Her book is by no means a hagiography. At various points, she criticizes Friedman, sometimes unfairly. She’s also a little unfair to his wife, Rose Friedman, an economist in her own right. But that makes Burns’s many positive evaluations of Milton’s work all the more credible.
Although she is, as noted, a historian and not an economist, and sometimes makes little slips in her economic exposition, her big-picture understanding of economics is impressive, especially on one of the toughest issues to understand: monetary policy. Indeed, she lays out the fact that the Federal Reserve does not directly control interest rates better than many economists I’ve read.
Early intellectual life / One of the most impressive aspects of the book is Burns’s narrative about Friedman’s early attempts to, as we said in the 1970s and 1980s, “find himself.” Where did he fit in economics? On the one hand, some of the strongest influencers of his thinking were “economic institutionalists” like Wesley Mitchell, who tended to dig into data and refrain from engaging in microeconomic analysis. On the other hand, Friedman was strongly influenced by University of Chicago microeconomist Jacob Viner, whose price theory class in Friedman’s first quarter at Chicago in the fall of 1932 was “unquestionably the greatest experience of [Friedman’s] life.”
His intellectual development didn’t follow a straight line. Although a huge part of his education was at Chicago, Friedman completed his doctorate at Columbia University. Early on, he was torn about which way to proceed in choosing a dissertation topic. He ultimately chose a statistical comparison of doctors’ and dentists’ salaries, which he worked on with Simon Kuznets, his mentor at the New York–based National Bureau of Economic Research. Friedman’s insistence that the difference between the two salaries reflected the American Medical Association’s lobbying to restrict the number of slots in medical schools created a lot of controversy. Some economists disputed the idea that the correct comparison was with dentists’ incomes. It took years and some heavy hitting by Kuznets to get Columbia to approve Friedman’s dissertation and grant him a Ph.D.
In his and Rose’s autobiography, Two Lucky People, Milton wrote that early in World War II, when he was an economist at the US Treasury, he wrote an analysis that was “thoroughly Keynesian.” In my review of that book, I noted my disappointment that he didn’t tell the reader how and why his views changed. When I spoke to him a few months later, he told me that many people had expressed the same disappointment but that his shift in thinking was so gradual that he couldn’t point to a “Saul on the road to Damascus” conversion. One of Burns’s major accomplishments is to help the reader understand how his views evolved. One gets the impression that she did more thorough research on his early work than Friedman himself did when writing Two Lucky People.
The book that persuaded me that Friedman was a Keynesian in the early 1940s was his 1943 Taxing to Prevent Inflation, co-authored with Carl Shoup and Ruth P. Mack. The title says much about the content: the idea was to increase taxes to reduce demand for goods and services, thus reducing inflationary pressure. The idea does seem “thoroughly Keynesian.” In discussing the work he did at the Treasury that led to the book, he wrote in Two Lucky People that he hadn’t even mentioned monetary policy. But Burns supplies a reason why. She notes that Friedman was not a free agent; he was a Treasury employee. Also, she notes, it’s not surprising, as it appeared to be to Friedman, that in an analysis written for the Treasury, he didn’t discuss monetary policy as a way of controlling inflation. He was working with available levers; monetary policy in 1942, when the authors did their work, was simply not an option on the table.
Moreover, she notes, strands of his thinking in his other writing at the time suggest that he had never bought into Keynesianism. In a 1944 book review published in the Review of Economics and Statistics, he wrote that “the Keynesian saving–investment theory which has had such vogue in recent years” was “unbelievably simple. Yet simply unbelievable.” Burns also uncovers a 1940 letter he wrote to his mentor and later Federal Reserve chairman Arthur Burns (no relation to Jennifer) in which he reported on a road trip to visit Rose’s family on the West Coast. Friedman noted that Southern California “gives you the feeling that the frontier is not yet gone and makes you feel like telling the stagnationites to come out and take a look.” “Stagnationites” refers to the view, which many Keynesians and Keynes himself held, that the economy could stagnate for lack of private investment opportunities. Friedman clearly did not buy into that view.
Bare-knuckle fighter / After World War II and early in his time at the University of Chicago, Friedman consciously set out to form a group of economists interested in the same issues that he was interested in and not conforming to the dominant Keynesian view at the time. By then, Keynesians had started to build multi-equation econometric models of the economy. Much of that work was financed by the Cowles Commission, which was based at the University of Chicago. It seemed like an uneasy disequilibrium.
Friedman was unsparing in his criticisms of that approach to macroeconomics. Burns quotes an attendee at a 1951 conference, whom she identifies in a footnote as the (recently deceased) MIT economist Robert Solow. According to Solow, Friedman had said that “the whole econometric model-building enterprise had been shown to be worthless and congratulated the Cowles Commission on its self-immolation.” Solow was always less than generous in his treatment of Friedman; still, one can imagine Friedman saying something almost as acerbic. When the Rockefeller Foundation, a key funder of Cowles, asked Friedman to evaluate it, he wrote that the people at Cowles “are primarily mathematicians or statisticians rather than economists.”
Friedman tried to get colleagues at Chicago who were more to his liking, people like George Stigler, then at Columbia, Burns, then at the NBER, and Dorothy Brady, a Labor Department economist with whom he had earlier worked on data on consumption spending. He failed in those efforts in the short run, although much later he helped nab Stigler. Meanwhile, Chicago—influenced by Cowles economists Tjalling Koopmans (later a co-winner of the 1975 Nobel Economics Prize) and Jacob Marschak—made offers to Cowles-friendly people like Paul Samuelson, then at MIT, Kenneth Arrow, who had moved from Cowles to Stanford, and James Tobin of Yale. All three, who themselves later won Nobel Prizes, turned down the offers and, Burns suggests, for the same reason: they didn’t want “to head into the lion’s den.” Samuelson was explicit: “It would polarize me; it would radicalize me.”
Bit by bit, as a result, Friedman started getting the faculty he wanted.
Role of women / In a chapter titled “Hidden Figures,” Burns discusses how Friedman, early on, worked with talented women economists. They included Rose, Brady, Margaret Reid, and (most important) Anna J. Schwartz, co-author of their magnum opus, A Monetary History of the United States, 1867–1960. Those who have seen the movie Hidden Figures about women at NASA will recognize the connection to this chapter.
One of Friedman’s biggest accomplishments was his 1957 book A Theory of the Consumption Function. Even his harshest critics have respected this important work. He probably couldn’t have done it without the input of various women. At the time, consumption was a backwater in economics. Since it was about consumer spending, the people who studied it were disproportionately women. Economists simply assumed that Keynes’s consumption function was the last word; according to Keynes, higher-income people saved a higher percentage of their income than lower-income people. But Friedman worked on consumption with Rose, Brady, and Reid. Reid, who had earned her Ph.D. at the University of Chicago in 1931, was on the faculty of Iowa State College. The four of them had a different idea that fit the data better than Keynes’s: people’s consumption spending was based not on that year’s particular income but on “permanent income,” the income that was a kind of average of a few years’ income.
Burns focuses on one way that the “permanent income hypothesis” undercut the Keynesian model: it meant that higher-income people weren’t just socking away money while looking for rare investment opportunities. But when I learned the hypothesis in graduate school, my professors focused on a different way that it undercut Keynes: it meant that when government increased spending to get out of, or avoid, a recession, people wouldn’t spend a large percentage of the increased income on consumption because they would understand that it wasn’t permanent.
Burns seems to disapprove of the fact that Friedman didn’t share authorship with his co-researchers. She notes that in his introduction, he stated that the book was a “joint product of the group,” referring to himself, Brady, and Reid. Assuming that Burns hasn’t left anything important out of the story, I do think the book should have been co-authored.
One area, though, where a female researcher gets due credit is A Monetary History. Burns argues that without Schwartz, the book would not have existed in anything like its actual form because she was so interested in weaving a historical tale. Thank goodness she was, because the resulting book tells the tale well. The longest chapter, on the contribution of monetary policy to the Great Depression, was one of the most exciting pieces of economic history I read in graduate school.
Long-run contributions / Burns does a nice job of evaluating Friedman’s long-run contributions to macroeconomics. Although she never numbers them, I would count three, all of which she discusses at length.
The first is that Friedman brought back into the mainstream the idea that monetary policy was potent. During the dominant Keynesian era, which lasted from about the mid-1930s to the early 1970s, most economists thought that monetary policy was impotent in either preventing or causing recessions or in causing inflation. Friedman and Schwartz disabused the economics profession of that view. Although they did not convince all economists that monetary policy was the main cause of the Great Depression, they certainly convinced most economists that it played a crucial role.
Second, Friedman reminded economists that one cannot judge the looseness or tightness of monetary policy by looking only at interest rates. He recognized the importance of the Fisher effect, named after Irving Fisher, which is that people’s expectations of future inflation affect nominal interest rates. If people expect inflation to rise because of increased growth of the money supply, then nominal interest rates will rise as lenders insist on being compensated for the reduced purchasing power of future payments on their loans. So, a higher interest rate can be a sign of a looser, not a tighter, monetary policy. Similarly, if a shrinkage of the money supply causes people to expect deflation, nominal interest rates will fall even if monetary policy is tight, rather than the opposite. In the early 1930s, low nominal interest rates signaled tight monetary policy.
Friedman’s third major contribution to macroeconomics was to challenge the idea that the Phillips Curve, named after New Zealand economist A.W. Phillips, showed a stable tradeoff between inflation and unemployment. Friedman’s macroeconomics archrivals in the 1960s, Samuelson and Solow, suggested that the tradeoff gave policy makers a “menu” that would allow them to pick an unemployment rate and a corresponding inflation rate. But in his 1967 presidential address to the American Economic Association, Friedman challenged that view, arguing that to keep unemployment below what he called the “natural rate,” the Federal Reserve would have to increase the growth rate of the money supply until people’s expectations caught up, and then the Fed would have to increase it again. Failing to increase the inflation rate would cause the unemployment rate to rise, so that an economy could have both high unemployment and high inflation. This happened in the early 1970s and led to the term “stagflation.” Friedman was prescient. The early 1970s experience led to widespread skepticism of the Phillips Curve.
Public intellectual / Most people who know of Milton Friedman wouldn’t have encountered him if he hadn’t been a successful public intellectual. For that, he owed much credit to Rose. He had given some lectures at Wabash College on various economic policy issues in 1956. Rose turned his notes into chapters in a 1962 book titled Capitalism and Freedom. My favorite line in the whole Burns book is her comment on how radical Friedman’s critique of big government was: “Capitalism and Freedom stuck it to the Man years before doing so became trendy.”
In 1966, Newsweek magazine asked Friedman to write a regular column, alternating with left-of-center Samuelson and centrist Henry Wallich. This, more than Capitalism and Freedom, made Friedman one of the best-known economists of the 1960s and 1970s. Almost every column was a gem: making one or two points, with basic economic reasoning and evidence, about the negative effects of particular government regulations or the benefits of a free economy or, often, about the failures of Federal Reserve monetary policy.
But what really put Friedman on the map was his 10-part 1980 PBS series Free to Choose. He and Rose later fashioned the scripts into their co-authored book by the same name. One of the refreshing aspects of each TV episode was a debate between Friedman and two allies on one side and two opponents on the other. I remember my girlfriend at the time, who came from a somewhat leftist background, being awed by those debates, especially Friedman’s civility and good humor. For that reason, I was disappointed that Burns refers to the debates as “staged.” There was nothing staged about them.
The draft / Outside of monetary policy, probably Friedman’s biggest success was in helping end the military draft. He spoke eloquently against the draft at a famous 1966 conference at the University of Chicago and, in 1969, was one of 15 people whom President Richard Nixon appointed to the President’s Commission on the All-Volunteer Force, called the Gates Commission after its chair, former defense secretary Thomas Gates.
According to Friedman, the commission started its work with five members against the draft, five in favor, and five on the fence. By the end, the commission voted 14–0 to recommend that Nixon end the draft. (The one abstention, by NAACP head Roy Wilkins, was because he had missed too many committee meetings, though he agreed with his colleagues that the country should move toward an all-volunteer force.) Four years later, the draft was ended.
Disappointingly, Burns mentions few of these details. Although she credits Friedman for his role in helping end the draft, she omits one of the most famous and interesting dialogues that occurred during the Gates Commission proceedings, a back-and-forth between Friedman and Gen. William Westmoreland. When Westmoreland objected that an all-volunteer force would mean the United States would have an army of “mercenaries,” Friedman responded that he would prefer that to an army of slaves.
Burns’s harsh treatment / At various points in the book, Burns treats both Milton and Rose harshly. She writes, for example, “His vocal opposition to the 1964 Civil Rights Act, the sweeping legislation that outlawed racial discrimination in hiring and public accommodations, casts a shadow over his legacy.” Later, she quotes several statements he made in 1964 defending Sen. Barry Goldwater’s “no” vote on the act. But she doesn’t explain why Friedman took that position, even though, two years earlier, he had explained in Capitalism and Freedom that his position was because of his strong support of freedom of association.
Moreover, Burns claims that Friedman failed “to understand state-sponsored segregation in the South as a violation of African Americans’ freedom.” Yet, in Capitalism and Freedom he denounced “laws in the Southern states imposing special liabilities upon Negroes” and compared them to Hitler’s Nuremberg laws. It sounds to me as if he did understand.
Burns also states that in 1998, Friedman “improbably claimed that men now faced gender discrimination within academic economics.” Her “improbably” is simply dismissive. Shouldn’t a careful historian look at the data? I was on various hiring committees in academia at the time and, though I didn’t see it at my school, I heard many stories from colleagues about discrimination against men in other parts of academia.
Although Burns gives due credit to Rose for her influence on Capitalism and Freedom and Milton’s Newsweek columns, Burns harshly judges Rose’s sole-authored 1965 American Enterprise Institute book, Poverty: Definition and Perspective. Burns calls the study “pedantic and hard to follow.” I found it easy to follow and informative. In it, Rose argued that the 1964 Council of Economic Advisers’ (CEA) landmark definition of poverty contradicted its own stated methodology. She re-estimated the poverty line and found substantially less poverty than the CEA had. She also matter-of-factly noted that Black families were on average larger than White families, a factor in their higher poverty. Concludes Burns, “Rose’s rhetoric stands out for its utter lack of empathy.” I had a different reaction: her study stood out for her careful and systematic reasoning from facts.
A conservative? / Finally, I need to comment on Burns’s subtitle. Early in the book, she explains her thinking in describing Friedman as a conservative. She admits that he took pains to say that he wasn’t a conservative but, instead, a liberal. She notes, though, that referring to him as a liberal would mislead most people, given how the word is used today. At times he called himself a libertarian, but she rejects that word on the narrow grounds that he believed in having the government manage the money supply.
Certainly, Friedman shared many views with conservatives. But his push to end the draft, although he had many conservative allies, was not clearly a conservative cause. Also, as Burns notes, he believed that, with a substantial welfare state, illegal immigrants were preferable to legal ones because illegal immigrants would be less likely to take advantage of welfare. Burns comments aptly, “It was one last provocation, directed at both the left and the right.” In short, Burns herself sees that this was not a conservative view.
Also, Friedman, as far back as 1972, opposed making various drugs, including heroin, illegal. That doesn’t seem very conservative. It is, however, consistent with classical liberalism and libertarianism.
Conclusion / In her final chapter, Burns lists some critics of Friedman. One is Columbia economist Jeffrey Sachs, whose criticism she disposes of nicely. She writes, “Jeffrey Sachs declared ‘Almost nothing remains of [Friedman’s] intellectual legacy,’ an interesting claim from an economist who helped the USSR privatize its state holdings and tamed hyperinflation in Bolivia, which he understood through the ‘1956 classic definition’ advanced by Friedman’s money workshop.” Burns also cites without comment Duke historian Nancy MacLean, whose book Democracy in Chains so distorted economist James Buchanan’s views. (See “Buchanan the Evil Genius,” Fall 2017.) Burns, to her credit, gives Friedman his due.
The last few pages are definitely worth reading in full, but a few lines stand out. One is, “Simply put, Friedman is too fundamental a thinker to set aside.” And the last lines are pure gold: “If we are unlucky, the future will condemn and dismiss Friedman and all that he built. If we are fortunate, the future will look back across the twentieth century and find the questioning, curious, and singular mind that surfed the long waves of political and economic change.”
