The Total Demolition of Milton Friedman

Mention “free-market economics” to a member of the lay public and chances are that if he has heard the term at all, he identifies it completely with the name Milton Friedman. For several years, Professor Friedman has won continuing honors from the press and the profession alike, and a school of Friedmanites and “monetarists” has arisen in seeming challenge to the Keynesian orthodoxy.

However, instead of the common response of reverence and awe for “one of our own who has made it,” libertarians should greet the whole affair with deep suspicion: “If he’s so devoted a libertarian, how come he’s a favorite of the Establishment?” An advisor of Richard Nixon and a friend and associate of most Administration economists, Friedman has, in fact, made his mark in current policy, and indeed reciprocates as a sort of leading unofficial apologist for Nixonite policy.

In fact, in this as in other such cases, suspicion is precisely the right response for the libertarian, for Professor Friedman’s particular brand of “free-market economics” is hardly calculated to ruffle the feathers of the powers-that-be. Milton Friedman is the Establishment’s Court Libertarian, and it is high time that libertarians awaken to this fact of life. the free market, and it then becomes the task of government to “correct” that defect by taxing B to pay A for this “benefit.”

It is for this reason that Friedman endorses government supplying funds for mass education, for example; since the education of kids is supposed to benefit other people, then the government is allegedly justified in taxing these people to pay for these “benefits.” (Once again, in this area, Friedman’s pernicious influence has been in trying to make an inefficient State operation far more efficient; here he suggests replacing unworkable public schools by public voucher payments to parents—thus leaving intact the whole concept of tax-funds for mass education.)

Apart from the vitally important realm of education, Friedman would, in practice, limit the neighborhood effects argument to such measures as urban parks. Here, Friedman is worried that if the parks were private, someone might enjoy looking at one from afar and not be forced to pay for this psychic benefit. Hence, he advocates public urban parks only. Rural parks, he feels, can be private for they can be secluded enough to force all users to pay for services rendered.

It is small comfort that Friedman himself would confine this neighborhood-effects argument to a few instances, such as education and urban parks. In reality, this argument could be used to justify almost any intervention, and subsidy and tax scheme. I, for example, read Mises’s Human Action; I therefore imbibe more wisdom and become a better person; by becoming a better person, I benefit my fellow man; yet, hang it, they are not being forced to pay for those benefits! Shouldn’t the government tax these people and subsidize me for being so worthy as to read Human Action?

Or, to take another example, whether Women’s Libbers like it or not, many men obtain a great deal of enjoyment from watching girls in mini-skirts; yet, these men are not paying for this enjoyment. Here is another neighborhood effect remaining uncorrected! Shouldn’t the men of this country be taxed in order to subsidize girls to wear mini-skirts?

There is no point in multiplying examples; they proliferate almost endlessly, and expose the total absurdity and the pervasiveness of Chicagoite neighborhood-effect concessions to statism. The only reply that Chicagoites have been able to make to this reductio ad absurdum is that they wouldn’t carry government intervention that far, though they concede the logic. But why not? By what standard, by what criterion, do they stop at parks and schools? The point is that there is no such criterion, and this only points up the intellectual bankruptcy, the lack of logical rigor, at the core of most current-day economics and social science—Friedmanism included.

THE IMPACT OF FRIEDMAN

 And so, as we examine Milton Friedman’s credentials to be the leader of free-market economics, we arrive at the chilling conclusion that it is difficult to consider him a free-market economist at all. Even in the micro sphere, Friedman’s theoretical concessions to the egregious ideal of “perfect competition” would permit a great deal of governmental trust-busting, and his neighborhood-effect concession to a government intervention could permit a virtual totalitarian state, even though Friedman illogically confines its application to a few areas. But even here, Friedman uses this argument to justify the State’s provision of mass education to everyone.

But it is in the macro sphere, unwisely hived off from the micro by economists who remain after sixty years ignorant of Ludwig von Mises’s achievement in integrating them, it is here that Friedman’s influence has been at its most baleful. For we find Friedman bearing heavy responsibility both for the withholding tax system and for the disastrous guaranteed annual income looming on the horizon. At the same time, we find Friedman calling for absolute control by the State over the supply of money—a crucial part of the market economy. Whenever the government has, fitfully and almost by accident, stopped increasing the money supply (as Nixon did for several months in the latter half of 1969), Milton Friedman has been there to raise the banner of inflation once again. And wherever we turn, we find Milton Friedman, proposing not measures on behalf of liberty, not programs to whittle away the Leviathan State, but measures to make the power of that State more efficient, and hence, at bottom, more terrible.

The libertarian movement has coasted far too long on the intellectually lazy path of failing to make distinctions, or failing to discriminate, of failing to make a rigorous search to distinguish truth from error in the views of those who claim to be its members or allies. It is almost as if any passing joker who mumbles a few words about “freedom” is automatically clasped to our bosom as a member of the one, big, libertarian family. As our movement grows in influence, we can no longer afford the luxury of this intellectual sloth. It is high time to identify Milton Friedman for what he really is. It is high time to call a spade a spade, and a statist a statist.

BIBLIOGRAPHY

Brehm, C.T., and T.R. Saving. “The Demand for General Assistance Payments.” American Economic Review 54, no. 6 (December 1964).

Fisher, Irving. The Stock Market Crash—And After. New York: Macmillan, 1930.

Friedman, Milton, and Anna Schwartz. A Monetary History of the United States, 1867–1960. Princeton, N.J.: Princeton University Press, 1963.

Friedman, Milton, and George J. Stigler. Roofs or Ceilings? Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1946.

Hayek, F.A. Individualism and the Economic Order. Chicago: University of Chicago Press, 1948.

Hazlitt, Henry. Man vs. The Welfare State. New Rochelle, N.Y.: Arlington House, 1969.

Mises, Ludwig von. The Theory of Money and Credit. Translated by H.E Batson. Indianapolis, Ind.: Liberty Classics, 1980.

Mowat, Charles Loch. The Charity Organization Society. London: Methuen, 1961.

Rothbard, Murray N. America’s Great Depression. Princeton, N.J.: D. Van Nostrand, 1963.

———. “The Great Inflationary Recession Issue: ‘Nixonomics’ Explained.” The Individualist (June 1970).

———. “The Guaranteed Annual Income.” The Rational Individualist (September 1969).

———. What Has Government Done To Our Money? Auburn, Ala.: Ludwig von Mises Institute, 1990.

Simons, Henry C. A Positive Program for Laissez Faire: Some Proposals for a Liberal Economic Policy. Chicago: University of Chicago Press, 1934.

Welfare Plan of the Church of Jesus Christ of Latter-Day Saints. The General Church Welfare Committee, 1960.

Notes

[1] Henry C. Simons, A Positive Program for Laissez Faire: Some Proposals for a Liberal Economic Policy (Chicago: University of Chicago Press, 1934).

[2] In this article, I am confining discussion to the politico-economic, and omitting the technical problems of economic theory and methodology. It is in the latter where Friedman has been at his worst, for Friedman has managed to change the older Chicagoan methodology, in its essence Aristotelian and rationalist, to an egregious and extreme variant of positivism.

[3] For an excellent introduction to the Austrian view, see of F.A. Hayek, Individualism and the Economic Order (Chicago: University of Chicago Press, 1948), chap. 5.

[4] Ludwig von Mises, The Theory of Money and Credit, trans. H.E Batson (Indianapolis, Ind.: Liberty Classics, 1980).

[5] There is a charming anecdote about the distinguished industrialist Charles F. Kettering. Visiting the hospital bed of a friend who was complaining about the growth of government, Kettering told him “Cheer up Jim. Thank God we don’t get as much government as we pay for!”

[6] Milton Friedman and George J. Stigler, Roofs or Ceilings? (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1946), p. 10.

[7] For a further critique of the Friedman-Nixon guaranteed income doctrine, see Murray N. Rothbard, “The Guaranteed Annual Income,” The Rational Individualist (September 1969); and Henry Hazlitt, Man vs. The Welfare State (New Rochelle, N.Y.: Arlington House, 1969), pp. 62–100.

Editor’s note: Rothbard correctly predicted that this Friedman proposal would be part of the 1972 presidential campaign. Interestingly, and tellingly, it was proposed by Nixon’s Democrat opponent, Senator George McGovern. Voters considered it to be extremely radical, and McGovern was overwhelmingly defeated.

[8] For an empirical demonstration of this relationship, see C.T. Brehm and T.R. Saving, “The Demand for General Assistance Payments,” American Economic Review 54, no. 6 (December 1964): 1002–18.

[9] New York Times (April 13, 1970).

[10]This was the same principle as the one guiding the Charity Organization Society in nineteenth-century England. That classical-liberal organization “believed that the most serious aspect of poverty was the degradation of the character of the poor man or woman. Indiscriminate charity only made things worse; it demoralized. True charity demanded friendship, thought, the sort of help that would restore a man’s self-respect and his ability to support himself and his family.” Charles Loch Mowat, The Charity Organization Society (London: Methuen, 1961), p. 2.

[11] Welfare Plan of the Church of Jesus Christ of Latter-Day Saints (The General Church Welfare Committee, 1960), p. 48.

[12] Ibid., pp. 1–2.

[13] Irving Fisher, The Stock Market Crash—And After (New York: Macmillan, 1930).

[14] Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, N.J.: Princeton University Press, 1963).

[15] See Murray N. Rothbard, America’s Great Depression (Princeton, N.J.: D. Van Nostrand, 1963), for a contrasting view of the 1920s. More on the Friedmanite vs. Austrian view of the business cycle can be found in Murray N. Rothbard, “The Great Inflationary Recession Issue: ‘Nixonomics’ Explained,” The Individualist (June 1970): 1–5.

[16] Editor’s Note: This is, in fact, exactly what happened within a few years of this article’s original publication. See Murray N. Rothbard, What Has Government Done To Our Money? (Auburn, Ala.: Ludwig von Mises Institute, 1990).—Ed.

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