(Note: This commentary appeared in The Detroit News on Nov. 16, 2006, just hours after it was announced that Milton Friedman had died).

Nobel Prize-winning economist Milton Friedman died today at the age of 94. He was an intellectual giant — helping mightily to shift policy and thought away from state economic intervention and toward free people and free-market alternatives.

Friedman’s many books, scholarly papers, speeches and television appearances inspired countless people to rigorously debate and articulate a vision of a truly free society. It was Friedman’s best-selling book and Public Broadcasting Service program, “Free to Choose,” that inspired me to earn two economics degrees and join the Mackinac Center.

Friedman was born to immigrant parents in Brooklyn, N.Y., in July 1912. He would earn degrees at Rutgers, the University of Chicago and Columbia. Friedman later said the Great Depression helped influence his decision to become an economist because he was intrigued by the causes and consequences of such economic misery. He would later answer one of the most important questions of all: Why had it occurred?

Friedman cut his professional teeth in 1945 when he co-published a paper arguing that government licensing laws for doctors artificially raise the cost of becoming one, restricting supply and raising prices for consumers.

He would continue to publish scholarly papers but began to make a name for himself in wider circles by publishing his book “Capitalism and Freedom” in 1962. Friedman persuasively argued for market competition in education, an all-volunteer army and greater trade among nations.

In 1963, Friedman and co-author Anna Schwartz published “A Monetary History of the United States,” which showed that the Great Depression was caused by flawed monetary policy by the Federal Reserve. According to the Fortune Encyclopedia of Economics, Federal Reserve officials were so unnerved by Friedman’s work that they “discontinued their policy of releasing minutes from the board’s meetings to the public.” They also hired a scholar to write a rebuttal, but it had little impact. Friedman’s analysis remains the standard on America’s monetary history.

Friedman was in Michigan on Oct. 14, 1976, when he learned he had won the Nobel Prize in Economics. Friedman was traveling from Chicago to a press conference at the Detroit Athletic Club to tout Proposal C, a ballot initiative to cap what the state of Michigan could spend in a given year, when the announcement was made from Stockholm, Sweden.

“When we got to the press center, I was surprised by the number of photographers and reporters in the parking lot,” Friedman wrote later. “I knew that Proposal C was important but didn’t think my campaigning for it deserved that much attention.” Friedman quickly learned of the honor from the reporters in attendance.

Proposal C would fail that year, but a version of it would later pass as the Headlee Amendment, which restricts state revenue to 9.49 percent of personal income from all state sources.

Throughout his life, Friedman advanced his ideas with both intelligence and wit. When addressing a crowd of academics, he spoke as a professor would speak to fellow scholars. When speaking to the public, he simplified his arguments. His ability to link abstract theory with concrete detail and wrap both in velvet for his audience made the man an irresistible draw.

Reportedly, while traveling by car during one of his many overseas travels, Friedman spotted scores of road builders moving earth with shovels. When he asked why powerful equipment wasn’t used instead of so many laborers, his host told him it was to keep unemployment low. If they used tractors, fewer people would have jobs was his host’s logic.

“Then why don’t you give them spoons?” Friedman inquired. It was quintessential Friedman: Employment doesn’t make us wealthy — production does.

Milton Friedman, a great friend of freedom, rewrote the way economists and others look at economics and the world around them. He will be missed.

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Michael D. LaFaive is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

Happy 99th Birthday, Milton Friedman

by Don Boudreaux on July 31, 2011

in Civil Society, Dinner Table Economics, Economics

During the second semester of my freshman year of college (Spring 1977) – the semester in which I was first exposed to economics – Bill Field (then a professor of economics at my alma mater, Nicholls State University in Thibodaux, LA) recommended that I read the writings of Milton Friedman.  Of course, as an 18-year old who’d read very little of anything beyond the sports pages of the Times-Picayune (and, back then, also the sports pages of the States-Item), I’d never heard of Milton Friedman.

“Dr. Field” – as I’d called Bill for many years – loaned me his copy of Friedman’s collection of Newsweek columns, An Economist’s Protest.  I was blown away by the logic, the sensibleness, and the passion channeled toward the goal of maximum human dignity.

That summer, I subscribed to Newsweek simply to get Friedman’s columns (which, if I recall correctly, appeared in every third issue).  (I read Paul Samuelson’s Newsweek columns, too, of course; they left me cold.)  I believe that the first column of Friedman’s that I read from an actual issue of Newsweek was the one in the July 4, 1977 issue.  Its title is “Fair versus Free.”  (Here’s a reprint.)  It remains today just I recall it from 34 years ago: powerful and compelling.  From it I extract today’s Quotation of the Day:

When “fairness” replaces “freedom,” all our liberties are in danger. In Walden, Thoreau says: “If I knew for a certainty that a man was coming to my house with the conscious design of doing me good, I should run for my life.” That is the way I feel when I hear my “servants” in Washington assuring me of the “fairness” of their edicts.

The stimulus came about because politicians believed they had to stimulate the economy by flooding the economy with stimulus dollars and President Obama is forcing one of his cabinet ministers to come down here to Little Rock to get credit for the walking bridge, but I guarantee you the fact that unemployment has risen from 8.1 % to 9.2 % today since the stimulus was passed will never be brought up. I found an article from Milton Friedman from 2000 that shows why a stimulus like this will not work. Here below is a portion of the article. I have also posted some video clips by Friedman discussing the proper role of government.

Fallacy: Government Spending and
Deficits Stimulate the Economy
Milton Friedman

An increase in government spending clearly benefits the individuals who receive the additional spending. Considered by itself, it looks as if the additional spending is a stimulus to the economy.
 
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■Additional taxation. In this situation, the dollar cost to the persons who pay the taxes is exactly equal to the dollar gain to the persons who receive the spending. It looks like a washout.

Getting the extra taxes, however, requires raising the rate of taxation. As a result, the taxpayer gets to keep less of each dollar earned or received as a return on investment, which reduces his or her incentive to work and to save. The resulting reduction in effort or in savings is a hidden cost of the extra spending. Far from being a stimulus to the economy, extra spending financed through higher taxes is a drag on the economy.

This does not mean that the extra spending can never be justified. However, it can only be justified on the ground that the benefit to the people who receive the spending, or to the community from the activity to be financed by the spending, is greater than the direct harm to the taxpayers plus the hidden cost. It cannot be justified as a way to stimulate the overall economy.

■ Government spending financed by borrowing from the public. Individuals who purchase the securities that finance the additional expenditure would have done something else with the money. If they had not purchased the government securities, they presumably would have purchased private securities that would have financed private investment. In other words, government spending crowds out private investment. At this level, it is again a washout: those who receive the extra government spending benefit, but the private investors, who are deprived of the same amount of funds, lose.

But again, that is too simple a story. The overall effect is an increase in the demand for loanable funds, which tends to raise interest rates. The rise in interest rates discourages private demand for funds to make way for the increased government demand. Thus, there is a hidden cost in the form of a lowered stock of productive capital and lower future income.

The Keynesian view that the spending is stimulative assumes that the funds the government borrows would not otherwise have been invested in the private capital market, but came simply from cash held in hoards by individuals   from under the mattress, as it were. In addition, it assumes that there are unemployed resources that can readily be brought into the work force by activating the excess funds held by individuals, without raising prices or wages.

That is a possibility in some special cases, such as the Great Depression in the 1930s, when there had been a major reduction in total output and prices were very far from their equilibrium level. More generally, however, theory suggests and experience confirms that government spending financed by borrowing from the public does not provide a stimulus to the economy.

Japan provides a dramatic recent example. During the 1990s, the Japanese economy was depressed. The government tried repeated fiscals stimulus packages, each involving increases in government spending financed by borrowing. Yet — or maybe therefore — the Japanese economy remained depressed.