Milton Friedmans Ideas Alive and Well
July 30 was Friedman Legacy for Freedom Day. The date commemorates the intellectual contribution to the advancement of freedom made by the late Milton Friedman, renowned economist and Nobel laureate.
Celebrating any scholar, even one The Economist magazine termed the most influential economist of the second half of the 20th century possibly of all of it, is likely to get little attention even on a slow news day. But, a commemorative day occurring during a mid-summer long-weekend (in many provinces), risks having the event go unnoticed altogether.
Nevertheless, Milton Friedmans legacy deserves attention, since the high standard of living Canadians enjoy this weekend is largely the result of public policies that reflect his thinking.
Friedmans ideas were profoundly influential. Among other things, he argued that free trade, lower taxes on income and capital, and a reduction in the burden of regulation would increase economic growth and improve social well-being. His ideas are now the basis of mainstream economic policy across much of world, including here in Canada.
Friedman made significant contributions to the development and refinement of the ideas and policy prescriptions of the University of Chicago tradition which had been developed by Frank H. Knight, the former Canadian, Jacob Viner and Henry Simons amongst others. He is the acknowledged leader of the Chicago School of Monetary Economics which transformed the worlds understanding of the causes of inflation and unemployment. Friedmans approach to the study of economics and public policy was not ideological, but scientific. He had a rigorous methodological emphasis on the evidence-based study of public policy. In fact, Friedmans scientific ethic is a key inspiration for the Fraser Institutes motto: if it matters, measure it.
In the context of the global financial and economic crisis of recent years, Friedmans ideas and his contributions to the science of economics are as relevant as ever. In 1963 he co-authored A Monetary History of the United States, demonstrating empirically that the speculative bubble conditions leading up to the 1929 stock market crash were encouraged by the Federal Reserves decisions to extend easy credit by expanding the money supply too rapidly for too long. He also showed that the economic depression that followed was exacerbated by ill-timed decisions to contract the money supply once the bubble popped.
There is no doubt that Friedman was a giant among economists. Yet, one of Friedmans most important and under-appreciated contributions was to the study of politics. Friedman argued convincingly that economic freedom is a necessary pre-condition for political freedom. His book Capitalism and Freedom was an early statement of this idea. The idea led Milton, his wife Rose and their long-time friend and Fraser Institute co-founder Michael Walker, to initiate the process that created the Economic Freedom of the World Index, which measures the degree of economic freedom around the world. The index demonstrates empirically that freer economies tend to be more prosperous. The body of research that has branched out from this project has gone on to show that economically freer societies are also more politically free.
In theory Friedman argued, economic arrangements are important because of their effect on the concentration or dispersion of power. The kind of economic organization that provides economic freedom directly, namely, competitive capitalism, also promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other.
On the basis of fact he concluded, Historical evidence speaks with a single voice on the relation between political freedom and a free market. I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity.
Friedman, who passed away in November 2006, was one of the worlds most eloquent advocates of freedom. He argued that the voluntary choices of individuals, not the dictates of government, should be the fundamental basis for public policy, because it has been shown to produce better economic and social outcomes for people.
Today, as we witness governments increasing public debts, proposing and imposing misguided economic regulations and clinging to the fallacy that government spending can stimulate economic growth, it seems wise to consider the merit of Milton Friedmans thoughts on freedom and his warnings about the unintended negative consequences of government intervention in the economy.