Today is the 102 anniversary of the birth of America’s greatest economist, Milton Friedman. He was not only the “fastest gun in the West” as my professor and Friedman’s student, Richard Timberlake, put it, referring to his intellectual firepower and debating skills. He was also one of the most influential in changing our lives for the better.
When I was in school, majoring in economics, the world was divided between the free-market Chicago School, led by Milton Friedman, and the Harvard centric Keynesian school. On the firsts day of my money and banking class, Professor Waller asked the class if it knew the way to the New Frontier. We didn’t. He said, you go to Harvard and turn left.
Having gone to the Richmond Fed after graduate school, Friedman’s early influence on me and my colleagues were his monetarist stance—‘Inflation is always and everywhere a monetary phenomenon’ —and his support of flexible exchange rates. Indeed, I wrote my first monthly review article at the Richmond Fed on flexible exchange rates and I took a monetarist position in internal policy debates—as did many of my colleagues. The St. Louis Fed was known back then as the monetarist Fed, but the Richmond Fed was a close second.
I hadn’t studied all aspects of economics in detail; so I was a blank page on many issues. Because Friedman made so much sense on the issues I studied in detail, I just assume that he would be equally persuasive on other issues. What would Friedman think became the building block of my emerging ideology as a classical liberal.
Friedman was so influential in so many areas of economics and social policy that I always found it odd that he won his Nobel Prize—which I was privileged to examine in his home in San Francisco—for his work on the permanent income hypothesis. While that was an important contribution, I thought it paled in comparison with his other contributions. My guess is that the Nobel committee was forced to acknowledge his greatness, but was reluctant to appear to endorse his free-market views; so, they chose a technical contribution to honor.
Friedman’s monetarism and his advocacy for flexible over fixed exchange rates became mainstream during my early Fed years. Chairman Paul Volcker adopted a monetarist monetary policy in late 1979 which lasted for a while, it always remained with me as my stealth “rule.” While FOMC discussions drifted away from a sharp focus on the money supply, I and several others—Jerry Jordan especially—would do head checks to see if our discretionary policy was drifting off course. I think of this when I hear discussions today of rules versus discretion.
Flexible exchange rates have endured, not so much because people love them, but because fixed-rate alternatives have become impossible to sustain. Even the Euro is having its difficulties. People who look to Hayek rather than Friedman for their inspiration often look longingly back at the gold standard. That is probably the main difference between the Friedman and Hayek brands of classical liberalism.
Of all the things that Milton Friedman believed in and advocated for, and one that would make the biggest difference in the prosperity of our country is educational choice—specifically vouchers to enable competition in education. You don’t have to be a chancellor at a major university system—as I was—to know that our primary and secondary educational system is broken, especially in large urban areas. It’s so bad that I don’t think it can be fixed except by vouchers that permit students and their parents to flee the bad schools for better ones and foster competition.
Milton and Rose Friedman toward the end of their lives established a foundation for school choice that is still doing the Lord’s work—The Friedman Foundation for Educational Choice. Go to edchoice.org to get on the choice bankwagon.
Happy birthday, Milton.