The new consensus on Friedman’s work among economists has essentially reversed Summers’s verdict from 2006. “Almost nothing remains of his intellectual legacy,” according to Columbia University economist Jeffrey Sachs. “It has proven to be a disastrous misdirection for the world’s economies.”
This is from Zachary D. Carter, “The End of Friedmanomics,” The New Republic, June 17, 2021.
The article makes a case against Friedman’s contributions and his character.
This won’t be a comprehensive treatment of Carter’s case, but I do want to point out some major errors and a major misunderstanding of Friedman–who he was and how his mind worked.
Carter writes:
When he at last won his Ph.D. from Columbia in 1946, Friedman shipped out to Chicago to join a fringe right-wing intellectual movement calling itself “neoliberalism.” Despite their chosen moniker, the neoliberals loathed the politics of the New Deal, seeking instead to revive the most conservative strands of Enlightenment-era economic thought, so-called classical liberalism, for the twenty-first century.
Twice in that paragraph Carter claims that the people at Chicago called themselves neoliberals. I’m guessing that I’ve read way more of Frank Knight, way more of Milton Friedman, and more of Henry Simons than Carter has and I don’t recall any of them ever claiming that they were neoliberals. What I do recall is Friedman and others frequently identifying themselves as “classical liberals.”
Carter doesn’t do nuance. So, for example, when he wants to point out how Friedman thought a free market would deal with racism and discrimination, he writes:
Friedman wrote: “The man who objects to buying from or working alongside a Negro, for example, thereby limits his range of choice. He will generally have to pay a higher price for what he buys or receive a lower return for his work. Or, put the other way, those of us who regard color of skin or religion as irrelevant can buy some things more cheaply as a result.” The relentless logic of the market would drive such inefficiency from public life.
Notice that Carter’s summing up Friedman’s thinking in the last sentence of the above gets it wrong. Friedman was not so naive as to believe that the free market would drive out racist discrimination. What he maintained, Gary Becker maintained, and many economists maintain is that the free market would make those who acted on their racist beliefs pay a price and that this price would limit, but not eliminate, racism.
I got the sense that Carter is not very familiar with economic thinking, whether of Friedman or of economists in general. This came across in the following passage:
But it was a 1946 pamphlet on housing policy co-written with fellow Chicagoan George Stigler that transformed Friedman from an obscure ex-bureaucrat into an academic sensation. Titled “Roofs or Ceilings? The Current Housing Problem,” Friedman and Stigler’s paper argued that California’s rent regulations ultimately ended up raising the price of housing, hurting the very low-income people politicians sought to help. The argument was simple: By artificially depressing the price of housing, regulators deprived potential homebuilders of an incentive—higher profits—to build more homes, which would in time bring down housing costs.
The blunt unsophistication of the pamphlet was an intellectual call to arms. Friedman and Stigler weren’t really writing about housing at all—they were writing about economics itself, calling for a return to the simple nineteenth-century analyses that Friedman would later credit for producing the “free market” and “the greatest expansion of human freedom the world had ever seen.” The reaction was furious. Writing in The Washington Post, economist Robert Bangs decried the “drivel” in Friedman’s “insidious little pamphlet,” and denounced him for publishing it through a “propaganda front for reactionary interests” (which was true—“Roofs or Ceilings?” was released by the Foundation for Economic Education, one of a handful of specialty right-wing organizations that sprang up in the postwar world aiming to unwind the New Deal).
Ignore his implicit claim that the comment of one economist named Robert Bangs is a sufficient statistic for knowing that “The reaction was furious.” (If he wants “furious,” he should have seen Ayn Rand’s reaction.) The two key things to focus on are his claim that the pamphlet was unsophisticated and that it “wasn’t about housing at all.”
His claim about lack of sophistication caused me to reread the article/pamphlet. I recommend that you do too. You can download it here. It turns out to be quite sophisticated. I think Carter conflates clear writing with lack of sophistication.
And in rereading it after all these years, I concluded that it really is about housing. If Carter meant to say that once one accepts their reasoning, one can easily conclude that absence of price controls more generally is a good idea, then he would be right. But Carter doesn’t make clear whether he means that or something else.
It’s also interesting that Carter would highlight this article. If you ask an economist who doesn’t live in a rent-controlled apartment whether he favors rent controls, the probability that he will say no and that he will make arguments very similar to those of Friedman and Stigler exceeds 0.9. That’s why I say that I’m not sure Carter understands how economists think.
He certainly doesn’t understand how Friedman thought. In discussing Friedman’s contributions to macroeconomics and monetary economics, Carter writes:
Constructing a 93-year account of fluctuations in the money supply is a curious endeavor to assume for its own sake. But of course Friedman had an intellectual motivation, which he detailed in a famous 1967 speech before the American Economic Association: He hoped to dethrone the ghost of John Maynard Keynes.
Maybe, but unlikely. Friedman really did pursue truth and the facts wherever they led. In my review of his and Rose Friedman’s autobiography, Two Lucky People, I wrote:
Even more strikingly, Milton doesn’t talk much about how his views evolved during graduate school or after he completed his Ph.D. Yet evolve they did. Most notably, his views on the causes of inflation changed dramatically. The Milton Friedman that most of us know about is the one who said, in a famous 1968 debate with Keynesian economist Walter Heller, “the state of the budget by itself has no significant effect on…inflation” and who wrote in 1963, “Inflation is always and everywhere a monetary phenomenon.” By contrast, here’s what Friedman says about testimony he gave as a Treasury economist in 1942: “The most striking feature of this [testimony] is how thoroughly Keynesian it is. I did not even mention `money’ or `monetary policy’! The only `methods of avoiding inflation’ I mentioned in addition to taxation were `price control and rationing, control of consumers’ credit, reduction in governmental spending, and war bond campaigns.'”
What happened between 1942 and the early 1950s that changed Friedman’s mind? Maybe the explanation is simply that he gathered data that persuaded him of the power of monetary policy. But in most intellectual autobiographies I have read, there’s one event, piece of evidence, story, conversation, or argument that starts the process of change. Friedman mentions no such epiphany.
A few months after that review appeared in Reason, I ran into Milton at a Hoover dinner. After the quick niceties, he said, “I know that that disappointed you, but my change in views was so gradual that I can’t point to anything like a ‘Saul on the road to Damascus’ epiphany. Sorry.”
What can I say? I believe him. Which means I can’t believe Carter. In Carter’s view, Friedman is a schemer who has a political goal and does his intellectual work to achieve that goal. I think the opposite is closer to the truth. Friedman pursued knowledge and that knowledge led him to political goals that differed a lot from those he started with.
Elsewhere in his long piece, Carter errs badly in seeing Friedman’s advocacy of school vouchers as a way of responding to the Supreme Court’s finding in Brown v. Board of Education. Historian Phil Magness of the American Institute of Economic Research has unearthed a letter by Friedman that completely undercuts Carter’s claim and has sent a request for a correction to the editor(s) of The New Republic. But I don’t want to steal Phil’s thunder and I don’t have permission to quote it here.
Now back to Carter’s quote from economist Jeffrey Sachs, with which I opened in this post. I have no reason to think that Carter misquoted Sachs and so I can’t say that he erred. What I do know is that Sachs erred badly. Co-blogger Scott Sumner has done some very nice blog posts recently (here and here) showing just how intact Friedman’s contributions to macro and monetary theory have been.
Note: The picture at the top is of Icelandic economist Hannes Gissurarson, Milton Friedman, and me sometime in the 1990s.
READER COMMENTS
Daniel Kian Mc Kiernan
Jun 21 2021 at 9:33pm
The term “neo[-]liberal” has been used for many things, some quite different from others. Friedman indeed called himself a neoliberal once, in “Neoliberalism and Its Prospects, in this case referring to views that tempered a leftist programme with an awareness of liberal insight. (Friedman evolved towards libertarianism from such a leftist position.)
The remarkable Phil Magness has sent a letter to The New Republic, simply demonstrating some substantial errors in Carter’s article. But no reasonable person expects that rag to publush an appropriate correction.
David Henderson
Jun 21 2021 at 9:40pm
Thank you. I had not read that.
Daniel Klein
Jun 22 2021 at 5:24am
In that brief 1951 Human Events article, Friedman tries out the term neo-liberalism, which scarcely anyone picked up on. The term just fizzled until leftists made it the name of their vague cloud of boogeymen. (BTW, has anyone done a textual study of that development: Who initiated the boogeymanning? What basis did the initial authors show for doing so?)
In the article, Friedman touts the Sherman Act, antitrust, and the like as one of the things that distinguishes neo-liberalism from 19th century liberalism. But he and most other classical liberals at Chicago changed their thinking on that very issue over the next 30 years. So even by the standards of Friedman’s insignificant article, they were not neo-liberals.
I have mixed feelings about lefty discourse about “neo-liberalism.” It’s unfortunate in being lefty and in being incoherent. I am a bit pleased, however, that they use “liberal” in the name of their boogeyman, because doing tends to signal that “liberal” does not suit them.
Andre
Jun 21 2021 at 11:05pm
When all you know is a hammer, everything looks like a nail.
Manfred
Jun 22 2021 at 10:04am
I would send Zachary Carter a hard copy of Steven Landsburg’s “The Essential Friedman”, published by the Fraser Institute.
https://www.essentialscholars.org/friedman
Of course, I have no illusions that Carter or anybody else at TNR will actually read it.
But…it may help.
Alan Goldhammer
Jun 22 2021 at 10:17am
On these occasions, I’m glad I am not an economist. As I see it there is huge confirmation bias on both sides. Carter wrote a book on Keynes and surprisingly Tyler Cowen stated, ” that the book would qualify “without reservation” as one of the best of the year.” Tyler even did a full length conversation with him that is hosted on the Mercatus Center YouTube channel. It would appear that Mr. Carter does have some bonafides as an economic historian.
In the end, as many people will have read David’s post here as have read the Carter article in TNR. I was a subscriber to TNR for a lot of years, primarily for the film criticism of Stanley Kauffmann.
Manfred
Jun 22 2021 at 11:09am
Sorry, but I do not agree that there is confirmation bias “on both sides”. I have not read Carter’s book on Keynes and have no idea why Tyler Cowen praises it.
Friedman’s contributions to economics, economic thinking and economic modelling were huge and enduring. They entered the undergrad textbooks and persist today.
Friedman changed the way of thinking of the profession in more ways than one, which is why he deserved and got the Nobel Prize in economics.
Nobody denies that Keynes made equally big contributions to economics and economic thinking. Had the Nobel Prize for economics existed, Keynes would have gotten it for sure. But alas, it did not exist at his time.
This is not confirmation bias, it is simply an acknowledgement of each contribution.
KevinDC
Jun 22 2021 at 11:26am
I guess I take a slightly different tack from you and Alan in this case. I’m perfectly willing to grant that confirmation bias exists on both sides, which puts me at odds with you, but I disagree with Alan in implying that Carter’s high quality bio of Keynes ought give any extra credibility towards his work on Friedman. (Assuming I’m not misreading you, Alan? If I am just ignore me here!)
An reconciliation of what I mean: it’s easy to see how Carter would be positively disposed towards Keynes, and this positive confirmation bias would have the effect of him writing a charitable and even handed piece on Keynes. It’s equally easy to see how Carter would be negatively disposed towards Friedman, and this negative confirmation bias would lead him to write an uncharitable and ham-handed article on Friedman. So the idea that there’s confirmation bias on all sides, Carter’s work on Keynes was good, and his work on Friedman was lousy, are all pretty consistent to me.
Alan Goldhammer
Jun 22 2021 at 11:47am
IIRC there was some discussion of Friedman on the Tyler Cowen interview but I listened to it last December so I could also be wrong on this count. There is no doubt that Carter’s piece was a polemical construct and he may have been fast and loose with facts as is common in such cases. My key point is the economics community is fragmented on a number of lines with respect to who has or has not been influential. An economist may have been influential at one point in time only to be proven wrong as history is written (Irving Fisher is one notable example). Binyamin Applebaum covers a lot of this in his book, “The Economists Hour: False Prophets, Free Markets and the Fracture of Society” and how others went awry.
I don’t begrudge the pro-Friedmanites a platform to exult his works and accomplishments. However, there are two sides to every coin and this is where confirmation bias creeps in. Sebastian Mallaby has a good review in The Atlantic on Applebaum’s book as well as the recent one by Nicholas Lemann that is worth reading.
Mark Z
Jun 22 2021 at 2:03pm
I don’t think this is a ‘there’s two sides to every coin’ situation. The claim on the left that Friedman has been decisively proven wrong by history and his legacy is now bankrupt strikes me as being as wrong as the claim on the right that Keynes was proven decisively wrong by history and his intellectual legacy was vanquished. In my econ classes in undergrad (not too many years ago), Friedman was as much a contributor to the standard economic theory of business cycles as Keynes. If economics weren’t so adjacent to – and thus polluted by the irrationality of – politics, I think the consensus would be the Keynes was right about things like economies failing to self-correct due to price stickiness, but wrong (and corrected by Friedman) about the importance of money supply, but Friedman was wrong (and corrected by later economists) in focusing on inflation rather than nominal GDP.
You may of course be thinking of issues other than business cycle and monetary policy, like Friedman’s free market views. Leaving aside my own opinion that Applebaum’s narrative is completely wrong, Friedman’s influence was undoubtedly greatest in the area of monetary theory and such, so that seems far more important in assessing his legacy.
I imagine if physics were so politicized, supporters of Einstein would’ve written op-eds trashing Newton and Kepler for how ‘wrong’ they were about planetary orbits and tried to get them vilified by posterity. Then supporters of Heisenberg and Bohr would do the same to Einstein.
David Henderson
Jun 22 2021 at 2:44pm
I think your example of Irving Fisher is telling. One of his main contributions, which was essentially ignored during the Great Depression, is the idea that if people come to expect an increase in inflation, nominal interest rates will rise and if their expectations change so that they expect less inflation, nominal interest rates will fall. Indeed, this is now known widely in economics as the “Fisher effect.” So one can argue that Fisher had an even bigger effect on economics 50 years after he died than he did while alive. (I’m putting aside his disastrous thinking about Prohibition.)
If the Fisher effect had not been ignored during the Great Depression, we might not even call it the Great Depression, because the Fed would not have taken very low interest rates to mean that monetary policy was loose. It was incredibly tight, which is why there was deflation and why interest rates were so low.
Manfred
Jun 22 2021 at 3:38pm
Mark Z:
Milton Friedman’s contributions to monetary theory were big, but what about his consumption function theory? Friedman introduced the concepts of “permanent” and “temporary” income to economics, concepts that still today are used. What about Friedman’s presidential address, published in the AER in 1968? This went into the undergrad textbooks. What about his Price Theory book?
For anybody interested, please read Steven Landsburg’s “The Essential Friedman”. And particularly, read his chapter on price theory. Landsburg starts the chapter by quoting to exams, one given by Samuelson at MIT and one given by Friedman at the University of Chicago, both given more or less at the same time. The difference is telling.
As for Irving Fisher: the Journal of Political Economy, in its March/April 1973 edition, republished a paper by Irving Fisher, with the title “I Discovered the Phillips Curve”. Go read it. Alban William Phillips was not the first thinking of the inflation/unemployment trade-off; Fisher had thought about several years earlier, but his paper was forgotten.
Eric Hammer
Jul 13 2021 at 9:02am
Excellent article. I suppose the tendency of writers to essentially just make things up when attacking intellectual opponents and claim it biography is not a new phenomenon, but since the awful book on James Buchanan seems to be more accepted in the mainstream culture these days.
You mention Ayn Rand’s furious reaction to Friedman’s article: do you happen to have a link to it, or the name of the essay? I’d be curious to see what she could object to.
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