Rahway, New Jersey
Milton Friedman was born in Brooklyn on July 31, 1912, the fourth and youngest child, and only son, of Jenő Saul Friedman and Sára Ethel Landau, Jewish immigrants from Beregszász, a small town in Carpathian Ruthenia, then part of the Kingdom of Hungary and now Berehove in Ukraine. When Milton was a year old the family moved to Rahway, New Jersey, a small town about twenty miles from New York, where his parents made a modest, uncertain living as dry goods merchants and threw themselves into the town’s small but growing Jewish community.
Money was always short, and it grew shorter when his father died during Milton’s final year of high school. A gifted pupil, he graduated from Rahway High School in 1928, just before his sixteenth birthday, and a state scholarship took him to Rutgers University. He was preparing for a career as an insurance actuary, but at Rutgers he came under the influence of two young economists, Arthur Burns and Homer Jones, and the Great Depression unfolding around him made economics seem the most urgent subject in the world.
Chicago, Washington and the war
After graduating in 1932, Friedman was offered two scholarships, one in applied mathematics at Brown and one in economics at the University of Chicago. He chose Chicago, where Frank Knight, Jacob Viner and Henry Simons became formative influences, and where he met a fellow graduate student, Rose Director, sister of the economist Aaron Director. They married in 1938 and became lifelong intellectual partners.
Like many young economists he found work in Roosevelt’s Washington, first at the National Resources Committee and then, from 1937, at the National Bureau of Economic Research, where he worked with Simon Kuznets on the incomes of independent professionals. Their study argued that the American Medical Association’s restrictions on entry to the profession drove up doctors’ incomes, an early sign of his later critique of licensing. A teaching post at the University of Wisconsin in 1940 ended unhappily amid departmental politics and what Friedman perceived as antisemitism.
During the Second World War he worked at the Treasury from 1941 to 1943 on wartime tax policy and helped devise the system of withholding income tax from paychecks, a device that made the modern income tax workable and that he later said he regretted. From 1943 to 1945 he worked on statistical problems for the war effort at Columbia University’s Division of War Research, helping to develop sequential sampling, later a standard tool of quality control. Columbia awarded him his PhD in 1946.
The Chicago School
In 1946 Friedman returned to the University of Chicago, where he taught for thirty years and became the leading figure of what came to be called the Chicago School of economics. He won the John Bates Clark Medal, given to the most promising American economist under forty, in 1951.
His first major theoretical contribution, A Theory of the Consumption Function (1957), developed with important insights from Rose, introduced the permanent income hypothesis: people base their spending not on this year’s income but on what they expect to earn over the long run. It explained why temporary tax cuts or windfalls change spending less than Keynesian models predicted, and it remains a standard part of economics.
In his 1967 presidential address to the American Economic Association, published in 1968, he challenged the widely held belief that governments could permanently buy lower unemployment by accepting higher inflation. There was, he argued, a “natural rate” of unemployment; any attempt to hold unemployment below it would produce ever-accelerating inflation. The stagflation of the 1970s, when inflation and unemployment rose together, seemed to many economists to vindicate him.
A Monetary History and monetarism
Friedman’s most influential scholarly work was A Monetary History of the United States, 1867–1960, written with Anna Jacobson Schwartz and published in 1963. Drawing on almost a century of data, it argued that the Great Depression was not a failure of capitalism but of policy: the Federal Reserve had allowed the money supply to shrink by about a third between 1929 and 1933, turning a severe recession into a catastrophe.
From that work came monetarism, the doctrine that changes in the quantity of money drive inflation and powerfully affect the business cycle, and that central banks should aim for steady, predictable growth of the money supply rather than trying to fine-tune the economy. In 1976 he received the Nobel Memorial Prize in Economic Sciences for his achievements in consumption analysis, monetary history and theory, and for demonstrating the complexity of stabilisation policy.
The strict money-supply targets he recommended proved hard to operate when tried in the late 1970s and early 1980s, and many economists dispute parts of his analysis. But his central lessons, that central banks are responsible for inflation and must act forcefully to prevent financial collapse, became orthodoxy. At Friedman’s ninetieth birthday celebration in 2002, Ben Bernanke, then a Federal Reserve governor and later its chairman, publicly accepted the book’s verdict on the Fed’s role in the Depression.
Capitalism and Freedom
Friedman was also the most effective public advocate of free markets of his century. Capitalism and Freedom (1962), based on lectures he gave at Wabash College, argued that economic freedom was a precondition of political freedom, and set out an agenda that seemed radical at the time: floating exchange rates, an all-volunteer army, school vouchers, a negative income tax in place of much of the welfare system, and the end of occupational licensing. It sold more than 400,000 copies in its first eighteen years.
From 1966 to 1984 he wrote a regular column for Newsweek. In 1980 he and Rose presented Free to Choose, a ten-part public television series, and its companion book became the best-selling non-fiction book in the United States that year. He advised Barry Goldwater’s presidential campaign in 1964 and served on Ronald Reagan’s Economic Policy Advisory Board; his ideas strongly influenced Margaret Thatcher’s government in Britain.
Ideas that changed policy
Many of Friedman’s proposals, mocked when he made them, became law. He served on President Nixon’s commission on an all-volunteer armed force, whose recommendations led to the end of military conscription in the United States in 1973; he argued that the draft was inconsistent with a free society. Floating exchange rates replaced the fixed-rate Bretton Woods system in the early 1970s. His 1955 essay on the role of government in education launched the school voucher movement, and in 1996 he and Rose founded the Friedman Foundation for Educational Choice, now EdChoice, to promote it. He also argued, decades before it became mainstream, for an end to the war on drugs.
His influence abroad was more contested. In 1975 he spent seven days in Chile, lecturing at its universities, and met General Augusto Pinochet, whose military regime had seized power in 1973 and was committing grave human rights abuses. He followed up with a letter urging “shock treatment” to stop runaway inflation. Several of the regime’s economic policymakers, the so-called “Chicago Boys” had trained at the University of Chicago. Friedman insisted he was never an adviser to Pinochet, said he had “nothing good to say” about the regime, and pointed out that he gave the same lectures in communist China. Even so, his Nobel Prize in 1976 was met by protests, and the episode remains the most persistent criticism of his career, along with arguments that his ideas widened inequality.
Jewish identity
Friedman was raised by moderately observant Jewish parents in a town dominated by Anglo-Protestants. He gave up religious belief while still young, and as an adult he described himself as an agnostic. Yet, as his biographer Jennifer Burns has written, he remained firmly attached to his Jewish identity. He encountered antisemitism in the economics profession in the 1930s and 1940s, when Jewish academics faced closed doors at many universities, and he often looked to the experience of European Jews to illustrate the dangers of concentrated state power.
In 1972 he devoted his presidential address to the Mont Pelerin Society to “Capitalism and the Jews.” He argued that Jews owed an enormous debt to free markets, which had allowed them to prosper despite discrimination, yet had disproportionately supported socialism and the left. Historians have challenged his reasoning, but the lecture shows how much he thought about the history of his people.
The elfin economist
About five feet tall and quick-witted, Friedman was famous for disarming opponents with logic and good humour, and he relished debate with students and critics alike. His partnership with Rose was central to his life and work; together they wrote Free to Choose and a joint memoir, Two Lucky People (1998). They had two children, Janet and David; David Friedman became an economist and libertarian writer in his own right.
In 1977 Friedman retired from Chicago and moved to San Francisco as a senior research fellow at the Hoover Institution at Stanford University. In 1988 he received both the Presidential Medal of Freedom and the National Medal of Science.
Last years and legacy
Friedman kept writing into his nineties. He died of heart failure in San Francisco on November 16, 2006, aged 94; his final opinion piece appeared in The Wall Street Journal the next day. Rose died in 2009.
Few economists have changed the world as directly. His work moved central banks to take responsibility for inflation, made the volunteer army and floating currencies realities, and placed school choice and deregulation on the political agenda across the world. The economist John Kenneth Galbraith, one of his most persistent opponents, remarked that the age of John Maynard Keynes had given way to the age of Milton Friedman. To admirers he was a champion of individual liberty; to critics, the intellectual architect of an era of rising inequality. Both agree that the son of poor Jewish immigrants from the Carpathians set the terms of economic debate for half a century.
Sources & further reading
Milton Friedman, Wikipedia · The Nation, Jennifer Burns interview on Milton Friedman · Milton Friedman, “Capitalism and the Jews”, University of Chicago Law School · Capitalism and the Jews (review), City Journal · Milton Friedman, Nobel Prize autobiography · Researched from the sources above and checked against them. Spotted an error? Tell us.
A life of tikkun olam. This is part of tikkun olam, the Jewish idea of repairing the world, and every one of us can add to it.