The Man Who Saved Capitalism
Milton Friedman, who would have turned 100 on Tuesday, helped to make free markets popular again in the 20th century. His ideas are even more important today.
By STEPHEN
MOORE, WSJ, July 31, 2012
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.
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