A quarterly magazine of urban affairs, published by the Manhattan Institute, edited by Brian C. Anderson.
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Free to Change
A new collection shows the evolution of Milton Friedmans thinking.
11 January 2013
The Indispensable Milton Friedman: Essays on Politics and Economics, edited by Lanny Ebenstein (Regnery, 256 pp., $27.95)
Milton Friedman understood the importance of ideas. His work on the Great Depression reshaped the scholarly consensus on monetary policy, while his writing and lectures spurred many countries to liberalize their economies. Friedmans example confirms his assessment that real change results from shifts in the underlying current of opinion, not merely from political realignment. His own opinions evolved throughout his lengthy career. The Indispensable Milton Friedman, a new collection of essays and lectures edited by Lanny Ebenstein, provides a glimpse of that transformation. It serves as a reminder not only of Friedmans importance, but also of the tensions between different stages of his thought.
In 1951s Neo-Liberalism and Its Prospects, Friedman outlined why a new faith was necessary for economists and ordinary citizens after the failure of the collectivist model. He suggested, however, that collectivism was understandable in light of the laissez-faire excesses to which it responded. Friedman argued that laissez-faires negative approach failed to recognize both the tyranny of uninhibited individuals and the need for government to correct the limitations of the price system.
Friedmans new faith, which he called neo-liberalism, rejected both hyper-individualism and collectivism. In this conception, governments role was well defined as creating a competitive order, which entailed reducing regulations on business and enforcing antitrust laws; making predictable rules for altering the money supply; and relieving misery and distress among the disadvantaged, a task for which private efforts were insufficient. Friedman emphasized that these guidelines went beyond those espoused by classical economists, who would limit governments role to upholding the rule of law and creating public works such as roads and bridges. In a similar vein, his 1955 essay, Liberalism, Old Style, argued that government should take vigorous action to rectify natural monopolies and address neighborhood effects, problems too large for the private sector to resolve.
Friedmans devotees may find these early arguments surprising. His later essays more closely approximate the pure libertarianism for which he is best remembered. In contrast to his earlier skepticism over the classical model, by 1976 he called himself a preacher of laissez-faire. Indeed, whereas before he emphasized governments positive responsibilities, he now devoted his efforts to chronicling the inefficacy of public enterprises. In Adam Smiths Relevance for 1976, he questioned even the limited responsibilities classical economists delegated to government, arguing that Smith himself doubted governments competence in these areas. Friedman also retreated from his argument that only government could ameliorate the often unintended consequences of policies—what economists call externalities. Instead, he suggested that we lack the information necessary to undertake useful responses: There are no widely accepted objective criteria by which to evaluate such claims, to measure the magnitude of any external effects, to identify the external effects of the governmental actions, and to set them against the external effects of leaving matters in private hands. By implication, Friedman questioned the desirability of any government intervention.
A 1988 essay, The Tide in the Affairs of Men, revealed Friedmans now-exclusive interest in governments size rather than its purpose. Friedman described recent economic history as a struggle between two competing factions: supporters of big and small government. The overriding objective of the partisans of small government, Friedman implied, was removing government from the economy to the greatest extent possible; they had no interest in contemplating governments appropriate purpose. Neither, at this point, did Friedman. In a 2002 interview, he lauded John Stuart Mills On Liberty for arguing that governments sole purpose is to prevent harm to others.
Though the later Friedman didnt advocate an active government, his final policy prescriptions again draw upon his neoliberal impulses. In School Choice: A Personal Retrospective, Friedman argued that the government should create competition among educational institutions through school vouchers. Likewise, in How to Fix Health Care, he advocated medical savings accounts that would provide flexibility for consumers.
Why did Friedman avoid making the broader philosophical case for neoliberal economics if he supported it in practice? Perhaps he was constrained by his context. His stature increased as the Soviet Union extended its influence around the globe. He rightly stressed the superiority of a shrunken government, especially when supporters of greater centralization occupied influential positions everywhere, including in the U.S. But his strong commitment to anti-Communism may also have hindered him from acknowledging governments crucial, if limited, role in liberal democracies.
A similar challenge faces todays conservatives, who struggle to reconcile an appreciation for governments essential functions with their unyielding skepticism of public power. Mitt Romneys presidential campaign, which offered little in the way of a constructive vision for government, crystallized this problem. In contrast, Friedmans example shows that one need not choose between free markets and creative public policy. If conservatives wish to convince voters that they have their economic interests at heart, they must reject this false choice.