Episode #82 - Profiling Milton Friedman

Milton Friedman was born July 31, 1912 (Brooklyn, NY), and died November 16, 2006. He was married to Rose Friedman and economist in her own right. In 1976, Friedman won the  Nobel Prize and 1988 he won the Presidential Medal of Freedom. 


Price Theory, 1962, 1976 - He didn’t think Frank Knights distinction between risk and uncertainty was valid. He believed in personal probability.

Monetary vs Fiscal Policy: A Dialogue, Milton Friedman, Walter W. Heller, 1969 - Money matters for nominal magnitudes, but not real output over the long-term. Money is not the only thing that matters! Technology, institutions, rule of law, etc. Interest rates are not the price of money, but the price of credit.

Why Government Is the Problem, 1993, Essays in Public Policy, Hoover Institution - If a private enterprise is a failure, it closes down—unless it can get a government subsidy to keep it going; if a government enterprise fails, it is expanded. I challenge you to find exceptions.

Reverse invisible hand: People who intend to serve only the public interest are led by an invisible hand to serve private interests which was no part of their intention.

TANSTAAFL (There ain’t no such thing as a free lunch), Robert Heinlein, The Moon Is a Harsh Mistress. Also, traced back to 19th century saloons: if you bought a beer, they gave you a free lunch. Dedication speech, Cato Building in DC: In the real economic world, there is a free lunch, an extraordinary free lunch, and that free lunch is free markets and private property.

On Liberty And Drugs: Essays on the Free Market and Prohibition, Milton Friedman and Thomas S. Szasz, 1992 - It is extraordinary that leaders of medicine should proclaim publicly that they and their colleagues must be paid to be ethical. And if it were so, I doubt that the price would have any limit. There seems little correlation between poverty and honesty.

As I once said to a Republican Club of students at Stanford, I am a libertarian with a small l and a Republican with a capital R. And I am a Republican with a capital R on grounds of expediency, not on principle.

Prohibition (1920-1933) passed during World War I because men were in France and the majority of women voted for it.

From the Founding until 1914, trade in drugs was free. George Washington grew “hemp.”

We don’t say legalize, implies that the government gives us a permission to do these things. Are rights are inalienable.

Milton Friedman on Economics: Selected Papers, 1976 - Contains his Nobel lecture. Rejected that economics was a branch of philosophy. Thought of it as a social science, with tentative hypotheses that can never be proved but can only fail to be rejected. Falsified the Phillips curve—tradeoff between inflation and unemployment.

Friedman didn’t draw distinction between micro and macro economics. He    started with individual choice. First major publication, Income from Independent Professional Practice (NBER, 1945), with Simon Kuznets, his Columbia dissertation:

  • Introduced concept of permanent income
  • An early human capital analysis of returns to education
  • First quantitative study of union restrictions on entry into occupations and of the effect of unions on earnings
  • Publication was held up five years, so was Friedman’s PhD, because a board member of the bureau (a Pharma Exec, C. Reinhold Noyes) objected to this conclusion and analysis of the American Medical Association’s behavior. Friedman didn’t budge, finally published with irrelevant comment by the objecting board member.
  • Explained 1/3 by which average income of doctors exceeded dentists. Only ½ due to natural supply/demand, the rest was ease of entry to dentistry back then

Friedman in China, 1990 - Visited in 1980 and 1988. China invented paper money.

The Essence of Friedman, edited by Kurt R. Leube, 1987 - More lives lost because of Das Kapital, so why no warning label on it such as with cigarettes?

The Social Responsibility of Business is to Increase its Profits,” The New York Times Magazine, September 13, 1970 - Road to hell paved with good intentions. He often quoted Pierre S. du Pont, to the French National Assembly:

Gentlemen, it’s a disagreeable custom to which one is too easily led by the harshness of the discussions, to assume evil intentions. It’s necessary to be gracious as to intentions; one should believe them good, and apparently they are; but we do not have to be gracious at all to inconsistent logic or to absurd reasoning. Bad logicians have committed more involuntary crimes than bad men have done intentionally.

He did favor a “real gold standard” but not a “pseudo gold standard,” whereby government fixes the price of gold. He did think the gold standard was consistent with liberty.

Bright Promises, Dismal Performance: An Economist’s Protest, 1983 - 70 Essays from Newsweek, 1972-1982. He wrote 300+ columns over 18 years. Contains Playboy interview from 1973. “The preservation of liberty, not the promotion of efficiency, is the primary justification for private property.”

Milton Friedman: A Biography, Lanny Ebenstein, 2007 - Fanatically religious phase until 12yrs old, by time of his bar mitzvah at 13, complete agnosticism. Received his introduction to libertarian thought at Rutgers from John Stuart Mill’s On Liberty, which he read as freshman or sophomore.

Teacher Henry Simons (U. Chicago) taught that an objective, critical examination of a man’s ideas is a truer tribute than slavish repetition of his formulas. Thinks he voted for FDR in 1936, went to Chicago as a Norman Thomas-type socialist. Rose dated others, Milton didn’t. “He couldn’t afford it,” says Rose.

From Fall 1941 – March 1943, was one of the top 10 aides to Secretary of the Treasury, Henry Morgenthau; he helped devise income tax withholding. Indirectly involved with the Manhattan project, designed a statistical procedure to ensure that the detonator for the atom bomb worked, though he didn’t know it. Helped designed the trigger for the atom bomb!

He believed that “almost all important contributions of a scientist are made in the first ten years after he enters the discipline.” Only one valid criterion for acceptance or rejection of a theory: its capacity to predict. He joked: “so happily blessed with critics that I have been forced to adopt the general rule of not replying to them.”

A Monetary History of the US and A Theory of the Consumption Function constitutes his critiques of Keynes. The Great Depression caused by inappropriate monetary policy, 1/3 contraction of money supply between 1929-1933. Thought the New Deal with a the wrong cure for the wrong disease

He thought Capitalism and Freedom was his best work for a popular audience, and better than Free to Choose, more philosophical and abstract, and hence more fundamental. Great arguer, and people said they loved to argue with Milton—when he wasn’t there! His two most terrifying questions: How do you know? So What?

I would rather government spend one trillion dollars with a deficit of half a trillion that have government spend two trillion dollars with no deficit. Government spending is the price of government, not deficits! Advantage of flat tax get rid of all the unpaid bookkeeping we are forced to engage in, and free up human talent of accountants and lawyers for more productive work.

Congressional testimony, All-Volunteer Commission, Nixon, General William Westmoreland, commander of American troops in Vietnam said, “he did not want to command an army of mercenaries.”

Friedman: General, would you rather command an army of slaves?

Westmoreland: I don’t like to hear our patriotic draftees referred to as slaves.

Friedman: I don’t like to hear our patriotic volunteers referred to as mercenaries.

Was protested for visiting Chile in March 1975, but not for visiting China, certainly an evil government?  “There is nothing so permanent as a temporary government program."

As so often is the case, what everyone knows is not so. Anyone who is converted in an evening isn’t worth converting. The next person of opposite views… will unconvert him.

He saw past two and quarter centuries by three intellectual tides:

  • The rise of Laissez-Faire (the Adam Smith Tide)
  • The Rise of the Welfare State (the Fabian Tide)
  • The Resurgence of the Free Market (the Hayek Tide)

“Ideas are important, but they take a long time and are not important in and of themselves. Something else has to come along that provides fertile ground for those ideas.”

He was pro-abortion, but thought government shouldn’t pay for it. He Opposed Gulf War 1991 and Iraq in 2003. Epitaph: Inflation is always and everywhere a monetary phenomenon (too much money chasing too few goods).

Arnold Schwarzenegger: “I have often said that the two people who have most profoundly impacted my thinking on economics are Milton Friedman and Adam Smith.” [As a resident of California who lived through the Schwarzenegger administration, this is nonsense!].

Lawrence Summers: As for Milton Friedman, he was the devil figure in my youth. Only with time have I come to have large amounts of grudging respect. And with time, increasingly ungrudging respect.”

Money Mischief, 1992

Famous story of the island of stone money.

Hugh Rockoff (1990) paper argues Frank Baum’s The Wonderful Wizard of Oz was actually a sophisticated commentary on the political and economic debates of the Populist Era. The Land of OZ is the East, where the gold standard reigns supreme. Wicked Witch of the East, Grover Cleveland, the gold Democrat who, as president, led the successful repeal of the Sherman Silver Purchase Act of 1893

Capitalism & Freedom, 1962 - Abolish corporate tax, but undistributed earnings should be assigned to individual shareholder returns, so corporation only keeps when it can earn higher ROI than shareholder

Free to Choose: A Personal Statement, 1980 - Dedicated to Ricki and Patri. See videos below. 

Tyranny of the Status Quo, 1984 - Points out that harder to make good changes in our system than in parliamentary system, also harder to make bad changes. UK moved much quicker to welfare state because of this structure. IRS was chief obstacle to implementation of withholding tax. Government since 1897 has Board of Tea-Tasters, $125,000/year, still existed in 1984! It was finally shut down on March 25, 1996.

Two Lucky People: Milton and Rose Friedman Memoirs, 1998 - 2 children, 4 grandchildren, 59 years married. Second child, David Director Friedman, born Feb 12, 1945, degree in physics. Milton’s natural father died when Milton was 15. Intended major in mathematics, only work was as an actuary; took some exams, passed some, failed others—most difficult exams ever taken! Milton met Rose in Economics 301, Price and Distribution Theory, Univ. Chicago, taught by Jacob Viner.

First law of bureaucracy: the only feasible way of doing anything is the way it is being done. Established the Milton and Rose D. Friedman Foundation, vouchers, etc. Says calling for a state conventional would be most effective way to get Congress to act on balanced-budget, tax-limitation amendments. “Barking Cats” (2/19/73) one of his best columns ever written: page 362-3.

Decided testifying before congressional committees was a waste of time. Thought Nobel prize may do more harm than good, gives people importance utterly unjustified. Wanted his work judged 25-50 years after his death. “Judged by practice, we have been, despite some successes, mostly on the losing side. Judged by ideas, we have been on the winning side. We are in the mainstream of thought, not, as we were fifty years ago, members of a derided minority.”

The Making of Modern Economics, Mark Skousen

To keep the fish that they carried on long journeys lively and fresh, sea captains used to introduce an eel into the barrel. In the economics profession, Milton Friedman is that eel. —Paul Samuelson

Karl Marx, the phrenologist; then came Stanley Jevons, the astrologer, who was followed by Maynard Keynes, the palm reader. Now we have Milton Friedman, the handwriting analyst!

In the late 1960s, Friedman was invited to debate strident Keynesian Leon Keyserling at the University of Wisconsin. Keyserling read the list of fourteen items Friedman highlighted as “unjustified” government activities in Capitalism and Freedom. Protesters made fun of the points as he read them, hoping to win the debate. Point 11 called for the elimination of military conscription during peacetime. Friedman’s opposition to the draft brought ardent applause and won him the debate.

Thomas Sowell said Friedman was a tough grader—he got one of only two B’s in his price-theory class. He gave no A’s.

Friedman’s Big Ideas

  • Education vouchers
  • Negative Income Tax
  • Flexible exchange rates (1940, adopted in 1970s)
  • Repealing the Draft
  • Natural rate of unemployment, 1967 AEA address, so goal of 0% unemployment is not realizable

Friedman Videos


Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.