Detours on the Road to Freedom: Where Milton Friedman
Tea Party Economist
by Gary North: Obama’s
Executive Order To Make Inner City Schools Great
the 100th anniversary of Milton Friedman's day of birth. The Wall
Street Journal ran a
laudatory article on him.
This year is
the 100th anniversary of Ludwig von Mises' Theory
of Money and Credit. There has been no article in the Wall
Street Journal. The Mises Institute took my advice and held
several sessions on that book at its March week-long Austrian Scholars
Conference. A book on that book will be published next year. Few
people in academia and the financial media will notice.
the shape this nation is in: bad.
us once again: halfway measures don't change anything. They only
slow things down. Too often they deflect and confuse. This was the
case with Friedman from beginning to end.
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.
This was a
direct assault on Keynes. Yet Friedman never directly confronted
Keynes. He never wrote a comprehensive critique of Keynes. He even
declared, famously, "We are all Keynesians now" in Time
magazine in late 1965. He referred to methodology, but that
was a crucial admission of defeat.
Mises and his
followers offered a rival methodology. It begins with the individual's
decisions, not with mathematics.
not directly engage in the central theoretical battle of the era:
General Theory of Employment, Interest, and Money (1936).
Most economists also refused.
Mises saw before
anyone else the threat that Friedman's methodological mentor offered
to liberty: the fiat money economics of Irving Fisher. Mises confronted
Fisher in 1912 in The Theory of Money and Credit. Friedman
did more than anyone else to revive academic interest in Fisher's
central bank-based fiat money economy. He
called Fisher the greatest American economist. Fisher was a
catastrophe. He was the economist who, in September 1929, said that
the stock market was at a permanent high plateau. He died penniless,
having lost his own fortune and his sister-in-law's.
illogical is the superstition that government can create prosperity
by having Federal Reserve Chairman Ben Bernanke print more dollars.
In the very short term, Friedman proved, excess money fools people
with an illusion of prosperity. But the market quickly catches
on, and there is no boost in output, just higher prices.
That was Mises'
insight. It was not Friedman's. Friedman thought that a little monetary
inflation is a good thing: 3% to 5% per annum. Bernanke always positioned
himself as a disciple of Friedman. He sold out all schools of opinion
with his hyperinflation of the monetary base in 2008 and again in
2009. But he was criticized only by the followers of Mises.
Ronald Reagan, in the second half of the 20th century there was
no more influential voice for economic freedom world-wide than
Milton Friedman. Small in stature but a giant intellect, he was
the economist who saved capitalism by dismembering the ideas of
central planning when most of academia was mesmerized by the creed
of government as savior.
piece of practical advice did any government accept from Friedman?
Only one: income-tax withholding. He provided the defense in 1943.
we read in The Freeman,
who admitted being "one of the architects" of the Treasury's
proposal for a withholding system, correctly noted in his memoirs
that the system "would have been introduced had I been involved
or not." Withholding was an essential element of the government's
wartime revenue grab. "At the time," concluded Friedman,
"we concentrated single-mindedly on promoting the war effort.
We gave next to no consideration to any longer-run consequences.
It never occurred to me at the time that I was helping to develop
machinery that would make possible a government that I would come
to criticize severely as too large, too intrusive, too destructive
of freedom. Yet, that was precisely what I was doing."
free trade. So did Adam Smith. He promoted reduced government spending
in theory, but never on a scale recommended by the Austrians. No
government ever cuts spending. Keynesian economists dominant
today ignore his advice. He was a voice chatting in the wilderness.
He was ignored, except once: in 1943.
The great opponent
of central planning was Mises, who wrote the definitive essay on
this in 1920: "Economic Calculation in the Socialist Commonwealth."
Friedman never wrote anything comparable.
was awarded the Nobel Prize in economics for 1976 at a
time when almost all the previous prizes had gone to socialists.
This marked the first sign of the intellectual comeback of free-market
economics since the 1930s, when John Maynard Keynes hijacked the
F. A. Hayek
won it in 1974. He had been battling against central bank policies,
following Mises, as early as 1931. He wrote The
Road to Serfdom in 1944, the year after Friedman gave us
withholding. That book did change the world for the better. That
was a frontal assault against central planning.
1971 book A
Monetary History of the United States, written with Anna
Schwartz (who died on June 21), was a masterpiece and changed
the way we think about the role of money.
True, and how
"we" think about it is all wrong. The only section of
that fat book that the academic world ever cites is the section
in which he blamed the Great Depression on the Federal Reserve's
unwillingness to inflate, 1931-33.
But the FED did inflate. So, he got the story wrong. That book
has been the document cited by statists ever since on why the FED
must inflate, and how the gold standard is a liability the
position of Fisher and Keynes.
He did more
harm with that book than with anything else he ever wrote.
than Friedman's scholarly writings was his singular talent for
communicating the virtues of the free market to a mass audience.
His two best-selling books, Capitalism
and Freedom (1962) and Free
to Choose (1980), are still wildly popular. His videos
on YouTube on issues like the morality of capitalism are brilliant
I agree with
this assessment regarding Free to Choose. It is a good book.
As for Capitalism and Freedom, it is a mixed bag. It promotes
school vouchers, a really bad idea. It promotes Federal Reserve
inflation. Above all, it promotes a government-guaranteed income
for everyone. But it does oppose occupational licensing and price
controls. The book is popularly written. It has sold 500,000 copies.
stood unfailingly and heroically with the little guy against the
state. He used to marvel that the intellectual left, which claims
to espouse "power to the people," so often cheers as
states suppress individual rights.
Bunk. He sold
out on key issues, because he was always ready to compromise with
politics. He always sounded a pair of trumpets, one for the free
market and the other for the mixed economy.
turning the intellectual tables on liberals by making the case
that regulation often does more harm than good. His favorite example
was the Food and Drug Administration, whose regulations routinely
delay the introduction of lifesaving drugs. "When the FDA
boasts a new drug will save 10,000 lives a year," he would
ask, "how many lives were lost because it didn't let the
drug on the market last year?"
He had zero
influence in this argument. So did his disciples. To praise him
as a pioneer who got people to listen to him and follow his advice
is misleading. When he was wrong, governments followed his advice,
not because it was his advice, but because politicians like to pursue
policies that increase their power. In a case where he was right,
such as floating exchange rates after Nixon closed the gold window,
it was because market forces forced the politicians to do the right
thing. On the day that Nixon floated exchange rates, he also imposed
price and wage controls (which Friedman opposed) and killed the
gold standard (which Friedman wanted). Nixon was not following Friedman's
economics. He was simply interfering with contracts.
drug legalization (much to the dismay of supporters on the right)
and was particularly proud to be an influential voice in ending
the military draft in the 1970s. When his critics argued that
he favored a military of mercenaries, he would retort: "If
you insist on calling our volunteer soldiers 'mercenaries,' I
will call those who you want drafted into service involuntarily
of Chicago colleague Sol Tax had more influence here than he ever
did. It was Tax who promoted the first conference on repealing the
draft. The most important economist in ending the draft was Martin
Anderson, who was a Nixon advisor. I have discussed this here.
he devoted most of his later years to was school choice for all
parents, and his Friedman Foundation for Educational Choice is
dedicated to that cause. He used to lament that "we allow
the market, consumer choice and competition to work in nearly
every industry except for the one that may matter most: education."
He never promoted
a free market solution. He promoted tax-funded schools. He promoted
vouchers, which are a tool for bringing private schools under political
control: "No curriculum conformity no eligibility for
vouchers." I call them the double tax. I
debated Friedman on this.
As for congressional
Republicans who are at risk of getting suckered into a tax-hike
budget deal, they may want to remember another Milton Friedman
adage: "Higher taxes never reduce the deficit. Governments
spend whatever they take in and then whatever they can get away
but he never got any major politician to believe him and vote accordingly
every time. Ron Paul did, but he is a follower of Mises, not Friedman.
asking Milton, a year or so before his death, during one of our
semiannual dinners in downtown San Francisco: What can we do to
make America more prosperous? "Three things," he replied
instantly. "Promote free trade, school choice for all children,
and cut government spending."
So, there it
is. Free trade, which was promoted in theory as far back
as David Hume's 1752 essay. Friedman added nothing new. Vouchers,
which no city has adopted, and which are based on coercion. Finally,
reduced government spending. Yet he was the economist who
gave the theoretical justification for the greatest increase in
tax revenues in American history: income tax withholding. No government
has ever followed his advice on spending cuts. No government has
ever acknowledged his intellectual leadership in reducing spending.
If that's the
basis of a victory parade, I think I'll watch the highlights on
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 31-volume series, An
Economic Commentary on the Bible.
2012 Gary North
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