During the 20th century, there was much debate among economists about what role the government should have in shaping economic policy. While interventionists, notably John Maynard Keynes, believed government programs necessary to tackle the problems of unemployment and inflation, Milton Friedman – who died this week at age 94 – believed the best thing a government could do to help an economy is get out of the way.
Calling himself a classical liberal, Friedman audaciously dismissed the interventionists, shredding several of Keynes' theories in the process. Above all, Friedman stood as a champion of not only economic but human freedom, notoriously advocating against compulsory military service, restrictions on foreign trade, and the criminalization of prostitution and drugs.
In 1976, Friedman was awarded the Nobel Prize in Economics – one of several distinguished awards he was to receive throughout his lifetime. Yet his humble beginnings in working-class Brooklyn affirmed the axiom that free markets will reward the patient diligence of individuals with the fruits of prosperity.
While free-market philosophies have come to dominate economic thinking as of late, it was only as recently as the 1970s that then-president Richard Nixon declared himself a Keynesian. By that point Keynes himself had been dead for decades, but Friedman was around to blame the decade's stagflation – high unemployment coupled with high inflation – upon Keynesian economic policies. Friedman's laissez-faire thinking subsequently became valuable currency during the tax-slashing age of Reaganomics.
It could be argued that Friedman's influence upon the direction of the world's largest economy in the 1980s led to America's even better economic performance during the 1990s. Low inflation, a raging bull market in securities, the widespread gentrification of formerly blighted urban areas – the century's end was kind to America, a vindication of once-controversial free trade agreements and the monetarist school of economic thought with which Friedman's name became synonymous.
Friedman's ideas owe much to the man known as the first economist, Scottish philosopher Adam Smith, whose seminal 1776 work An Inquiry Into the Nature and Causes of the Wealth of Nations famously suggested that an "invisible hand" would guide people toward their own self-interest. Classical economists such as Smith believed that a natural state for free economies was full employment. The United States today, with a population that has recently passed the 300 million mark, has an unemployment rate of just 4.6 per cent. With an increasingly mobile workforce delivering labour to where it's needed, America has work for nearly all of her willing citizens – and even, as has lately been much-reported, her undocumented immigrants.
Perhaps the most impressive aspect of the American economy is how new entrepreneurs are being made daily, many of them earning a living in ways most unlikely. Only in America could you, for example, make your fortune as a professional harmonica instructor. Or, for that matter, as a Barry White impersonator.
During Friedman's long life he got to see laissez-faire economics move from unorthodox to mainstream. He observed the failings and the collapses of centrally planned juggernauts in the communist world. Despite his advanced age, he never plunged into senility, opining in 2004 that even as Russia and China have become freer with their embrace of market capitalism, many western societies were suffering beneath the yoke of increased regulation. Still, he did, during that interview, declare himself "an optimist," and although he had already won many battles, he would still continue to argue for school vouchers and privatizing Social Security.
"Government today controls something like 40 per cent of the resources of the country," said Friedman in an interview last March. "A decent government controls like 10 or 15 per cent." He then joked, "The virtue is that government is so inefficient, it wastes the great bulk of those resources. If it used those resources efficiently, it could do great damage."
Keynesianism and governmental attempts to tweak economic demand were in vogue during the 1950s, when Friedman came of age as an academic. This was a time of "galloping socialism," as Friedman described it, which would later slow down to "creeping socialism." During, however, the Reagan and Clinton administrations, the U.S. federal government even experienced a contraction. But there is no mistaking that Friedman, a lifelong Republican, felt betrayed at the current Bush administration's runaway budgets when he said, again in March, "I think it's really disgraceful that the Republican Party, which preaches holding down the size of government, should have been, and the Bush administration should have been, such a big spender."
If you believe sound monetary policy, rather than happenstance, to be responsible for today's prosperous times, do remember Milton Friedman. He may have left this world, but his ideas are here to stay.