Milton Friedman was all about freedom until the day he died.

Commemorating Milton Friedman’s 100th Birthday with the Index of Economic Freedom

By Anthony Kim and Ambassador Terry Miller
July 31, 2012

Abstract: July 31, 2012, is the one hundredth anniversary of the birth of the great economist and thinker Milton Friedman. It was Friedman who first suggested that the economic freedom of countries be measured and monitored, and The Heritage Foundation has been doing so since 1995 in its Index of Economic Freedom. Friedman’s most important legacy is unquestionably the improvement in living standards of hundreds of millions of people around the world thanks to the implementation of his theories. Unfortunately, the policies of an increasingly leviathan government have placed America on a path that diverges sharply from its historical quest for greater freedom. At Milton Friedman’s centennial, Americans should renew their commitment to economic freedom, as well as their confidence that a people who are free to choose will ensure their own future well-being.

July 31, 2012, is the one hundredth anniversary of Milton Friedman’s birth. Friedman, “the most influential economist of the second half of the 20th century, possibly all of it,”[1] was the champion of the powerful idea that free markets and individual choice lead society to ultimate prosperity and overall well-being. His contributions to economic theory, and the conviction with which he espoused them, made him truly an extraordinary giant among political and economic thinkers.

Friedman’s ideas and writings earned him the Nobel Prize in economics, but his greatest legacy is unquestionably the improvement in living standards of people around the globe who have benefited from the implementation of his theories, even though they may have never read one of his books, attended one of his lectures, or even heard his name. As Friedman’s ideas have been translated into public policy in countries around the globe, they have served as the invisible hand guiding—no, allowing—millions to pursue their individual dreams, endowed with greater economic and political freedom. In reviewing Friedman’s monumental Capitalism and Freedom five decades ago, The Economist magazine called the book “ideal reading for politicians of either party in this country, not because it would convince them, but because it challenges the reader to sort out his own ideas more fundamentally.”[2]

The Heritage Foundation, whose policy vision is “to build an America where freedom, opportunity, prosperity, and civil society flourish,” is proud and honored to cherish and spread the legacy of Friedman’s powerful ideas for innovative policy solutions. As Dr. Edwin Feulner, president of The Heritage Foundation, pointed out in a tribute to Friedman in 2006:

Over the last 30 years, Friedman enjoyed a close relationship with The Heritage Foundation. He was the featured speaker at the 1979 dedication of our headquarters building, our 1983 10th anniversary “Heritage 10” celebration, and other occasions. In 1998, I awarded Rose and Milton Friedman The Heritage Foundation’s Clare Boothe Luce Award, our most distinguished honor. Friedman and Heritage have been closely linked in the policy arena for a very long time.[3]

Indeed, many of Friedman’s perspectives and policy ideas are not only far-reaching, but truly enduring throughout generations via his own publications, as well as through others’ countless scholarly researches, whose underlying theses trace back to Friedman’s insights.

The Heritage Foundation’s numerous innovative research publications are no exception. Friedman’s economic, philosophical, and political writing has inspired decades of Heritage work in such diverse areas as welfare reform, competition in education, budget reform, and free trade.

The Index of Economic Freedom: Friedman’s Wisdom Around the World

People across the globe are particularly indebted to Milton Friedman for his role in championing economic freedom, and that effort lives on in The Heritage Foundation’s annual Index of Economic Freedom. Friedman elaborated “the role of competitive capitalism—the organization of the bulk of economic activity through private enterprise operating in a free market—as a system of economic freedom.” Indeed, it was Friedman who first suggested that economic freedom of countries around the world be measured and monitored.[4]

The Index,a data-driven policy guide that empirically evaluates countries’ economic policies and demonstrates why economic freedom matters, was first published in 1995. Since then, the Index has continued to echo many of Friedman’s insights on the power of freedom, documenting reform efforts, and monitoring ups and downs of economic freedom around the world. Dr. Kim Holmes, the founding editor of the Index of Economic Freedom, observed that the Index is “not only the first comprehensive economic freedom index, but one that has continued to grow in importance ever since,” offering “many examples of what economic freedom can do.”[5]

To many who have long tracked economic freedom, the years since 2008 have served as a vivid reminder of the continuing struggle between the state and the free market. In times of uncertainty, it may be natural that people will look to their governments for answers. Yet the long-term solutions to our current economic problems do not lie in more government controls and regulations. They lie in a return to free-market principles.

Perhaps the most critical lesson of the past four years of ever-growing government intrusion into America’s free-market system is that the fundamental superiority and value of economic liberty must be steadfastly reiterated, or even re-taught, to many political leaders and policymakers.

The Index offers plenty of evidence of the lasting values of freedom that Milton Friedman so keenly articulated and advocated.

Greater Prosperity. Friedman told an interviewer in 1979:

In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about…they have had capitalism and largely free trade…. 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.[6]

As the Index has repeatedly illustrated over the past 18 years, the relationship between economic freedom and prosperity is strongly positive. Gross domestic product (GDP) per capita is much higher in countries with greater economic freedom. On average, economies rated “free” or “mostly free” enjoy incomes that are more than double the average levels in all other countries, and more than seven times higher than the incomes of “repressed” economies (see Chart 1).

More important, a sustained commitment to economic freedom is critical to ensuring economic growth and prosperity. Not only is a higher level of economic freedom clearly associated with a higher level of per capita income, but countries’ improvements in economic freedom also increase their income growth rates, ensuring economic and social progress (see Chart 2).

Also notably, as Friedman suggested, true economic freedom requires free markets at home and free trade around the world. Trade drives prosperity, providing greater economic opportunity in countries that choose to embrace free-trade policies. On average, economies with the most trade freedom have the highest per capita GDP (see Chart 3).

Promoting Well-Being. Of course, life is not just about money or wealth. As Friedman observed:“It is in the free societies that there has been a far greater development of the nonmaterial, spiritual, artistic aspects of well-being.”[7]

In case after case, Friedman keenly observed that government interventions in free markets are not only futile, but tend to generate the exact opposite outcomes of their intended purpose. He called this unseen force that makes things go terribly and perversely wrong with government social programs the “invisible foot.”[8]

It is economic freedom that effectively improves overall well-being for a greater number of people. The Index has documented various tangible non-materialistic benefits of living in freer societies administrated by limited government.

As Friedman witnessed again and again, not only are higher levels of economic freedom associated with higher material prosperity, greater economic freedom also strongly correlates with overall well-being, which takes into account such factors as health, education, and personal safety (see Chart 4).

Achieving Political Freedom. As Friedman wrote:

Economic freedom plays a dual role in the promotion of a free society. On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. In the second place, economic freedom is also an indispensable means toward the achievement of political freedom.”[9]

The Index has empirically explored this critical relationship between economic freedom and political freedom or democratic governance. As illustrated in Chart 5, there is a strongly positive correlation between the two, and little doubt that higher levels in either generally have a positive impact on the other.

Entrepreneurial Dynamism. Economic freedom makes it possible for independent sources of wealth to counterbalance political power and to cultivate a pluralistic society. In other words, economic freedom underpins and reinforces political liberty and market-based democracy.As Friedman stated, “The greatest advances of civilization, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralized government.”[10]

As the Index has demonstrated, economic freedom is highly correlated with entrepreneurial activity in the private sector, creating new jobs and increasing opportunities and choices for individuals in advancing their own well-being (see Chart 6). When individuals are allowed to decide themselves how best to pursue their dreams and aspirations, their collective achievements driven by individual choices, not by government mandates, add up to a better society for all.

To put it differently, economic freedom is positively linked to innovation that is often nurtured by free enterprise, not by central planning (see Chart 7). The proven path to revitalizing economic growth is to advance economic freedom by promoting policies that generate a virtuous cycle of innovation, job creation, and productivity growth that, in turn, helps to advance social and economic evolution.

Time to Renew Commitment to Greater Economic Freedom

Milton Friedman was confident that freedom would prevail, as indicated in the conclusion of Free to Choose,a powerful restatement of his beliefs co-authored with his wife Rose:

Fortunately, we are waking up. We are again recognizing the dangers of an over-governed society, coming to understand that good objectives can be perverted by bad means, that reliance on the freedom of people to control their own lives in accordance with their own values is the surest way to achieve the full potential of a great society. Fortunately, also, we are as a people still free to choose which way we should go—whether to continue along the road we have been following to ever bigger government, or to call a halt and change direction.[11]

Though stated three decades ago, the Friedmans’ keen observations are shockingly relevant to today’s challenging time for America. The reckless and populist policy choices of an increasingly leviathan government have placed the United States on a path that diverges sharply from its historical quest for greater freedom. Worse, the system of competitive capitalism that is responsible for America’s unprecedented prosperity is being replaced by a crony capitalism that encourages the concentration of power that Friedman warned was one of the greatest threats to freedom.

Still, there are signs that, as in Friedman’s day, the American public is waking up, and maybe—just maybe—one can be optimistic that freedom will again prevail in America.

As Dr. Feulner and Heritage Foundation trustee Brian Tracy pointed out in their recent book, The American Spirit, “Our inherent optimism is alive and well in every man, woman, and child in the country, to one degree or another. That optimism is a key component of our future success as individuals and as a nation.”[12]

So, at Milton Friedman’s centennial birthday, Americans should renew this country’s commitment to economic freedom, as well as their confidence that a people who are free to choose will make the right decisions to ensure their future prosperity and happiness.

—Anthony B. Kim is a Senior Policy Analyst in the Center for International Trade and Economics (CITE), and Ambassador Terry Miller is Director of CITE, and the Mark A. Kolokotrones Fellow in Economic Freedom, at The Heritage Foundation.

I was impacted in 1980 by the film series “Free to Choose” and I was very impressed by the performance by Thomas Sowell. Today he remembers his former teacher Milton Friedman.  

If Milton Friedman were alive today — and there was never a time when he was more needed — he would be 100 years old. He was born on July 31, 1912. But professor Friedman’s death at age 94 deprived the nation of one of those rare thinkers who had both genius and common sense.

Most people would not be able to understand the complex economic analysis that won him a Nobel Prize, but people with no knowledge of economics had no trouble understanding his books such as Free to Choose or the TV series of the same name.

In being able to express himself at the highest level of his profession but also at a level that the average person could readily understand, Milton Friedman was like the economist whose theories and persona were most different from his own — John Maynard Keynes.

Like many, if not most, people who became prominent as opponents of the left, professor Friedman began on the left. Decades later, looking back at a statement of his own from his early years, he said, “The most striking feature of this statement is how thoroughly Keynesian it is.”

No one converted Milton Friedman, either in economics or in his views on social policy. His own research, analysis and experience converted him.

As a professor, he did not attempt to convert students to his political views. I made no secret of the fact that I was a Marxist when I was a student in professor Friedman’s course, but he made no effort to change my views. He once said that anybody who was easily converted was not worth converting.

I was still a Marxist after taking professor Friedman’s class. Working as an economist in the government converted me.

What Milton Friedman is best known for as an economist was his opposition to Keynesian economics, which had largely swept the economics profession on both sides of the Atlantic, with the notable exception of the University of Chicago, where Friedman was trained as a student and later taught.

In the heyday of Keynesian economics, many economists believed that inflationary government policies could reduce unemployment, and early empirical data seemed to support that view. The inference was that the government could make careful trade-offs between inflation and unemployment, and thus “fine-tune” the economy.

Milton Friedman challenged this view with both facts and analysis. He showed that the relationship between inflation and unemployment held only in the short run, when the inflation was unexpected. But, after everyone got used to inflation, unemployment could be just as high with high inflation as it had been with low inflation.

When both unemployment and inflation rose at the same time in the 1970s — “stagflation,” as it was called — the idea of the government “fine-tuning” the economy faded away. There still are some die-hard Keynesians today who keep insisting that the government’s stimulus spending would have worked, if only it was bigger and lasted longer.

This is one of those heads-I-win-and-tails-you-lose arguments. Even if the government spends itself into bankruptcy and the economy still does not recover, Keynesians can always say that it would have worked if only the government had spent more.

Although Milton Friedman became a conservative icon, he considered himself a liberal in the original sense of the word — someone who believes in the liberty of the individual, free of government intrusions. Far from trying to conserve things as they are, he wrote a book titled Tyranny of the Status Quo.

Milton Friedman proposed radical changes in policies and institutions ranging from the public schools to the Federal Reserve. It is liberals who want to conserve and expand the welfare state.

As a student of Friedman back in 1960, I was struck by two things — his tough grading standards and the fact that he had a black secretary. This was years before affirmative action. People on the left exhibit blacks as mascots. But I never heard Milton Friedman say that he had a black secretary, though she was with him for decades. Both his grading standards and his refusal to try to be politically correct increased my respect for him.

Thomas Sowell is a senior fellow at Stanford University’s Hoover Institution.

One hundred years ago today, the most powerful defender of economic liberty in American history was born in Brooklyn to poor Jewish immigrants.

Though he stood barely five feet tall, Dr. Milton Friedman was a giant in the field of economics and the most important friend of freedom America has seen in the past century — perhaps even since the Founding Fathers.

A 1976 Nobel-prize winner for his research on monetary policy, he is best remembered for eloquently dismantling economic falsehoods. Because of Friedman, most Americans know that government can’t spend its way out of economic trouble or create economic prosperity.

Well, most Americans except our current president, anyway.

At a time when half of the world’s people were economically enslaved by communism, Friedman’s writings laid the groundwork for the small government ideas of Barry Goldwater and, later, the Reagan Revolution.

Friedman’s book “Capitalism and Freedom” is to free market principles what “The Communist Manifesto” is to communism. The biggest difference is that Marx and Engels’ ideas are responsible for the deaths of more than 100 million people, while the free market philosophies championed by Friedman and others have resulted in worldwide improvements in quality and quantity of life.

With local, state and federal governments all dipping deeper into taxpayers’ pockets and spending more money on less justifiable programs, it is a particularly worthwhile time to reflect on one of Dr. Friedman’s most legendary statements.

“There are four ways in which you can spend money,” Friedman said. “You can spend your own money on yourself. When you do that, why then, you really watch out what you’re doing, and you try to get the most for your money.

“Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost.”

“Then,” he continued, “I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40 percent of our national income.”

Let’s hope a few bureaucrats and elected officials read those words and show a little more concern for the people who furnish all of those dollars.

Though Friedman died in 2006, his birthday should be celebrated by every person who believes that people — not government — are the reason why we live in the richest, healthiest, safest, most prosperous time in the history of the world.

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