a time when these arguments were not popular.
Friedman's book Capitalism and Freedom changed the discussion about the role of government, the efficiency of markets, and the benefits of freedom and liberty derived in a capitalistic economy. He not only helped generate free market economic reforms in Chile with the "Chicago Boys" that provided prosperity never before accomplished in this country, but he also debated those who vehemently disagreed with him and publicized his views by releasing a PBS television series titled "Free to Choose."
In a Wall Street Journal op-ed, Stephen Moore sums up how Friedman's seemingly simple contributions are still misunderstood today:
In the 1960s, Friedman famously explained that "there's no such thing as a free lunch." If the government spends a dollar, that dollar has to come from producers and workers in the private economy. There is no magical "multiplier effect" by taking from productive Peter and giving to unproductive Paul. As obvious as that insight seems, it keeps being put to the test.
Although Friedman considered the Federal Reserve to have been a source of the economic collapse during the Great Depression and argued that the Fed could have done more, it is likely that he would not agree with the policy responses by Fed Chairman Ben Bernanke during the Great Recession. Specifically, Friedman favored monetary policy rules over discretion, which the Fed has used discretion in excess over the last four years. Furthermore, if deflation is a problem, then he noted that there may be a need for money growth; but since this does not appear to be a current issue, increases in discretionary monetary policy through quantitative easing will only lead to further distortions in the markets and cause more economic problems.
In fact, he argued for a k-percent money growth rate rule that a computer could control. This rule and his advocacy of a bimetallic commodity backed currency—gold and silver, there would be little benefit of having a central bank, and subsequently he argued the Fed could be abolished. Always keeping his policy proposals based on reality and considering it was unlikely the Fed would cease to exist anytime soon, Friedman advocated the central bank follow this rule.
Another key contribution to macroeconomics related to the quantity theory of money. Specifically, he stated, "inflation is always and everywhere a monetary phenomenon." Here is an excerpt from his book Money Mischief that expands on this point:
Perhaps the single most important and most thoroughly documented yet obstinately rejected proposition is that 'inflation is always and everywhere a monetary phenomenon. ... That proposition has been known by some scholars and men of affairs for hundreds, if not thousands, of years. Yet it has not prevented governmental authorities from yielding to the temptation to mulct their subjects by debasing their money - taxation without representation - while vigorously denying that they are doing anything of the kind and attributing the resulting inflation to all sorts of other devils incarnate.
Friedman was always ahead of his time. He understood the problems that those European countries who adopted the euro since 1999 would face. In fact, he predicted the demise of the euro to occur when a European economic crisis tested the foundation of the countries in this common currency. The current European crisis is a great test of his prediction.
Do we want a government that provides an environment that fosters economic growth? Do we want a government that provides services that the private sector fails to supply? Even though asymmetric information and externalities may exist, can the government correct these issues better than the private sector? It is time we think outside the box as Friedman did for so many years to attempt to answer these questions.
There are numerous other contributions that Friedman provided humanity with his research and debates. His perception of the expansion of freedom for individuals by increasing the choices they have available provides a firm foundation for an economy that would provide the most prosperity the world has ever known. America is the beacon of hope around the world by embracing these ideals and on this 100th day since the birth of Friedman, I thank him for contributing to my understanding of our world and his devotion to a cause that helped light a fire in me: Liberty!
Vance Ginn, Ph.D.