Milton Friedman: Apostle of the Free Market

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, Freidman 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 (see Angus Burgin’s excellent book, The Great Persuasion).

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 (see Kim Phillips-Fein’s great book Invisible Hands). Along with the earlier generation of free-market economists Friedrich Hayek and Ludwig von Mises, 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 modern policymakers 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 the market could organize and distribute resources efficiently and without coercion (Daniel Stedman Jones’s has a great book called Masters of the Universe, which examines Hayek and Friedman in the emergence of 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.

Led by Friedman, the Chicago School was the most influential group of economists to extend neoliberal ideas into 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, constructing a world of dualisms.

 

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.

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 Freidman’s capacity to debate, although he refused to make broad and definitive judgements 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, Freidman 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. Phil Donahue replied, “But it seems to reward not virtue 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 the market could organize autonomous actors that are “naturally equipped with a neoclassical version of ‘rationality’,” while the government was perceived as humanly 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.

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.[2] 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.

 

MILTON 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 Friedman viewed the market as the only rational method for achieving this aim.

The Cold War accelerated the trend in opinion toward neoliberalism, which privileged the 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. 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, Friedman marginalized all of the destructive aspects, such as the exploitative dynamics. 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.

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NOTES:

[1]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.

[2]Angus Burgin argues that Free to Choose was created in response to Galbraith’s show,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 market values to the broader public.

5 comments

  1. David Punabantu

    Friedman was right on taxes. Economists need to get the mathematicians. British 2018 budget at £814 billion that breaks down to £67.83 billion. Total GDP for 2018 estimated at £2029.8 billion. To collect £814 billion budget a extraction rate or tax of 3.34 percent per month would yield £67.83 billion per month or £814 billion per year. As taxes are above the 8 percent threshold, the government will collect the budget, spend it, re collect it, spend it, recollect it, spend it in a cyclical pattern many times in a single budget year. In effect it will be like Keynesian economics and the printing of money except instead of printing physically, the printing is done by recycling it. Taxes thus become compounded. Government tax at 30 percent in the first cyclical would extract that value leaving 70 percent. Then in the next cycle extract another 30 percent leaving 40 percent. The next 30 percent extraction in real terms is facing 40 percent left of the economy and in real value terms is 70 plus percent. Once all the value is extracted of savings, investments of ordinary people the whole nation government borrows against a “fiscal and economic crisis” … Brexit I suppose.
    But then again the US dollar’s “exorbitant privilege” was more Communist in nature as it’s value was not market driven. As observed The IMF fixed cross rates goes against the free market system. The IMF fixed cross rates are based on the exchange rate of the US dollar against the Sterling pound. On the 30th of March 2018, the Sterling pound value to the US dollar was £1 equal to US$1.404. The Euro value against the Sterling pound was £1 was equal to €1.140 while against the US dollar it stood at US$1 to €0.81169. By dividing €1.140 by €0.81169 it gives the cross rates of 1.404. When looking at the North Korean Won its Sterling pound value stood on the same day at KPW1,263 while its US dollar value at KPW900.69 giving a cross rate of 1.403. For the Japanese Yen on the same day the JPY149.067 for the Sterling pound manifested and JPY106.185 for the US dollar giving a cross rate of 1.404. The same picture is seen in the Indian Rupee INR65.06 per US dollar against INR91.36 per Sterling pound to give a 1.404 cross rate. The Canadian Dollar CAD1.288 per US dollar against CAD1.809 per Sterling pound to yield a cross rate of 1.404. The Ethiopian Birr ETB27.56 per US dollar against ETB38.69 per Sterling pound gives 1.404 as a cross rate. The Chinese Reminbi CNY6.272 per US dollar against CNY8.812 per Sterling pound gives a similar cross rate as all currencies across the world do. The question is do all money markets across the world have day in and day out the exact liquidity of Sterling pound and US dollars to reflect the exact exchange rate between the UK and US as reflected in the IMF fixed cross rate system. The reality on the ground is IMF fixed cross rates distort the market and value and thus undermining free trade. It distorts value to create and perpetuate debt and deficits. The IMF needs to move to Free Floating Cross Rate to reflect the real position of currencies within markets and let currency arbitrage equalise quotations between markets. Once the correct value to money is placed it helps address issues of over production .. Basic economics 101. Imperfect Competition. Say’s Law Supply creates its own demand. When a company produces 10 tins of baked beans at £1 each per day it expects through the Theory of Rational Expectations £10 per day per 10 tins of baked beans. Hence each day the shops sell ten tins of baked beans and the shelves are empty. The £10 per day per 10 tins sold is the perfect price. However if the next day only 5 tins of baked beans are bought the company still gets its £10 as each tin of baked beans now costs £2, which is termed the imperfect price and is production inflation leaving 5 tins of baked beans per day on the shelves unsold. In effect the firm, over time when they do sell the unsold baked beans tins the company will declare a profit of £10 from the delayed sale of baked beans per unit time. That is why in the developed world shops are full of unsold goods. Who do you think is paying for the goods? Hence when you buy a tin of baked beans or a pack of chicken you are also paying for the other ones you have left on the shelves or fridge. As the company has already made its basic income at £10 per per day, it can now discount the remaining 5 tins of unsold baked beans. To this you always see sales or promotions every other week in big retail shops.

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  2. Hernan Celestino Chacin

    Los economistas son los “sabuesos” en la ciencia de exagerar programas y metodos….

    Reply

  3. A Restless Mind (on always being bored) – Words Dissemble, Words Be Quick

    […] Articles read: MILTON FRIEDMAN: APOSTLE OF THE FREE MARKET Who was Milton Friedman? This new article examines how Friedman bolstered the image of capitalism while marginalizing all of the destructive aspects… playing a central role in the shift in mainstream political economy from liberal Keynesianism to free-market neoliberalism… his 1951 essay, “Neo-liberalism and Its Prospects”…  Daniel Stedman Jones’s has a great book called Masters of the Universe, which examines Hayek and Friedman in the emergence of neoliberalism… Along with Hayek, he believed that people must either submit to the power of the market or the power of the government, constructing a world of dualisms… The only societies that have escaped poverty are those that have capitalism and free trade. https://economic-historian.com/2018/09/milton-friedman/ […]

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  4. Hamad

    Indeed, the notion of Friedman regarding self-mechanized forces of free market structure without interference of goverment is the best way to achieve welfare of the society. If it is viewed in the context of underdeveloped countries, non improvement of goverment in market affairs could lead to its failure.

    Reply

    1. The Economic Historian

      Thanks for your comment, but this article ins’t supporting Friedman’s ideas in any way. It is a critique of Friedman.

      Reply

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