Milton Friedman: The Economist Who Shaped Neoliberalism in the Cold War Era

Summary

• Milton Friedman, along with Friedrich Hayek and Ludwig von Mises, was a prominent advocate of free market capitalism and played a significant role in shifting mainstream political economy toward neoliberalism.
• Friedman believed that only a free market could efficiently organize and distribute resources without coercion, and he viewed any government intervention beyond protecting individual safety and property rights as a form of collectivism.
• Friedman leveraged his academic influence and celebrity status to popularize free market values through radio and television appearances, as well as his book Capitalism and Freedom and the television series Free to Choose.
• The Cold War accelerated the trend toward neoliberalism, with Friedman and others framing the debate as a struggle between capitalism and communism, and the fall of the Berlin Wall was seen as a triumph for free market ideology.

After the Austrian economist Friedrich Hayek, Milton Friedman was perhaps the most influential advocate of free market capitalism in the Cold War era. Educated at the University of Chicago under Frank Knight, Jacob Viner, and Henry Simons, Friedman pioneered a far-right perspective—not conservative or libertarian—but a unique “market outlook” that gained a wide audience in the United States between the 1950s and 1980s. While Knight and Viner sought to distance themselves from national politics, often criticizing colleagues who used academic credentials to support political issues, Friedman embraced his celebrity.

As the “prophet of the free market,” Robert Skidelsky writes, Friedman advocated drastic reductions of taxes, regulation, and government involvement in the economy, playing a central role in the shift in mainstream political economy from liberal Keynesianism to free market neoliberalism. Propelled by the anti-communist movement in the postwar era, he pushed the conservative movement further right.¹ Along with the earlier generation of free market economists Friedrich Hayek and Ludwig von Mises, Milton Friedman played an important role in shifting the pendulum of truth about freedom toward the self-regulating power of the market — a rationality of freedom that merged with perceptions of democracy.

In his 1951 essay “Neo-liberalism and Its Prospects,” Friedman argued that Americans were at a “cross-current” of public opinion, “a period at which underlying [public] opinion is confused, vague, and chaotic.” Following A.V. Dicey’s Lectures on the Relation Between Law & Public Opinion in England During the Nineteenth Century(1905), Friedman argued that policymakers often make decisions based on the “philosophy they imbibed in their youth.” The process in which this “current of opinion” materialized within policy, he continued, often takes more than twenty years. As a public intellectual, he often leveraged his academic influence to redefine public discourse, aiming to shift the “current of opinion” away from what he viewed as ‘collectivism’ and toward his free market perspective.

Historian Daniel Stedman Jones argues that Friedman’s 1951 essay was an indicator of self-conscious neoliberalism in the United States, while also marking the shift from the older generation of neoliberals that accommodated a “middle road” position for government intervention, toward more aggressive support for self-regulating markets. Like Hayek and Mises, Friedman believed that only a free market could organize and distribute resources efficiently and without coercion.

Milton Friedman on Neoliberalism

For Friedman, both collectivism and laissez-faire had failed, creating a space for a new philosophy of “neoliberalism,” which privileged unrestrained self-interest while offering a role for the government to “police the system, establish conditions favorable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress.”  While the state has the power to help those in need, Friedman believed this power will eventually “get into the hands of those who will use it for evil purposes.” The trend toward neoliberalism was being “radically accelerated by the cold war,” Friedman wrote.²

Led by Friedman, the Chicago School was the most influential group of economists to extend a market centered rationality (which is often called neoliberalism) into American culture and politics, a process which was accelerated by anti-communist sentiment in the Cold War era. “For neoliberals like Friedman” Stedman Jones writes, “the Cold War necessitated the unambiguous advocacy for the superiority of the markets.” Along with Hayek, he believed that people must either submit to the power of the market or the power of the government. To a free market missionary like Milton Friedman, a mixed economy was blasphemy.

In a 1953 radio discussion at the University of Chicago, Friedman discussed the nature of American capitalism with fellow economists David McCord Wright and John Kenneth Galbraith. Like Friedman, Wright held an absolutist perspective — individuals must have unconditional freedom in the market system. Friedman believed that any form of government intervention in the economy beyond individual safety and the protection of property rights was a form of collectivism that would eventually lead to authoritarianism. “’Capitalism’ has become a fighting word in the battle between East and West and for men’s minds everywhere…” Friedman remarked.

In his view, the United States was involved in a struggle between two competing solutions for the economic problem: capitalism and communism. While he considered capitalism a universal public good, he divided society between “friends” and “enemies”—framing public discourse about capitalism in competitive terms and creating an appearance of the United States as an exceptional nation.

Framing the World in Black and White Language

While “our opponents” sometimes use the example of “depressions and inflation” to critique the free market system, Friedman maintained that the market mechanism was still the most efficient way of organizing society. Galbraith admired Friedman’s capacity to debate, although he refused to make broad and definitive judgments about the ways in which capitalism was perceived by Americans. “I would not attempt to make too sophisticated a definition of capitalism” Galbraith said, “It would seem to me that the essential point is who makes the decisions in an economy.” He was skeptical of ideas that assumed any sort of universal conviction. “I must say quite frankly that I think that the problem of economic stability is part of the unfinished business of our economy. We would make a great mistake if we thought that we had solved that problem.” Unlike Galbraith, Friedman was a universalist, framing the world in a language of black and white.

Friedman took part in several radio and television discussions throughout the postwar era, an experience that made him a national celebrity. In a 1979 appearance on The Phil Donahue Show, he was asked whether greed is good when there is so much poverty and inequality. “Well, first of all, tell me,” Friedman answered, “is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? The only societies that have escaped poverty are those that have capitalism and free trade.” He held a polarized perspective which holds capitalism at one end and communism at the other, viewing each as either good or bad. “But it seems to reward not virtue,” Phil Donahue replied, “as much as ability to manipulate the system.”

Friedman marginalized conventional ideas of virtue as an important part of an economic system, arguing instead that nobody is innocent — everyone pursues their own self-interest. Only a free market could organize autonomous actors that are “naturally equipped with a neoclassical version of ‘rationality’,” while the government was perceived as incapable of organizing society and distributing resource in a way that maximized the utility of each individual. This neoclassical rationality — which was heavily influenced by the Chicago School — redefined the ways in which value and virtue were understood. An individual’s value in American capitalism came to be measured through market value, which reflected this neoclassical rationality.

Popularizing Free Market Values

Milton Friedman’s popular television show Free to Choose, which began in 1980, was modeled after his influential 1962 book Capitalism and Freedom, both of which popularized the notion that capitalism is no more than an individual’s freedom to choose within a market, connecting political and economic freedom, while at the same time denouncing communism as the opposite of freedom. As Angus Burgin argues, Free to Choose provided a model for the dissemination of the free market philosophy to a broader audience. Television made the “visual expression of ideas” a new and important way for economists to engage with the public. Free to Choose was not based on the history of economic ideas, as Galbraith had done in his 1977 documentary series The Age of Uncertainty.

While Galbraith struggled to fund his show, Free to Choose was heavily funded by large corporations, who viewed Friedman’s message as a way to extend free market values to the broader public. Friedman was explicit in his aims, explaining that it was “a personal statement of [his] own social, economic, and political values.” He aimed at converting young people to his free market ideology, often simplifying the economy down to a catch phrase.

Friedman embraced his role as public intellectual, often leveraging his academic influence to sway public debate and policy. Only self-interest creates the collective interest, he argued. Friedman agreed with many of the aims of collectivists, such as improving the welfare of society, just not the methods. Liberal Keynesians viewed the government as an instrument for improving social welfare, while neoliberals such as Milton Friedman viewed a free market as the only rational method for achieving this aim.

The Cold War accelerated the trend in opinion toward neoliberalism, which privileged a free market as the primary method of achieving social welfare while also combatting communism. “The fall of the Berlin Wall, the collapse of communism behind the Iron Curtain, and the changing character of China,” Friedman wrote in his introduction to the fiftieth edition of The Road to Serfdom, “have reduced the defenders of a Marxian-type collectivism to a small, hardy band concentrated in Western universities. Today, there is wide agreement that socialism is a failure, capitalism a success.”

Cold War triumphalism bolstered the notion that the West ‘won’ the Cold War, as historian Ellen Schrecker argues, which was not only a victory for the West, but also a triumph for capitalism. Milton Friedman not only simplified the world, he used his popularity and academic credentials to give his rhetoric a greater sense of certainty. By focusing only on the positive elements of capitalism, he marginalized all of the exploitative aspects. If we make the assumption that all of capitalism is good, rather than certain elements of it, we also accept all the elements of it that are exploitative, rather than trying to make the system work better for a larger proportion of people.

Updated: March 14, 2024

1. See Kim Phillips-Fein’s great book Invisible Hands
2. Along with Angus Burgin, Robert Van Horn and Philip Mirowski, Stedman Jones argues that the term “neoliberalism” emerged at the 1938 Colloque Walter Lippmann, a conference which aimed to discuss Walter Lippmann’s 1937 book, The Good Society