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June 2012 Brief: Volume 19, Number 18

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Milton Friedman and the Power of Ideas

 

by John Hendrickson

 

 

The Wall Street Journal declared that 2011 was “the year of school choice” because several states were either implementing or pushing school choice educational reforms through the legislative process.[1] School choice, which offers more freedom and opportunities in education for families while improving the educational structure, is still currently on the march as many states are pursing educational reforms. The idea of school choice is not only improving our educational system through competition and allowing parents more freedom in choosing the right schools for their children, it is also offering hope to countless children who will be impacted by an improved educational opportunity. The school choice movement demonstrates the power of ideas and owes much to noted economist Milton Friedman. Friedman’s ideas not only continue to shape the field of economics, but also public policy. In July, the nation will remember the 100th birthday of Friedman, whose ideas, which centered on freedom and liberty, not only helped the 20th century become the “American Century,” but are still impacting people and policies across the globe.

 

Milton Friedman “is the father of the modern Chicago school of economics” and a Nobel Prize winner whose work, both academic and practical, is still influential.[2] Friedman and the Chicago school played a crucial part in applying classical free-market economics to public policy problems. The classical school of economics was influenced by the ideas of Adam Smith, who wrote The Wealth of Nations. The Chicago school of economics defends capitalism, free markets, and free trade. Friedman’s ideas countered the prevailing economic theory of British economist John Maynard Keynes or Keynesianism.

 

During the 1930s and to a certain extent even today, Keynesianism dominated both government policies and the intellectual field of economics. With the onset of the Great Depression of the 1930s, capitalism was seen as a failure because of the severity of the economic crisis. Keynes argued that “in recessions and depressions, accordingly, government should intervene, spend more money, going into deficit if necessary, in order to stimulate demand and create jobs.”[3] This was the philosophy of President Franklin D. Roosevelt and his New Deal.

 

Milton Friedman’s ideas in the post-World War II era began to challenge the theory of Keynes and in the process “strengthened the intellectual case for free-market capitalism.”[4] Friedman joined a growing intellectual conservative and libertarian movement, which contained other free-market economists such as F. A. Hayek of the Austrian school of economics and Henry Hazlitt, a free-market journalist. Friedman and the Chicago school focused on “the application of price theory to economic issues, the integration of theory with institutional and factual detail, and the use of monetary theory to explain business cycles.”[5] “The Chicago school of economics arguably forms the core of the classical liberal, or free market, strand of American conservatism.”[6] Friedman also “became the intellectual leader of the classical liberals” within the conservative and libertarian movement.

 

Friedman is especially known for his expertise on monetary theory and the role of the Federal Reserve. A Monetary History of the United States, which Friedman co-authored with Anna Schwartz, is still considered a fundamental volume on the role of the Federal Reserve and monetary policy. In confronting the important issue of understanding the Great Depression, Friedman argued that the Depression was not a direct failure of capitalism. Rather the Depression “had been caused by the blundering of a branch of the government, the Federal Reserve, which had failed to react to a shrinkage in the money supply as banks collapsed.”[7]

 

Friedman also influenced the conservative movement by serving as an adviser to Senator Barry M. Goldwater’s presidential campaign in 1964 and defending free-market economic principles during the economic doldrums of the 1970s. When Ronald Reagan was elected President, Friedman served as an economic adviser in the Reagan administration. Both Reagan and Friedman shared a similar worldview of the importance of liberty. As former Attorney General and Reagan adviser Edwin Meese wrote:

 

Of special importance among the academic advisors was Professor Milton Friedman, the Nobel Laureate and master of monetary policy. Friedman, who is able to translate economics into comprehensible language for the public, was a particular favorite of the President. His staunch advocacy of private enterprise, the free market, and tax limitation, and his extensive knowledge of monetary matters were invaluable to the administration.[8]

 

Friedman’s defense of liberty and free markets was not only applied to academics and public policy, but also to the general public. One of his many gifts was the ability to discuss and teach complex economic issues to the general public. In Capitalism and Freedom and later Free to Choose: A Personal Statement, which was co-authored with his wife Rose, Friedman outlined his philosophy and defense of free-market principles and capitalism. Issues such as education, welfare policy, taxation, monetary policy, and others were addressed in a common sense form. Free to Choose was also a companion book to the popular PBS television series hosted by Friedman, and the book itself had influence not just inside the United States, but across the globe.

 

In our present economic crisis of an escalating national debt, high unemployment, high taxation, and an Administration that believes in the power of the federal government through regulation and social experimentation, it is essential that we remember the ideas of Milton Friedman. Friedman’s principles of freedom and liberty over centralized government authority are desperately needed in our current political and economic climate. They also provide the policy solutions needed to revive our national economy. As the nation remembers the 100th birthday of Milton Friedman, his ideas are still on the march, being pushed by not only academics and policymakers, but also the numerous citizens who make up the Tea Party Movement, who are fighting to restore the principles of constitutional limited government.

 

Endnotes:
[1] Editorial, “The year of school choice,” The Wall Street Journal, July 5, 2011, <http://online.wsj.com/article/SB10001424052702304450604576420330972531442.html#printMode> accessed on April 26, 2012.
[2] J. Daniel Hammond, “Milton Friedman,” in American Conservatism: An Encyclopedia, Bruce Frohnen, Jeremy Beer, and Jeffrey O. Nelson (eds.), ISI Books, Wilmington, Delaware, 2006, p. 329.
[3] Patrick Allitt, The Conservatives: Ideas and Personalities Throughout American History, Yale University Press, New Haven, Connecticut, 2009, p. 184.

[4] Ibid., p. 183.
[5] Hammond.
[6] Ibid.
[7] Allit., pp.186-187.
[8] Edwin Meese, III., With Reagan: The Inside Story, Regnery Publishing, Washington, D.C., 1992, p. 127.

 

John Hendrickson is a Research Analyst with Public Interest Institute, Mount Pleasant, Iowa. Contact him at Public.Interest.Institute@LimitedGovernment.org.

 

Permission to reprint or copy in whole or part is granted, provided a version of this credit line is used:"Reprinted by permission from INSTITUTE BRIEF, a publication of Public Interest Institute." The views expressed in this publication are those of the author and not necessarily those of Public Interest Institute. They are brought to you in the interest of a better-informed citizenry.

 

 

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