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Milton Friedman, starting his ninth decade.

Some six years ago, Milton Friedman delivered his presidential address to our Association in this same place, the San Francisco Hyatt Regency Hotel. From its humble start some seventy years ago, the Western Economics Association has grown and prospered. Milton is one of many individuals including Armen Alchian, William Allen, Karl Brunner, and many others who were responsible for the success of the Association. When I learned that Milton would be participating in our seventieth annual meetings, I proposed to Eldon Dvorak that a session should be organized to celebrate Milton Friedman's eightieth birthday which actually takes place on July 31, 1992. I asked three individuals to speak: Tom Sargent who is Milton's colleague at the Hoover Institution, Stanford University, Allan Meltzer, a noted monetary economist in his own right, who followed Milton as the President of WEA, and Anna Schwartz who has collaborated with Milton on several books and was a colleague at the National Bureau for many years. All enthusiastically agreed to join in this celebration, and Jerry Jordan took time from his new position as President of the Cleveland Federal Reserve Bank to chair the session. The papers prepared by these participants at the session held on July 11, 1992 were combined with additional papers dealing with Friedman's contributions to economic science.

Milton Friedman received an A.B. degree from Rutgers College in 1932 where he was a student of Arthur F. Burns. He enrolled at the University of Chicago along with Homer Jones, George Stigler, and W. Allan Wallis who came to study under Frank Knight. There he met and later married Rose Director. I understand that letters concerning the care and cultivation of roses were routed to Rose when she was an employee of the U.S. Department of Agriculture. In addition to his work in Washington, D.C. and with the Statistical Research Group at Columbia University during World War II, Friedman held teaching positions at the University of Minnesota and the University of Chicago, 1946-77. In the first twenty years of his professional life, Friedman mainly produced the scholarly papers which established his reputation as an economic theorist. The sixth decade of his life saw the publication of Capitalism and Freedom, |1963~. Honors and awards followed, the Nobel Prize in 1976, the Presidential Medal of Freedom in 1988.

In introducing Milton Friedman's Nobel Lecture (December, 1976), Prof. Eric Lundberg emphasized his contributions in monetary economics. I reproduce excerpts from Prof. Lundberg's speech.

Friedman's name is primarily associated with the renaissance of the idea of the importance of money,... This marked emphasis on the role of money should be seen in light of how economists--often successors to Keynes--over a long period of time almost totally neglected money and monetary policy in the analysis of the course of business cycles and inflation.... Friedman was the first to show that the prevalent assumption of a 'simple' trade-off between unemployment and the rate of inflation only held temporarily as a transient phenomenon... At the beginning of the 1950s, Friedman was the pioneer in proposals for a new order for the international currency system based on free exchange rates.... Friedman was one of the first to perceive--and to explain--that the Bretton Woods system with relatively fixed exchange rates must sooner or later break down.... One of Friedman's most important contributions is his reshaping of consumption theory with the help of the hypothesis about 'permanent income' in place of current annual income.... Professor Milton Friedman is awarded the 1976 Nobel Memorial Prize in Economics for his contributions to consumption analysis, to monetary history and theory including his observations of the perplexity of stabilization policies. |Nobel Lectures Economic Sciences 1969-1980, pp. 259-261~

The breadth and depth of Friedman's intellectual capacities and curiosity go well beyond the reasons identified by Professor Lundberg.

His early publications were, I believe, in statistics. References to some of those early papers can be found in M.G. Kendall's Rank Correlation Methods. He evidently did not believe in specialization as evidenced by his forays into price theory. His provisional text based on notes taken by David Fand represent only part of his contributions which include "The Utility Analysis of Choices Involving Risk" and "The Welfare Analysis of Income vs. Excise Taxes." Professor Lundberg cited his empirical work in A Theory of the Consumption Function, but his scientific methodology called for empirical tests of theory. One of the skits at Chicago in the mid-1950s included the line, "Mr. Friedman, is it correct that you have discovered Truth, and that you are now simply verifying it empirically?" On a serious note, The Income from Independent Professional Practice (with Simon Kuznets, National Bureau of Economic Research, 1946) which was taken from Friedman's Ph.D. thesis is an impressive empirical application of price theory to an important problem in labor economics. Abstract theory at both micro and macro levels, statistics, and empirical studies were all in Friedman's portfolio, making him the complete economist.

The economic organization of a society is critical to the well-being of its members, a point that was drilled into his students by Frank Knight who attached the highest value to freedom and democracy. Friedman embraced this principle in his first book on the subject. To steal a phrase from Chairman Mao, the publication of Capitalism and Freedom in 1963 was applauded by "the sound of one hand clapping." No one outside of the narrow set of economics journals reviewed the book. His ideas--a negative income tax, educational vouchers, ending the draft and regulation--may have been ahead of their time; see the paper by Anna Schwartz in this issue. But Milton is no quitter. At the prompting of Mr. Chichester, Milton embarked on a tenpart television series, "Free To Choose." He and Rose have persuasively argued the case for the efficacy of the free market. In his words, "Capitalism is a necessary condition for freedom, but it is not a sufficient condition." The written and spoken words were backed by actions. He worked for political leaders who endorsed deregulation, lower tariffs, and a smaller government. I get the impression that Milton is pleased by his role in ending military conscription. In December 1966, Sol Tax organized a conference at Chicago to debate the draft and national service. The conference was leaning toward favoring the draft until Milton, Bruce Chapman, and I argued the case for an all-volunteer force. A majority voted to end conscription. It took seven years and a Presidential Commission on the All-Volunteer Armed Force whose membership included Milton Friedman before the draft was finally terminated resulting in more freedom for American youths. |This Commission was the brain-child of W. Allan Wallis.~ The world today is a freer and more efficient place than it was twenty years ago, thanks in part to the efforts of Rose and Milton Friedman. If we do not backslide into protectionism, regulation, and an enlargement of government, we should enjoy continued economic growth.

There is much more that could be told about Friedman's accomplishments, but I shall turn now to some mischief and tell tales. An economist who joined the Chicago Department reported that "At most universities, people are either conservatives or liberals, but at Chicago, you are either a libertarian or an authoritarian." Friedman has consistently opposed a larger government. The value-added tax should, in his opinion, be outlawed because it is simply "too efficient" in siphoning resources from the private to the public sectors. That economic goods and services can be more efficiently produced by the private sector is clear in Friedman's comments at a recent conference on national service.

Socialized industries--medicine, welfare, higher education, elementary and secondary education--are all examples of what happens when decentralized and primarily voluntary activities are taken over by the government. Success is converted to disaster.

The private voluntary system is alive, but the money is... going to museums, symphonies, and to some extent hospital buildings... Universities are now in the business of selling monuments. He |the student~ should be the customer, but he isn't.

Privatization is moving ahead in transportation and public utilities, but not in medicine, welfare, or higher education.(1) There is room for more teaching on the efficiency of a smaller government.

Money and freedom are two critical elements in the economic doctrine of Milton Friedman. Fyordor Dostoyevsky suggests a link, possibly an outlandish one.(2)

Month is coined liberty, and so it is ten times dearer to the man who is deprived of freedom (p. 16).

What is more precious than money for the convict, freedom or some sort of a dream of freedom (p. 75).

Dostoyevsky's implication is that for the convict money is a substitute for freedom, but only if its value is not depreciated by inflation. In addition, the acquisition of money provided an outlet for the convict's energies which might otherwise have been directed toward escape or violence. "Work," Dostoyevsky says, "saved them from time." The prison authorities permitted the presence of limited amounts of money in the prison because it reduced the cost of imprisonment. Thus even a convict and a prison can benefit from the presence of a stable currency.

Up to now, my remarks have been retrospective. I notice that Friedman is not resting but continues to work. In addition to Money Mischief, his article in this issue, "The Plucking Model of Business Fluctuations Revisited," offers an innovative explanation for the asymmetry in the shape of business cycles. As Milton begins his ninth decade of a very productive life, he exhibits little sign of real retirement. We will be back here in 2002 to commemorate the start of the tenth decade.

* WALTER Y.OI is professor, Department of Economics, University of Rochester, New York.

1. The quotation is taken from National Service edited by Williamson Evers (Stanford, Calif.: Hoover Institution Press, 1991) pp. 47-48. Friedman goes on to point out that he graduated from Rutgers College in 1932 which, at that time, was a private college. It had been Queens College at the time of the Revolutionary War. I heard that Henry Rutgers promised to endow the college after the war if the name could be changed to Rutgers College. He allegedly did not hold up his end of the bargain.

2. Dostoyevsky, The House of the Dead, (New York: The MacMillan Co., 1919).
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Author:Oi, Walter Y.
Publication:Economic Inquiry
Date:Apr 1, 1993
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