It's a tragedy that Milton Friedman—born 100 years ago on July 31—did not live long enough to combat the big-government ideas that have formed the core of Obamanomics. It's perhaps more tragic that our current president, who attended the University of Chicago where Friedman taught for decades, never fell under the influence of the world's greatest champion of the free market. Imagine how much better things would have turned out, for Mr. Obama and the country.
Friedman was a constant presence on these pages until his death in 2006 at age 94. If he could, he would surely be skewering today's $5 trillion expansion of spending and debt to create growth—and exposing the confederacy of economic dunces urging more of it.
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. Obamanomics may be the most expensive failed experiment in free-lunch economics in American history.
Equally 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.
Next to 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.
Friedman 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 profession. Friedman's 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.
More influential 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 and timeless.
In the early 1990s, Friedman visited poverty-stricken Mexico City for a Cato Institute forum. I remember the swirling controversy ginned up by the media and Mexico's intelligentsia: How dare this apostle of free-market economics be given a public forum to speak to Mexican citizens about his "outdated" ideas? Yet when Milton arrived in Mexico he received a hero's welcome as thousands of business owners, students and citizen activists hungry for his message encircled him everywhere he went, much like crowds for a modern rock star.
Once in the early 1960s, Friedman wrote the then-U.S. ambassador to New Delhi, John Kenneth Galbraith, that he would be lecturing in India. By all means come, the witty but often wrong Galbraith replied: "I can think of nowhere your free-market ideas can do less harm than in India." As fate would have it, India did begin to embrace Friedmanism in the 1990s, and the economy began to soar. China finally caught on too.
Friedman 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.
While he questioned almost every statist orthodoxy, he fearlessly gored sacred cows of both political parties. He was the first scholar to sound the alarm on the rotten deal of Social Security for young workers—forced to pay into a system that will never give back as much as they could have accumulated on their own. He questioned the need for occupational licenses—which he lambasted as barriers to entry—for everything from driving a cab to passing the bar to be an attorney, or getting an M.D. to practice medicine.
He loved 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 supported 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 'slaves.'"
By the way, he rarely got angry and even when he was intellectually slicing and dicing his sparring partners he almost always did it with a smile. It used to be said that over the decades at the University of Chicago and across the globe, the only one who ever defeated him in a debate was his beloved wife and co-author Rose Friedman.
The issue 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."
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 with."
No doubt because of his continued popularity, the left has tried to tie Friedman and his principles of free trade, low tax rates and deregulation to the global financial meltdown in 2008. Economist Joseph Stiglitz charged that Friedman's "Chicago School bears the blame for providing a seeming intellectual foundation" for the "idea that markets are self-adjusting and the best role for government is to do nothing." Occupy Wall Street protesters were often seen wearing T-shirts which read: "Milton Friedman: Proud Father of Global Misery."
The opposite is true: Friedman opposed the government spending spree in the 2000s. He hated the government-sponsored enterprises like housing lenders Fannie Mae and Freddie Mac.
In a recent tribute to Friedman in the Journal of Economic Literature, Harvard's Andrei Shleifer describes 1980-2005 as "The Age of Milton Friedman," an era that "witnessed remarkable progress of mankind. As the world embraced free-market policies, living standards rose sharply while life expectancy, educational attainment, and democracy improved and absolute poverty declined."
Well over 200 million were liberated from poverty thanks to the rediscovery of the free market. And now as the world teeters close to another recession, leaders need to urgently rediscover Friedman's ideas.
I remember 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."
How much should we cut? "As much as possible."
Mr. Moore is a member of the Journal's editorial board.
A version of this article appeared July 31, 2012, on page A13 in the U.S. edition of The Wall Street Journal, with the headline: The Man Who Saved Capitalism.
Also see: Friedman on Donahue
By Brianna Aubin
I was browsing the net earlier today and found this clip from an interview Phil Donahue conducted with Nobel Prize-winning economist Milton Friedman in 1979. It proved to be so interesting that I eventually went to YouTube and watched the entire interview. Why was it so interesting? Well, it turns out that despite the fact that the interview took place 30 years ago, a lot of Friedman’s economic advice is still applicable to today. A partial transcript is below:
On corporate bailouts:
The government has been helping to kill Chrysler, but it should not help to save Chrysler, of course not…. This is a profit-and-loss system, and the loss part is even more important than the profit because it helps get rid of badly managed, poorly operated companies.
On large corporations and government regulations:
One of the major reasons you have multinationals and large companies now is precisely because of the role which government plays… the most effective anti-trust measure you could take in this country would be complete free trade. One of the major reasons… why multinationals are able to occupy the position they are is because government regulations favor multinationals; almost all government regulation favors big companies over little companies.
On the nature of corporations versus government:
General motors cannot get a dollar out of your pocket unless you voluntarily pay it over. The government can, and that’s the fundamental difference.
On the relationship between rising prices and government spending:
The single most important step you can take to lower inflation is to cut down on government spending. The reason why medical costs have been rising so rapidly in the country is again, I sing the same old tune but it happens to be true, because whereas some 15 or 20 years ago government spending on medical care accounted for something like 10%-20% of total medical care spending, mostly for public health and veterans, today it amounts to something like 40% or more of the spending and that’s what’s been driving these prices up.
And finally, Friedman’s defense of capitalism:
Well first of all, tell me: Is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course, none of us are greedy, it’s only the other fellow who’s greedy. The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history, are where they have had capitalism and largely free trade. If you want to know where the masses are worse off, worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free-enterprise system. (emphasis in original)
For anyone interested in watching the whole interview, which I strongly urge all who read this article to do, the links are listed above.
Milton Friedman Quotes:"The most important single central fact about a free market is that no exchange takes place unless both parties benefit."
"Nobody spends somebody else's money as carefully as he spends his own. Nobody uses somebody else's resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property."
"Governments never learn. Only people learn."
"So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no they do not"
"The only way that has ever been discovered to have a lot of people cooperate together voluntarily is through the free market. And that's why it's so essential to preserving individual freedom."
"Most economic fallacies derive - from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another."
"Underlying most arguments against the free market is a lack of belief in freedom itself."
"What kind of society isn't structured on greed? The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system"
"History suggests that capitalism is a necessary condition for political freedom. Clearly it is not a sufficient condition."
"The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both."
"First of all, the government doesn't have any responsibility. People have responsibility. This building doesn't have responsibility. You and I have responsibility. People have responsibility. Second. The question is how can we as people exercise our responsibility toward our fellow man most effectively. That's the problem.
So far as poverty is concerned, there is never in history been a more effective machine for eliminating poverty than the free enterprise system and the free market. The period in which you had the greatest improvement in the lot of the ordinary man was the period of the 19th and early 20th century. Those of us throughout this room are the heirs of that, we benefited from the way our parents and grandparents were able to come here. And, by virtue of the freedom that was offered to [them, they] were able to make a better life for themselves, them and us.
But next, if you look at the real problems of poverty and the denial of freedom to people in this country, almost every single one of them is the result of government action–and would be eliminated if you eliminated the bad government failures.
Let me be precise and specific. We have constructed a governmental welfare scheme which has been a machine for producing poor people. We have induced people to come under control of welfare. I’m not blaming the people, don’t misunderstand me, it’s our fault for constructing so perverse and so ill-shaped a monster as the whole set of welfare programs we have under which we encourage families to break-up, we encourage people to come from one part of the country and come to another, under which we have in effect made people poor…."
DONAHUE: When you see around the globe the maldistribution of wealth, the desperate plight of millions of people in underdeveloped countries, when you see so few haves and so many have-nots, when you see the greed and the concentration of power, did you ever have a moment of doubt about capitalism and whether greed's a good idea to run on?
FRIEDMAN: Well, first of all, tell me, is there some society you know that doesn't run on greed? You think Russia doesn't run on greed? You think China doesn't run on greed? What is greed? Of course none of us are greedy. It's only the other fellow who's greedy. The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn't construct his theory under order from a bureaucrat. Henry Ford didn't revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you're talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it's exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear that there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.
DONAHUE: But it seems to reward not virtue as much as ability to manipulate the system.
FRIEDMAN: And what does reward virtue? Do you think the communist commissar rewards virtue? Do you think Hitler rewards virtue? Do you think American presidents reward virtue? Do they choose their appointees on the basis of the virtue of the people appointed or on the basis of their political clout? Is it really true that political self-interest is nobler somehow than economic self-interest? You know, I think you're taking a lot of things for granted. Just tell me where in the world you find these angels who are going to organize society for us.
DONAHUE: Well --
FRIEDMAN: I don't even trust you to do that.
Milton Friedman: "If you put the federal government in charge of the Sahara Desert, in five years there will be a shortage of sand." Milton Friedman: "Underlying most arguments against the free market is a lack of belief in freedom itself." Another Milton Friedman quote: "Most of the energy of political work is devoted to correcting the effects of mismanagement of government."
Another Milton Friedman quote: "Nothing is so permanent as a temporary government program."
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