Want more on Milton Friedman? Check out our latest issue of Hypertext, A Niskanen Center journal linking ideas, and people, in pursuit of an America where competitive markets and an effective state advance the common good.
This inaugural forum of Hypertext dives into one overlooked aspect of Milton Friedman’s thought — his advocacy of an unconditional negative income tax (NIT) that would create an income floor no American could fall below.
In 1951, Milton Friedman received the John Bates Clark Medal, a highly prestigious prize given to an American economist under the age of 40 who has made a significant contribution to economic thought and knowledge. As Jennifer Burns points out in her monumental new study of Friedman — the first full-length, archivally researched biography to have been published — the academic economic profession viewed Friedman as a promising young pioneer in the fields of statistics and mathematics at the time. Ironically, at that very moment, Friedman redirected his intellectual interests toward the seemingly outdated and even retrograde studies of the quantity of money, the consumption function, and other ideas outside of the mainstream. For the next two decades, many economists would regard Friedman as, at best, an eccentric and, at worst, a dangerous reactionary.
However, as Burns describes in Milton Friedman: The Last Conservative, with the coming of stagflation — the combination of inflation and stagnation — that afflicted the American economy in the early 1970s, and which seemingly was impossible according to the conventional academic wisdom, Friedman came to be perceived a visionary. Over time, his views on capitalism, free markets, and limited regulation came to be adopted by both parties — but his influence was powerful in the Republican Party, where they helped define modern conservatism. In recent years, however, progressives have condemned the Friedman-influenced ideas of neoliberalism. At the same time, “National Conservatives” on the right have embraced the idea of using state power against their enemies in Big Business.
In this podcast discussion, Burns discusses Friedman’s life and times and how her biography is also a history of economic thought and development in the twentieth century. She explains why Friedman continues to matter and why some of his more abstract theories fail to adequately explain human behavior and account for the impact of government investment. And she makes the case why the generally conservative Chicago School of Economics, of which Friedman was the most famous representative, was not as hostile to moderation as it has usually been portrayed.
Transcript
Jennifer Burns: Throughout his career, Friedman is heterodox. He is blowing against the tide. Because people are disagreeing with him so much, they have to have these really intense arguments. This is Friedman-versus-everyone else for a good deal of the time. And then eventually Friedman’s ideas are taken up more broadly and there’s different variants of them.
Geoff Kabaservice: Hello! I’m Geoff Kabaservice from the Niskanen Center. Welcome to the Vital Center Podcast, where we try to sort through the problems of the muddled, moderate majority of Americans, drawing upon history, biography, and current events. And I’m delighted and honored to be joined today by Jennifer Burns. She’s an associate professor of history at Stanford University, a research fellow at the Hoover Institution, and a member of the Niskanen Center’s Advisory Board. And in fact, I’m talking with her at our Washington, D.C. offices today. Welcome, Jennifer!
Jennifer Burns: Thanks so much for having me. It’s great to be here.
Geoff Kabaservice: And thanks so much for being here. And congratulations on the publication of your new book, Milton Friedman: The Last Conservative, which came out in mid-November. This is the first full-length, archivally-researched biography of Friedman, who was one of the towering economists of the twentieth century, perhaps best thought of as the conservative counterpart to John Maynard Keynes. And you’ve been at work on this book across each of the decades of the twenty-first century, and you’re finished, and it is truly a monumental achievement. So congratulations again.
Jennifer Burns: Thank you. Thanks so much.
Geoff Kabaservice: Friedman will be a very familiar figure to people above a certain age. And as you say, most people who even knew of him had extreme reactions to his work, whether they loved it or hated it. How would you sum up his significance for younger audiences who perhaps might be less familiar with him?
Jennifer Burns:That’s a great question. I think he’s not necessarily the first economist that anyone on the left, right, or center is necessarily turning to. But in part that’s because a lot of the basic assumptions we make about the economy, about politics, a lot of the basic set of ideas we might consider when looking at policy — a lot of these were first proposed by Friedman. When they were first proposed by Friedman, they seemed totally crazy and outlandish — which is part of what contributed to his public reputation, because he seemed so interesting because he was saying things others weren’t. But they’ve now really become either common sense or mainstream, or even ideas we don’t really notice because we just think they’re the way the world is. And although I talk a lot in the book about his connections to the conservative movement, what really makes him significant is that these ideas broke out of the conservative movement and became deeply influential also in the Democratic Party, on liberals, and helped define for a time the political center. So learning about Friedman is learning about how we got to where we are today.
Geoff Kabaservice: That’s great. There has been some pushback against your book’s subtitle that Friedman was the last conservative. Personally, I think it’s a marvelous subtitle, but I’d like to hear more about why you chose it.
Jennifer Burns: For sure. It’s interesting because there’s two ways in which I’m thinking about him as a conservative, and one way perhaps is the last conservative. In terms of his economic ideas, what Friedman did was go back to ideas and methodologies and research approaches that had been left behind by the field at the time. The quantity theory of money would be an example, an older idea that people said isn’t really relevant in the modern economy. And Friedman said, “Well, let me go back, and I’m actually going to make this the basis of my research agenda.” And so you see that over and over again. He did deeply empirical work when the field was turning more towards abstraction and mathematization. And so in that way, I think of him as literally a conservative who tries to conserve these older approaches to economics.
The second meaning is about political conservatism, because Friedman was part of and really helped craft the twentieth-century conservative synthesis that brought together his ideas about capitalism and the potentiality of free markets, limited government, and also was joined to an outward look at the globe — global engagement, international engagement. And then also nested within that were social conservatives. And this was a blend that came together that had many internal contradictions and tensions, but it was quite a difference from what was called the Old Right in the pre-war era, particularly in its turn away from isolationism. And it’s different than the conversation we’re having now. I really wanted to situate Friedman in this twentieth-century conservative movement and then show him as a representative of that movement, and then ask… It’s really more of a question: Is he the last of this type of conservative or not? And I think that’s a question we don’t really have the answer to yet.
Geoff Kabaservice: I think that’s a question we’ll return to in a bit. I found myself wondering, while reading the book, why given Friedman’s enormous world-spanning importance and far-reaching influence, why there had not previously been a full-length biography of this magnitude written before? This probably isn’t the best comparison, but I did recall a conversation I had a number of years ago with some other historians, admittedly late at night and in a bar, about why there had not been an objective, archivally-based biography of Aleister Crowley, the British occultist and magician. And the general verdict around the table was that Crowley had written so much, so many millions of words, that he had ensured that only his acolytes would ever attempt his biography.
Friedman, let’s say, has little in common with Aleister Crowley, but he does have this daunting, outsized importance not only in economics but also in politics and even moral philosophy as well. And the magnitude of his achievements requires an objective biographer (as opposed to a partisan on one side or another) to master and synthesize a truly enormous range and volume of thought and scholarship and history across these fields. And you have magnificently done this. But did you have any inkling at the outset of how large a project it would be to write about Friedman in depth?
Jennifer Burns: You know, they say ignorance is bliss. And ignorance can be productive, because I signed myself up for this and got underway before I really knew what I was signing up for. And part of that is I came to Friedman from having written my first book on Ayn Rand and became really interested in Rand as a political figure and public intellectual. And I said, “Oh, well here’s Friedman who’s doing the same thing. And yes, he’s also an economist, but really he’s a popularizer of ideas.” And so I started interested in that Friedman, and then I pretty quickly got into Friedman the economist and was like, wow, there’s a lot of other stuff here. And I also didn’t realize how many fields of economics he had intervened in and that I would have to contextualize. Luckily I got going before I could really change my mind.
And I would say that the history of economics became so interesting to me — much more than I had expected — so that the final product of the book, it’s as much a history of economic thought and economic change in the twentieth century as it is a biography of Friedman. And when I got into the economic side, although there hasn’t been a biography of Friedman, there’s a great deal of secondary work on him, often done by his admirers, but just done by other economists who are interested in him. So I had some guides into that territory, for which I’m very grateful.
But yes, it took a lot of doing. And then trying to synthesize: there’s Friedman the economist, there’s Friedman the policymaker, and there’s Friedman the public intellectual. And I try to braid these three Friedmans together over the course of… His life maps onto the twentieth century, so we can go through the Great Depression, World War II, the Cold War, the fall of the Berlin Wall — we could go through all that through Friedman’s eyes. And oftentimes he’s actually a participant in some of these events and really shaping people’s interpretations of them.
Geoff Kabaservice: He was born in 1912 and died in 2006…
Jennifer Burns: Yes.
Geoff Kabaservice: So his life really does span almost the entirety of that twentieth century.
Jennifer Burns: Yes.
Geoff Kabaservice: Your biography does have that great advantage of placing Friedman in the context of this sweeping and comprehensive history of the evolution of economic thought, which you do a great job of making comprehensible to the average reader. Did you yourself have any specialized training in economics and economic history, or were you mastering this as you went along?
Jennifer Burns:I had undergrad micro and macro under my belt, which I think helped and probably I wouldn’t have done the book without that. And that’s it. I had some training from previous work in thinking about macro data and how to tell economic stories. But one thing I really want the book to communicate is that there’s been this mystification around economics and the history of economics. And the field has become very quantitative, and to do work in economics you do need advanced specialized training, at least in mainstream, research-one-level economics. But there’s a whole other piece of the puzzle, which is how do these ideas fit with other ideas? What is their upshot in the political realm? And all of that is approachable, so you don’t need to be an economist to understand the history of economics and to understand why it matters. And I think that’s one of the messages of this book: Come on in, the water’s fine. You can understand this discipline and you can have some judgments and some ideas about it even if you’re not practicing it.
And I’ll also say I focus really on the research university world, but there’s actually lots of different ways to think about economics that are out there. There’s a whole policy world around monetary policy, and then there’s all the universities and colleges that are teaching different types of economics that maybe aren’t going to result in a Harvard professorship but nonetheless are shaping the way people think about markets, the state, economic efficiency, free enterprise. And I think those are all important to know about as well.
Geoff Kabaservice: Jennifer, you and I met up in person most recently at the Denver conference of the Society for US Intellectual History just a few weeks ago.
Jennifer Burns: That’s right.
Geoff Kabaservice: And we were both on the same panel discussing Andy Koppelman’s recent book about Friedrich Hayek. And I have to say I was surprised that we drew a pretty large and attentive audience.
Jennifer Burns: I think so.
Geoff Kabaservice: And I wonder whether there is some feeling within the field of intellectual history — that is your main area, I think — that there’s more interest in economics and even some of the conservative approaches to it that haven’t just been consigned to the ash heap of history in these historians’ minds.
Jennifer Burns: I think so. One, there’s been a turn to the history of capitalism, but that hasn’t been taken up by intellectual historians so much, so I think that makes sense. Secondly, they’re really interesting ideas once you get into them, and they actually have a big impact on the world. And I think there’s been maybe an overproduction of focus on one set of economic ideas — Keynesian synthesis ideas that were taken up by social democratic parties or more New Deal, liberal parties — and there’s been less on the conservative side. And so I think there’s plenty of work left to be done and plenty of space. Libertarianism in particular has been caricatured as extremist and irrelevant. And I actually think there’s something about the political extremes that’s very relevant because they set up these purist boundaries. And then most of the action does happen in the center, not on the edges, but the edges define what the center ends up being. I think more scholars are realizing that. And yeah, there’s a lot to be said.
Geoff Kabaservice: Can you tell me something about what kinds of clues to Friedman’s politics might have been evident in his childhood and early upbringing?
Jennifer Burns: There’s not a ton in his childhood. The main thing that we can know and notice is that Friedman was the child of immigrants, Jewish immigrants from Eastern Europe. And they came in the early years of the twentieth century, in which there were different waves of migration from Eastern Europe. And so his family was typical in that way. They were atypical in that they did not stay in New York City. The vast majority of these immigrants stayed in New York or maybe Chicago, and his family moved to Rahway, New Jersey. And that suggests maybe they were interested in different things than the vast bulk of their countrymen.
It also suggests they had some more financial backing. They weren’t desperate. They could actually make a move. And they weren’t affluent by any means, but they had a little bit more level of comfort. They weren’t starving in a tenement, in other words. And so that may end up being very important, because Friedman was not immersed in this communal, socialist-oriented Jewish community that flourished in New York. Instead, he was in small-town New Jersey, one of ten Jewish families and very aware of his identity as an outsider. But he had a very prosperous and happy childhood. And so I think that may have opened him to other influences, where if he’d grown up in New York he may have been steeped in socialism from a young age and not come to the same commitments that he ultimately did.
Geoff Kabaservice: I think you do point out that although Friedman was an atheist, although he wasn’t really involved with Judaism in a meaningful sense, he was subject to anti-Semitism at various points in his life and career. And he came to feel that capitalism had been very important, along with meritocracy, for Jews’ rise away from systemic social discrimination.
Jennifer Burns: And again, that’s a very counterintuitive conclusion — at least insofar as the vast bulk of American Jews favored a more activist state and favored the Democratic Party, which he did not. And so I think his framework… There were two frameworks. One was thinking about what is the fate of Jews in the Russian Empire when it dictated where they can live, what types of jobs they can hold? And he saw this as a form of economic regulation that was in fact inspired by discrimination and prejudice.
The second piece of it comes from his analysis of the American Medical Association. This was part of his doctoral dissertation, and he was comparing how much income doctors made to dentists. And he concluded one reason doctors made more was that there was effectively a cartel, the American Medical Association, which licensed them before they could be doctors. But he also observed in the late 1930s that the American Medical Association began requiring English-language competency to practice as a doctor — and this was the exact moment that many German-speaking Jewish doctors were fleeing Nazi Germany. And so he thought this was discrimination, and so he thought the American Medical Association was performing an economic regulation in the service of some greater good, but was actually covering discrimination. And he ended up feeling that happened in a lot of cases, and that if you had an open market, an open competition, that would ultimately benefit Jews and Jewish participants in the market, because they would be able to do well and they would rise on the merits.
Geoff Kabaservice: I found your description of that episode fascinating. We do not, unfortunately, have a lot of time to go into the economics side of Friedman, although I have heard some of the pods you’ve been on which have covered that in depth — Russ Roberts, for example. But I would like to ask a basic question, just for the people who might not know a lot about the economics background here. Friedman ended up at Chicago, the University of Chicago, and in many ways he was the leader of what came to be called the Chicago School of Economics. And the two basic strains of economic thinking on which the school seems to have been based were what’s called Chicago price theory and monetarism. Can you give a layperson’s explanation of what all this is about?
Jennifer Burns: Yeah. Chicago price theory in some ways is just sort of microeconomics or economic analysis. So you have supply, you have demand, you have scarce resources, and you have sellers and buyers trying to find a price: the buyer, a price that works for them; the seller, a price that they [are willing to sell for]. And basically all these people sort of interact, and you can model this on a very simple graph. And ideally at the end of a market trading day, let’s say, the markets clear — that is, everybody sells as much as they want to sell and everybody buys as much as they want to buy — and so it comes to what they call equilibrium. Now, this is very abstract, and it’s a simple model that admittedly doesn’t reflect real life. But what it does incorporate is this idea that over time, market trading will result in socially optimal outcomes. In other words, people get what they want out of this. And you don’t need a planner, you don’t need a plan. You simply need to let this market exchange kind of work its way out.
So that’s a basic kind of approach to economics that we still have with us today. The Chicago difference is that this is taught with more intensity and felt with more fervor. There’s a real commitment to these ideas at Chicago, where in other universities they might be leavened by different approaches — and I’m speaking now of the 1930s. And then Chicago also takes this framework, and Chicago economists in the line of Friedman start applying it outside economics, and they start thinking: “Does this type of behavior, this way people behave under scarcity — can we apply this beyond the buying and selling of commodities to other decisions, other ideas?” So Friedman will apply it to policymaking as a whole and say, “This is an interesting model for making policy.”
Some of his students will take it to what we know today as a sort of Freakonomics approach. In other words, marriage is a market and people are kind of, when they’re dating, they’re sort of buying and selling. This approach again, it seems like, yeah, that’s interesting, it’s quirky. We all know about taking this type of metaphor and applying in other ways. But really this was innovative, different, and somewhat shocking when Chicago economists first did it. So it’s taking economic logic and blowing it up across sort of the whole of life: applying it to government, applying it to personal decisions, making it a sort of totalizing system. So that’s kind of Chicago price theory, I would say, in a nutshell.
Geoff Kabaservice: Okay. And how about monetarism?
Jennifer Burns: Monetarism is the name that’s eventually given to the ideas Friedman espouses. And this begins with a reconstruction of the quantity theory of money in which Friedman’s looking literally — and he’s working with his great collaborator, Anna Schwartz — they set about to literally measure how much money is in the United States economy at any given time, and so they literally add up the bank statistics they can find. And Friedman and Schwartz end up arguing that this quantity of money has a real impact on the nature of economic activity that really drives economic activity, or it slows economic activity. And this is counterintuitive at the time. It might seem like: Of course how much money there is has something to do with how much people buy and trade and sell and how expensive things are. But at the time, many economists thought money was a veil; in other words, it followed economic activity, it didn’t drive economic activity.
So Friedman’s contribution is to try to really say that money is a factor in these different historical episodes and today. And then monetarism from there points to the importance of the overall price level, which in the United States is managed by the Federal Reserve. And it then goes further than an observation and has a prescription, which is that what the Federal Reserve should do is grow the money supply at a consistent rate, no matter what. They shouldn’t try to respond, they shouldn’t try to speed things up or slow things down — although there’s plenty of room for addressing a liquidity crisis with fast action and trying to create more liquidity. But pretty much if you get monetary policy right, it will fade into the background. It should be consistent so people can make plans and you shouldn’t really have to worry about it.
And then monetarism advocates for what was called rules-based monetary policy over discretionary monetary policy. And again, this is now the world we live in. Rules are often used as a heuristic if it’s something like the Taylor Rule, which measures interest rates. Or inflation targeting is another form of a rule in that the Fed says, “This is what we’re doing,” and it is then held accountable to what it says it will do. And again, this is like, okay, sure, this is how the Fed works. This is how central banks work. In Friedman’s day, the central bank was extremely secretive. Nobody knew what they were doing. They didn’t have to release the minutes of their meetings. They didn’t have to say what they had decided. They didn’t have to do any of this. And so Friedman, one of his life works was sort of pulling the curtain back on the Fed and saying, “It will be better if people know what you’re doing. And once they know what you’re doing, you’ll have to be consistent, and that consistency will be better overall.”
Geoff Kabaservice: Tyler Cowen has a new online book out called GOAT, which is his personal ranking of the greatest economists of all time. And he would put Friedman in the top three, and perhaps the greatest economist as an economist of all that there have been. Friedman was honored with the John Bates Clark Medal in 1951, so it’s not that he exactly was a pariah in the economics discipline. But in fact his approach to economics did put him outside of the mainstream, really from the 1940s through the early 1970s. And a lot of these ideas that you’re talking about, such as monetarism and price theory, were really, actually laughed at by the Keynesian mainstream. And you raised that interesting episode where Paul Samuelson, another eminent economics professor of the era, was basically just laughing at the idea that anyone would take the quantity of money seriously.
Jennifer Burns: Exactly. What’s interesting is that the Clark Medal, which is an important honorific — and Friedman’s maybe the second or third of the forty-odd who’ve won this medal — that comes early in his career when he’s begun to make a name for himself as a statistician and a mathematical economist. And no sooner does he make a name for himself, with several papers that are well regarded, than he decides this approach isn’t really helpful; this approach is going to yield complex models that refer to themselves but don’t necessarily map onto the real world of economics and the real world of what’s happening out there. So he wants to go back to a more traditional way, associated in some ways with the institutional economists, which is measuring actual decisions that people make and working with data that comes in from the field — so consumer surveys or income surveys.
And so this is, again, something we can more easily do today where in the era of Big Data you can slice and dice and analyze all this stuff with a few strokes of your keys on a keyboard. Friedman had to really put these numbers together and then think through in that way. And it looked like he was going backwards, and the emphasis on money also looked like he was going backwards. And his fellow economists knew he was more conservative than they were and they thought, “What a pity. This once-promising intellect has become wrapped up in ideology and is chasing down irrelevant things because he’s just a backwards kind of… He’s regressive, he’s retrograde.”
And then fast-forward a couple of years and he comes out with this enormous blockbuster of a book co-authored with Anna Schwartz, A Monetary History of the United States. And that’s among the first to get the profession’s attention. He also has a more technical work, the theory of the consumption function, that also gets their attention. And they kind of begrudgingly realize they have to pay attention to Friedman. What’s really interesting is throughout his career, Friedman is heterodox. He is flowing against the tide. And as such, for at least a decade, he is kind of the motor in economics, because people are disagreeing with him so much that they have to have these really intense arguments. And so it really kind of drives the field forward, this kind of Friedman-versus-everyone else, for a good deal of the time. And then eventually Friedman’s ideas are taken up more broadly and there’s kind of different variants of them.
Geoff Kabaservice: You’d described that part of what made Friedman a conservative was that he was interested in older and seemingly outdated economists and models. So for example, he went back to Alfred Marshall and reclaimed some of his insights. And Irving Fisher also was somebody who had been very interested in the quantity of money, and Friedman in a sense updated some of those ideas to meet contemporary situations. But it also seems to have been some of Friedman’s advantage — and here I’m picking up on some of what you’re saying — that he was outside the establishment, that he wasn’t captured by their groupthink. And to some extent he was actually free, particularly in the early part of his career, to really originally develop these insights with the benefit, like I said, of some of these past models.
Jennifer Burns: Yeah. I mean, this is the ideal story of how academic life is supposed to work, that Friedman’s able to follow the ideas he thinks are compelling. He’s got tenure, no one’s telling him what to do. Everyone else thinks these ideas are really bad, they don’t make much sense. And he just keeps going at it until he can make a persuasive case that they should pay attention to what he’s publishing and what he’s writing about. And so what’s interesting to me is that the presence of Chicago… Within Chicago, there was a strong drive for conformity around Friedman, and they were kind of creating a coherent intellectual world. Within the larger discipline, it very much was what we might say viewpoint diversity, and it kind of pushed things forward because there was genuine debate within the discipline. And so I think that’s distinctive. And in some disciplines today, we no longer have these types of debates and we have much more uniformity in approach. And I think that ultimately weakens the intellectual work that is done.
Geoff Kabaservice: On the subject of viewpoint diversity, one of the other things about Friedman’s career as an economist that really stands out from your account, which I have never really seen elsewhere, is the extent to which he relied on a group of women economists as collaborators. And I’m thinking here of obviously his wife, Rose Director Friedman; but also Anna Jacobson Schwartz, who you just mentioned was the co-author with him of his monetary history of the United States; Dorothy Brady; and Margaret Reid, who also seemed to have come out of what was then the sort of segregated world of consumption economics.
Jennifer Burns: Right.
Geoff Kabaservice: Can you talk more about Friedman’s willingness to collaborate with women, which was very unusual among economists and academics at that time?
Jennifer Burns: Yeah. This was something I was not looking for and was very surprised to find, which is that in all of his major works, there’s a woman co-author or several women collaborators. And it really struck me… And part of it is what we were talking about, that these women were kind of segregated in an area of the field that wasn’t considered particularly promising, and it was sort of women’s work. They were studying spending decisions: buying and selling, shopping, household economics. And Friedman discovered that they had basically come up with incredible data and a lot of really interesting questions. And he was drawn into it through Rose and her friendships with these women, and through his intellectual curiosity, and also through his ability to take these women as economists first and women second.
That really comes out in the case of Anna Schwartz, who was treated very poorly by her immediate colleagues at the National Bureau of Economic Research and Columbia University. I tell this story in some detail in the book. They refused to give her a doctorate. She had co-authored a three-volume book on the British economy, she was co-authoring this other book, and they just would not give her any formal credit for this until Friedman actually intervened somewhat forcefully. But he was different in that way. He saw her right away as someone who could do really great work and could really collaborate with him.
And so I don’t know that there’s one single explanation for it. I do think it is significant that the University of Chicago, unlike other programs at this time, kept a faculty berth for a woman. So first of all, Friedman as a graduate student, as an economist, had seen a woman as a professor, and so he had seen someone in a position of professional authority. And then the theory of the consumption function came about in large part because he was trying to get his friend Margaret Reid hired into the same position in Chicago. The original economist had retired that he knew as a graduate student. Now he’s a faculty member there, and he wants to get his friend hired. And so he starts writing up their ideas and eventually this turns into the book. So I think there’s an institutional part of the story, and then I think there’s a personal part of the story, which is Friedman had the ability to set aside some of the social norms and just focus on the person in front of him. And in this case, it paid really big dividends for him. But also, the women did not get full credit for their work, but they did get some credit, and that was better than getting no credit whatsoever.
Geoff Kabaservice: Friedman in these episodes does come across as an attractive person. But in a lot of other ways throughout your narrative, Friedman comes across as more of a brain in a vat. And you have this story that his wife would take him to operas and symphony performances, and he would read a book. He would have no idea why anyone would go to Paris and go to museums. He seems to have distanced himself from his extended family. There’s a shocking story about his wife having been raped at gunpoint in their Hyde Park home in the mid-‘50s when Milton was away in India, and him taking a while to kind of understand and appreciate why he actually should come back and say something significant to her to try to get her past this trauma — and then he insisted that they stay in the home anyway. And there was that comment by Wesley Mitchell, who I guess would’ve been Friedman’s superior at one point at the National Bureau of Economic Research in New York, pointing to Friedman’s “lack of interest in and appreciation of non-rational factors that influence, + even at times dominate, economic behavior” and feeling he had not enough insight into human behavior. And I wonder if that’s a valid criticism to make of some of Friedman’s larger economic thought.
Jennifer Burns: Yeah, I do think it is. I mean, I think that is both the power of the ideas — that they’re so abstract and they’re internally consistent — and it’s also the problem because human beings often act in irrational ways, and you can’t necessarily abstract and map something abstract on them. Now, Friedman would say he’s aware of this, that you’re talking as if, we’re acting as if people are rational. And when you look, it’s also a statistical truth that the individual acts differently than the group, or you can analyze the group in a different way than you can the individual. Nonetheless, I think it fed into maybe an undue optimism about how capitalism could and would work, and how markets could really solve social programs without specific guidance.
An example of this would be the idea which he really took from his student, Gary Becker, that it’s irrational to discriminate and also you pay an economic price for racial discrimination. And therefore letting markets work their magic would eventually eliminate discrimination, because no one would want to be paying this tax if they didn’t have to. And I just think that’s not an adequate account of discrimination at all. It’s not an adequate solution. It doesn’t recognize that there might be other things people gain from discrimination or in-group/out-group conflict that don’t have to do with numbers, that really can’t be added up. And so I think that’s the kind of downside of Chicago price theory: “Let’s analyze everything through an economic lens.” It’s like, wow, you can see a lot of interesting stuff you couldn’t otherwise see, but then you’re going to miss a huge part of the puzzle as well.
Geoff Kabaservice: You do a very interesting job of pointing out that the Chicago School’s response to the Depression was not a simple idea that everything should be liquidated or the Hayek idea that the market will eventually sort everything out. In fact, they were willing to conceive of a very large role for state intervention in a crisis. And Friedman’s thinking from the 1930s through the 1950s seems to be quite creative, more so I think than people conceive of when they think of the standard idea of libertarianism. Maybe that’s partly because they were somewhat on the defensive in terms of trying to resurrect some of the classical liberal ideas.
There’s an episode that I wish we had more time to go into, which was the 1945-to-‘46 study “Roofs or Ceilings,” which was a critical analysis of rent control that Friedman co-authored with his friend George Stigler; they were known sometimes as Mr. Micro and Mr. Macro for their disparities in height. And they wrote this for the Foundation for Economic Education, which was kind of a proto-conservative think tank of sorts. And these people, through a mixture of philistinism and anti-intellectualism and ideological fervor, took it upon themselves to censor the work of these two future Nobel Prize economists, and basically were showing Friedman what it was like to have this kind of unreasoning, far-right crackpot approach to economics. And he determined that he would keep his distance from that. I thought that was just a fascinating episode.
Jennifer Burns: Yeah, it’s one of the great episodes of all time because it involves Ayn Rand calling Milton Friedman a communist. That’s kind of a subplot that I’ll have to leave listeners to find out in the book. But I would say this episode is about how to talk about capitalism in the post-war era. And the people publishing the book, or the pamphlet rather, not only are they not egalitarians, they’re sort of anti-egalitarians.
Geoff Kabaservice: There’s a great quote from Orval Watts, who was the deputy to Leonard Read at this organization, that “income tax is a crime,” but also “It’s collectivistic to have more equality, and we have too much now.”
Jennifer Burns: Right, exactly. So they basically say capitalism results in social hierarchy: some people win, some people lose, that’s the way of the world. It’s pretty much social Darwinism. And Friedman does not want to make this argument. He’s opposed to it philosophically, ethically, and almost aesthetically. He almost can’t pinpoint why he doesn’t like it, but he definitely doesn’t like it. He wants to make a different type of argument for capitalism. So almost in reaction to that, he ends up arguing, “Well, capitalism is going to solve a lot of social problems, and capitalism is going to in some ways remedy inequality. It’s going to remedy prejudice.” Now, the idea of capitalism remedying inequality sounds in our Piketty era, totally crazy. Everybody knows capitalism creates more inequality. But actually in the mid-20th century, everybody knew the opposite. Because if you look at when a country industrializes and goes through a capitalist transition, there’s often a diminution in inequality because you move from agrarian peasants and nobility to a middle class emerging. So measures of inequality go down.
So Friedman had evidence to believe that, but he also had a political reason because he wanted to believe that you could defend capitalism without falling into this kind of angry, social Darwinist set of arguments. So part of the solution to that is to be very optimistic and positive about capitalism, and part of it is to try to design policies that are compatible with capitalism that are a version of a safety net. And for him, that was what he called a minimum guaranteed income and eventually became the negative income tax. And that was a really essential part of his thinking because it allowed him to not sound like a social Darwinist.
Geoff Kabaservice: The Church of Latter-day Saints had once upon a time this practice of posthumously baptizing people into their religion. And I’ve been accused of doing that with moderation: people I like must have been in some sense moderates. But the picture you present of Friedman in mid-century is someone who is a dedicated capitalist but concerned about capitalism’s vulnerabilities, knowing in a Karl Polanyi sense that capitalism can provoke the forces that will overthrow it, and really working in a very creative way toward a positive, optimistic vision based on capitalism but with a role for the state. And I just found that fascinating.
Jennifer Burns: I think a lot of that is the legacy of early Chicago, and a lot of it is why I spend time talking about the influence of men like Frank Knight and Henry Simons, who live through the Great Depression, who see it and who fear this is the end of capitalism, and this is a real problem, and we need to actually change our ideas to address this. And so they’re pessimistic and they’re worried, and Friedman shares their sensibility for a long time.
But over time he’s less close to them. Simons passes away and then he drifts away from Knight. He becomes more of an economist, more focused on the price theory as his main analytic, and he also becomes more optimistic. And the 1950s are a pretty good decade in the United States; especially they’re a good decade to be a Jewish academic. The barriers to prejudice fall. There’s a consumer economy like no one has ever seen before. Those problems and fears and anxieties of the 1930s, they’re sort of in the rear view. So I think over time he does become more of a booster of capitalism and more committed to capitalism. And he also comes to fear that he needs to really press the case harder because there’s not enough voices on his side. So I think there is a bit of a narrowing and thinning that happens over time.
Geoff Kabaservice: So speaking of moderates, Jennifer, I first encountered your work about fifteen years ago when you wrote a terrific essay on the New Conservatives of the 1950s. And these were largely forgotten, moderate-conservative figures like Peter Wiernick and August Heckscher and a few others. I don’t want to say that you and I are the only people who have ever studied the New Conservatives — there are people like George Nash and Josh Tait — but it’s a handful of people. And so what was it that interested you about that group and maybe then the history of intellectual conservatism more generally?
Jennifer Burns: I was really interested in how contested capitalism was at that moment…
Geoff Kabaservice: And conservatism for that matter, too.
Jennifer Burns: Yeah, both were. And so there was a way in which New Deal liberals were trying to say, “Well, this is what conservative means, and conservative in America doesn’t have anything to do with capitalism. It has to do with preserving our traditions and our national heritage.” And then the people who actually wanted to call themselves conservatives said, “No, actually, what’s important about American conservatism is that it supports capitalism. That’s what made America, that’s what is distinctive about us. And we’re going to call ourselves conservative even if we’re supporting an economic system that many people have noticed is actually driven by change, disruption, it isn’t very friendly to tradition. We’re going to make this part of our conservative movement because in the United States, conserving what’s good about the American tradition means conserving capitalism.”
And so they actually win that argument and they fold capitalism, they fold people like Friedman into the conservative firmament. What I think is so interesting about our present moment is this debate has kind of broken out again. Some conservatives are saying, “Actually, unregulated capitalism is part of the problem, or corporations are part of the problem. We need to use the state to discipline their activities.” And so I think this 1950s debate, which seems somewhat obscure, we’re kind of having it on repeat — of course with different issues in play.
But I think Friedman was part of the settling of that debate because he was a very good public representative of conservatism. And unlike a figure like Rand, he didn’t pick fights with other members of the coalition. He decided to play nice. In any coalition, there’s a kind of duking-it-out phase, and then if the coalition is going to survive and prosper, people decide to set aside their differences and work about what they have in common. So I think we’re kind of in that debate once again. Yes, everyone should go look at the New Conservatives. Every fifteen years there’s a bunch of people who call themselves New Conservatives, but these are the original New Conservatives.
Geoff Kabaservice: God bless them. I find myself wondering where you grew up and went to school in college.
Jennifer Burns: I grew up in Connecticut in a family full of readers. And so I think I always knew I would write a book, I just didn’t know exactly what kind. And so then I’m a graduate of Harvard College. I was a history major there, and I did take some economics as part of the distributions. And then I went to the University of California, Berkeley for my Ph.D. in history. And no one can believe I wrote a dissertation on Ayn Rand at UC Berkeley, but I did. It was a fabulous place to be, it was. It still had that kind of spirit of the ’60s: free inquiry, free speech, follow what you’re interested in and we’ll support you. And I came there at the moment when the historical profession was feeling that conservative ideas and politics and organizations in the United States had not been adequately studied given their historical significance. So there was a real shift in the field to like, “We’ve got to learn about conservatism. There’s clearly something going on here that’s important.” And so my work on Rand really fit into that.
Geoff Kabaservice: You got in on the ground floor.
Jennifer Burns: Yes.
Geoff Kabaservice: New Canaan, Connecticut was somewhat stereotypically the epicenter of a kind of business, Wall Street conservatism. Did you find yourself reacting against that conservatism, trying to understand it? Or did it have no relation to your upbringing?
Jennifer Burns: I think if anything I went to schools in which conservatism was never mentioned or discussed, yet I was aware from my own household that there was this world of conservative ideas out there. And so I sort of always felt this tension between the stories I learned about what was important in school and this kind of other world I knew was out there. And that really did show up in the historical profession in that conservatives hadn’t really been studied or even really incorporated into our understanding of history. So I felt like this was a one-sided picture, and I wanted to kind of bring it more into balance.
Geoff Kabaservice: Your first book was, as you said, Goddess of the Market: Ayn Rand and the American Right, published in 2009, I want to say.
Jennifer Burns: Yes.
Geoff Kabaservice: It was one of Bill Buckley’s claims to fame that he had marginalized both the John Birch Society and Ayn Rand and her Objectivists. How do you look at that as the biographer of Rand?
Jennifer Burns: I think this is sort of fashionable to say now that Buckley’s purges weren’t actually successful. And I feel like nonetheless they were important. It was important that he tried. I think with Ayn Rand, he sort of pushed her underground and she then was still a conduit into what may be the more mainstream conservative movement, so I don’t think Buckley was ever able to purge her. And I think she sort of pointed to a secular right that wasn’t buying into Christian conservatism, a right that was animated by these more utopian ideals about capitalism.
And so I think there’s always… If there’s a mainstream, there’s always people outside the gates interested in getting in and also having their own intellectual world. What struck me with Rand was nobody put her on a syllabus, nobody endorsed her, she was panned in National Review again and again — and people kept finding their way to her, and they really formed an intellectual subculture around her. I think today we have a proliferation of these intellectual subcultures, many of which would not have been authorized by William F. Buckley. But he had a little more ability, given the more consolidated media landscape, to try to do that sort of work.
Geoff Kabaservice: So skipping ahead a bit, by the early 1960s, Friedman has decided that Buckley is okay as a conservative, partly because he marginalized antisemitism within the right but also took his stand against the Birch Society.
Jennifer Burns: That’s right.
Geoff Kabaservice: And yet although the division once upon a time between the moderates and the fringe (or the conservatives) in the Republican Party had been in effect your willingness to accept the New Deal in an Eisenhower sense and govern responsibly, by the early 1960s the division between moderate and conservative is how you view the civil rights movement. And Friedman comes down on the conservative side in opposition to the civil rights movement, as does Barry Goldwater, who becomes the Republican Party’s presidential nominee in 1964 and casts his vote against the Civil Rights Act of 1964. What was going on there?
Jennifer Burns: Yeah, that’s a really important moment. Friedman is trying to fight against what he calls the fringe or the crackpot conservatives in the ‘50s, which is McCarthyism and isolationism. In the ’60s, it’s the John Birch Society. And then he ends up really endorsing Goldwater’s opposition to the 1964 Civil Rights Bill. And it’s not just that bill. As your own work really makes clear, this is a fulcrum on which moderate Republicanism is going to turn, civil rights. So moderate Republicans are supporting civil rights, and they’re actually some of the most important people to move civil rights forward because in the beginning the Southern Democrats are very much opposed to it. This is before the great party reshuffle.
And I really think it’s one of these could-have-beens. Friedman is such an articulate spokesperson, and he puts himself on the side of those opposed to civil rights, and that’s an enormous boost in the arm for those conservatives. He’s able to talk about it in an idiom that’s not overtly racist. And he deprives the moderate Republicans of what I think would’ve been a very powerful intellectual force. It doesn’t necessarily make sense, if you line up where he is in each decade before that, you would think he would not want to be partnered with Southern segregationists. But he ends up deciding it’s a question of principles and the government doesn’t have the right to tell people how to run their business or who to associate with. And he just completely ignores the fact that segregation in the South is an instance of state discrimination and state violation of rights. It’s incredibly clear cut, and he doesn’t see it. And I think that’s the-problem of the abstract framework that sometimes cannot touch down to see: What is actually happening, and is my framework actually applicable here?
Geoff Kabaservice: It seems to me that he had always known that freedom and equality were in tension, but this is the moment when he comes down on the side of freedom over equality — and then, like you said, fails to recognize that this champion of liberty is actually supporting the right of the state which is actually actively oppressing, which is a police state in so many ways.
Jennifer Burns: Yes, it’s like the great champion of liberty, the great opponent of state tyranny is missing what’s right in front of him in plain view. And I think Goldwater had more agony over this. I don’t think Friedman had much agony at all. He felt like he very much knew what the right decision was to do. And Goldwater had more of a track record of trying to actually address some of these issues in his life, and then in the end he takes the philosophical approach.
I also contrast this with the experience of George Shultz, who was close to Friedman, very much aligned with Friedman in much of his economic thinking. But he had done some negotiating in the segregated South and he saw what life was like there, and he said we have to have affirmative action after this — not only supporting civil rights but going one step further because this system has been so terrible, so backwards and so damaging, we need some positive action to compensate. So this is a place where they extremely diverge. And I think Friedman could have done what Shultz did, which was set aside his more abstract framework and say there’s something different happening here — and he didn’t.
Geoff Kabaservice: I agree that that’s one of the great might-have-beens. What if this great economist of the 20th century had actually joined the side of the moderates in this case? What might’ve resulted from that? But it is also a fact that Friedman was an ally to the moderate Republicans on a number of key proposals during the 1960s. These include the earned income tax credit and even some thought around Universal Basic Income, the campaign by moderates to move to an all-volunteer military and get rid of the military draft, and also to some extent school choice as well.
Jennifer Burns: Yeah, for sure. So those are some ideas, and it’s pretty incredible… He writes this book in 1962, and I have to say Rose really helps him write it. She does most of the work…
Geoff Kabaservice: This is Capitalism and Freedom.
Jennifer Burns: Capitalism and Freedom, yeah. It’s a slim book. It has some ideas about the relationship between capitalism and freedom, and then it outlines all these policy proposals, which again seem crazy. Like a draft to no draft? We’re just going to pay people to be in the army? Well, that’s in there, and it comes to pass. Some other things, like there should be competition with the Post Office. Well, eventually we get the broad array of different shipping companies we have today. And yes, he talks about a negative income tax in that, and he brings forward his school choice proposal. So all of those are really still unfolding. We haven’t even touched on international economics, but there’s a argument for floating exchange rates which will emerge after Bretton Woods in the mid-to-late 1970s.
Geoff Kabaservice: There’s two sets of quotes that you put on the frontispiece of your book, one by Keynes and one by Friedman, which I think is quite significant. Friedman’s quote from 1982 is: “Only a crisis, actual or perceived, produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.” And I would say parenthetically that that’s I think the rationale of the Niskanen Center itself too. But clearly what changes the reception to Friedman’s ideas and his reputation is the coming of stagflation. And although I know we have relatively little time left, can you just talk about how stagflation really does give Friedman the opportunity to change the entire tenor of debate?
Jennifer Burns: Yeah. So A Monetary History is a story of deflation in the Great Depression, and it also gives Friedman insight into what would cause inflation. And so what he says in 1967… Coming into that era, it has been low inflation for many decades, and people even think inflation is a good thing because if you have a little inflation, you can lower unemployment. And Friedman says this trade-off, it can work in the short run but it’s not going to work in the long run. Because in the long run, you can end up with high inflation and high unemployment. They don’t automatically trade off. And this is heresy, it’s very surprising, and he presents a theory of why this would happen. Incidentally, there’s another economist who makes a very similar case at the same time…
Geoff Kabaservice: This would be Ned Phelps, who I talked to on my Substack recently.
Jennifer Burns: Yes, so it’s one of those history of science things when two people come up with the same idea in the same place, with no connection between them. So at any rate, he says, “Look, you’re going to end up with high inflation, high unemployment. You could theoretically — and actually it’s going to happen because the Federal Reserve has been expanding the money supply too much. And here’s about when it will take place.” He says this all in front of hundreds of other professional economists. They all think this is crazy. They debate, they argue. And then lo and behold, stagflation emerges, stagnation and inflation. High unemployment, high inflation, a complete mess. And it will vindicate Friedman’s ideas, and it will really set forth this dual mandate of the Fed. Friedman believes you have to work first on keeping prices low, because that will enable you to get unemployment low. But if you get prices high, eventually the economy’s going to go so haywire that unemployment is also going to go up. So it’s the long run versus the short run.
And it’s a really amazing moment where economists say, “He’s totally wrong. Look at all our data.” And then the next year, “Well, I’m not sure.” And then the next year, “Well, maybe he’s right.” And the year after that, the data shows that Friedman is right. We’re seeing what he said would happen. And so that gives him this enormous platform and really reorients people to thinking the Federal Reserve is important, money matters, the price level is important. And so there’s a real new focus. If the focus of policymaking through the ’50s and ’60s into the ’70s is the federal budget, the focus then shifts to the Federal Reserve. And that’s really still where we are today. The budget is important, but it’s understood the Federal Reserve has the biggest and most powerful levers for economic prosperity or economic downturn.
Geoff Kabaservice: I have two more questions for you, one somewhat narrow, the other broader. In 1970, Friedman wrote an article in the New York Times Magazine saying essentially that corporations have no real social responsibility; their only responsibility is making a profit for their shareholders. You call this “a long-lost article,” which implies that maybe this is like the Lewis Powell memo, which is seen as kicking off this era of neoliberalism but maybe its importance has been exaggerated in hindsight.
Jennifer Burns: Yeah. I go into it in the book. I think there’s other forces that put shareholders at the center of corporate governance…
Geoff Kabaservice: Particularly the law and economics movement…
Jennifer Burns: Also, basically corporate law has always centered the shareholder, so Friedman’s repeating as a social philosophy what exists in law. I think it’s overlooking that many people want corporations to do other things, and even people inside of corporations want to feel like they’re doing something besides maximizing profit. I think that’s why we’ve seen a proliferation of different triple bottom line, different corporations like that. But I think rereading the essay, it can be somewhat bracing because it reminds us that corporations are profit-making entities in their very structure in our society, and we live in a moment when many corporations are claiming they’re doing anything but making profit: they’re saving the world, they’re making the world a better place. And so I think it’s worth balancing that with consideration of what is their actual structure and function? Just to clear away some of the mythologies. But that is an interesting episode, and I would say the ideas of economists are influential, but they’re not that influential. They have to match some other structural changes. I dig into that in the book.
Geoff Kabaservice: The broader question I have, if I can figure out how to ask this… I had David Leonhardt on my podcast a few weeks ago, and he has got a new book essentially about the decline of the American dream. And he points out that from the 1970s onwards, there have been so many ways in which the American capitalist system is not working well, which would seem to coincide with a move towards something like neoliberalism, however you want to define it. That could be in terms of equality of opportunity, employment figures, even lifespans. And you had a quote here on page 344 which is about the International Monetary Fund’s change in 1978 to Article IV of its charter. And this would not seem to be a big moment in world history, but this in fact is what formalizes the move beyond Bretton Woods.
You said Bretton Woods really was something larger than paper. It had undergirded a certain way of looking at the world, one in which the United States valued alliances and codependency more than independence. And so in a sense, this is pointing the way towards the era of globalization that’s to come. But you also say that, in tearing down the system, essentially that Bretton Woods “had been connected to a larger political economy in which the federal government accepted responsibility for full employment, supported welfare programs ranging from medical care to retirement insurances, and mediated between big business and big labor. As the United States turned, so did the rest of the world.” And this seems an ambivalent development at best in your telling.
Jennifer Burns: Yeah, I think so. I’m just thinking about some of Leonhardt’s analysis. One thing Friedman doesn’t really talk about is what Eisenhower called the military-industrial complex and the enormous amount of state spending that underlays some of this broad prosperity, whether that’s the defense industries, whether that’s the interstate highways. So I think in today’s terms, he didn’t think a lot about state capacity and how that came about, because it was quite developed in his day. And I don’t think he predicted how that’s an area of continual investment. You can’t build a road and let it go. You can’t build an airport and not rebuild it every twenty years or ten years or whatever it would be.
So I do think there is a broader disinvestment in ways that was not productive, and ways in which they didn’t need to be in tension. They happened to be in the political world in which Friedman inhabited, in which state investments came hand-in-hand with regulations that he felt impeded private market activity. They don’t necessarily need to be in tension, they can move in parallel. And I think one of the stories we have that we now know about the rise of tech in Silicon Valley is that the government funded an enormous pool of basic research – often done in universities, some in corporations. And this basic research which didn’t have a goal or an end — it was dedicated to generating knowledge — ended up having all these applications — technological applications, business applications. And that government investment really was a boost to that private activity. That’s not in price theory, and it really wasn’t in Friedman’s worldview, but it’s nonetheless something we can see today.
Geoff Kabaservice: And that’s something that we are going to have to grapple with in the present moment and going forward. Jennifer Burns, thank you so much for joining me today, and congratulations again on your marvelous new book, Milton Friedman: The Last Conservative.
Jennifer Burns: Thanks so much. Great to be here.
Geoff Kabaservice: And thank you all for listening to The Vital Center podcast. Please subscribe and rate us on your preferred podcasting platform. And if you have any questions, comments, or other responses, please include them along with your rating, or send us an email at contact@niskanencenter.org. Thanks as always, to our technical director, Kristie Eshelman, our sound engineer, Ray Ingenieri, and the Niskanen Center in Washington, D.C.