Few people have had as profound an impact on modern economics as economist Milton Friedman.
His Nobel Prize-winning ideas on free enterprise resonated throughout the world and continue to do so.
Johan Norberg, a Senior Fellow at the Cato Institute, tells Friedman’s fascinating story and what his theories have taught us.
“There is no such thing as a free lunch.”
That’s basically all you need to know about economics—or for that matter, about life.
Everything comes with a price and there are no perfect solutions, only trade-offs.
If you think you’re getting something for “free,” you’re fooling yourself. One way or another somebody has to pay for it—and that “somebody” usually includes you!
This bit of priceless wisdom was popularized in the 1970s by University of Chicago economist, Milton Friedman. And it made him, along with his many other penetrating insights, the most influential economist of his time.
Born in Brooklyn in 1912, the son of two poor Jewish immigrants from what is now Ukraine, Friedman never took the opportunities America offered him for granted. He devoted his life to making the case for free enterprise. No one has ever made it more persuasively.
His scholarly work centered on monetary theory, the idea that the growth or contraction of the money supply has a profound impact on a nation’s economy. The Great Depression of the 1930s, which had caused so much suffering, and which Friedman had lived through personally, made his case.
Friedman showed that the Depression was not a failure of an out-of-control free market, but an out-of-control Federal Reserve—the Fed—the central bank of the United States.
Instead of keeping the money supply stable in a recession, the Fed choked it off. This started a series of “bank runs”—people literally running to get their money out of their bank before their bank ran out of money.
But that, according to Friedman, was not the Fed’s biggest mistake. The biggest mistake was that the Fed existed at all. No Fed, Friedman believed, no Great Depression. The free market would have figured things out on its own just as it had in previous economic upheavals.
But the Fed’s members had no confidence in the market. Their confidence was in their own ability to fine-tune America’s incredibly complex economy.
This confidence was misplaced. The Fed, and the President who dominated the decade, Franklin Roosevelt, made one bad decision after another, and the Depression dragged on.
Friedman saw another grave mistake being done in the early 1970s. He made the bold prediction that the Fed’s efforts to print money to keep the country out of a recession would lead to something worse: stagflation, the combination of high inflation and high unemployment.
And that’s exactly what happened. Many economists who had previously dismissed Friedman now acknowledged that he was right. In 1976, he received the Nobel Prize in Economics, yet another vindication of his work.
But as perceptive as his economic theories were, his special gift was his ability to explain his theories to the public and his willingness, indeed eagerness, to do so.
He wrote best-selling books and had a column in Newsweek for 18 years. In 1980 he hosted the popular ten-part TV series Free to Choose for PBS.
The theme of the show was pure Friedman: while others trusted the government to make good decisions, Friedman trusted people and the market.
Excessive government control, regulation, and taxation, he persuasively argued, distorted incentives and put money in the hands of politicians and bureaucrats who had not earned it and suffered no consequences if their policies failed.
There were other ways government intervention distorted the free market, Friedman said: protectionism, for example, increased prices for consumers and discouraged innovation; overregulation allowed big business with its lawyers and lobbyists to drive out small competitors; minimum wage laws led to fewer jobs for those who needed them most.
It all followed from Friedman’s basic idea that millions of people working for their own purposes could make better decisions than a bunch of unelected bureaucrats who had no stake in the outcome.
But Friedman didn’t just complain about the problem. He had solutions ready when and where they were needed.
When communism collapsed in Eastern Europe in the late 1980s, economists in places like Estonia, Poland, and Czechia who had read Friedman in secret, sometimes by candlelight, now embraced his low tax, light regulation model to great effect.
And when my own country, Sweden, faced a welfare state-induced crisis in the early 1990s, it was Friedman’s ideas that guided the Swedish reformers. They opened up markets, tightened social security benefits, and in 1992, Sweden implemented Friedman’s idea about a national school voucher system.
Friedman’s influence spanned the globe. Israel, Chile, New Zealand, the UK, and of course, the United States put his ideas into practice. They worked.
The Economist magazine appropriately (and cleverly) titled its obituary of the great economist in 2006, “How Milton Freed Man.”
As his fame spread, Friedman always held fast to his guiding principle: that freedom is not the rule but the exception. “The typical state of mankind,” he wrote, “is tyranny, servitude, and misery.”
So, the price of liberty is eternal vigilance—and knowing Milton Friedman.
I’m Johan Norberg, Senior Fellow at the Cato Institute, for Prager University.