Review essay. Milton Friedman: The Last Conservative, by Jennifer Burns
Review essay. Milton Friedman: The Last Conservative, by Jennifer Burns
Friedman's legacy is still a work in progress
Jennifer Burns at Capitaf with Milton and Rose. I assume Doug Irwin gets the photo credit based on the tweet from which the photo is taken.
Milton Friedman: The Last Conservative is a very accessible introduction to the life and work of one of the 20th century’s most influential economists. In terms of the breadth of his influence and impact on public policy, Friedman is arguably unrivalled. That influence is all the more remarkable for the fact that most of his contributions were initially met with outright rejection by the economics profession. Even his doctoral thesis on occupational licensing, which today would be considered unexceptional, met with opposition. It was a pattern repeated throughout his career. But the methods and evidence he marshalled meant that his conclusions were ultimately, if begrudgingly, accepted into the mainstream. Friedman moved several intellectual mountains over the course of his career.
The sub-title for the book, The Last Conservative, will rightly attract a lot of pushback. Burns does not intend ‘conservative’ to reference a philosophical or ideological position, which would be a poor fit for Friedman, but rather his role in preserving an earlier tradition of economic thought. A key to his influence was his adaptation of the older tradition of institutional economics to the theoretical and quantitative turn in economics that coincided with his career arc. Friedman in many ways rejected that turn, even while harnessing many of its methods, remaining very much the pragmatist in his approach to economics. For Friedman, the test for any economic proposition was its predictive power.
Burns does, however, also intend ‘conservative’ to reference Friedman’s prominent role in the post-war revival of American conservatism as a political movement and its ascendancy in the 1980s, a revival that was also largely coincident with his career. The ‘last’ conservative is intended to speak to the current moment, in which American conservatism, at least as represented by the Republican Party, has abandoned any semblance of serious discussion of ideas or policy. There is debate over the extent to which the Trump phenomenon is a natural progression from earlier developments in the conservative and libertarian movements or a complete break with them. I am on the side of radical discontinuity, which is amply evidenced by the many conservatives and libertarians who reject Trump. American conservatism and libertarianism is no less intellectually vibrant today than it was in Friedman’s time, they are just politically homeless. Friedman died a decade before Trump assumed office and it seems a stretch to headline his life and work with reference to the current political moment in the United States.
Friedman’s most important contribution, at least from my perspective, was to restore the role of money and monetary policy to the centre of macroeconomic analysis. The central role played by monetary policy in modern New Keynesian macro owes a clear debt to Friedman. As noted in my discussion of Eric Leeper’s paper for the RBA Review, Friedman’s influence on New Keynesian macro is even lamented by some who now want to restore a larger role for fiscal policy. That effort is oddly oblivious to institutional context in a way that Friedman would have been quick to call out as mistaken.
Ben Bernanke said at a 2003 Dallas Fed symposium on the legacy of Milton and Rose Friedman that:
Friedman’s monetary framework has been so influential that, in its broad outlines at least, it has nearly become identical with modern monetary theory and practice. I am reminded of the student first exposed to Shakespeare who complained to the professor: “I don’t see what’s so great about him. He was hardly original at all. All he did was string together a bunch of well-known quotations.” The same issue arises when one assesses Friedman’s contributions. His thinking has so permeated modern macroeconomics that the worst pitfall in reading him today is to fail to appreciate the originality and even revolutionary character of his ideas, in relation to the dominant views at the time that he formulated them.
Bernanke’s observation on this occasion is a surprising omission from the book. Friedman was at odds with some key features of modern monetary policy, including central bank independence, the focus on official interest rates and only belatedly came around to inflation targeting. But these operational details are second-order issues compared to the first-order issue of acknowledging the essential role of monetary policy in determining the price level and aggregate demand.
Burns notes Friedman’s continued relevance to macro economic debates, particularly in view of the post-pandemic surge in inflation that was also accompanied by a surge in the growth of monetary aggregates. Later in his career, Friedman thought he had been wrong about the explanatory power of monetary aggregates in view of the breakdown in the empirical regularities he previously identified. But Burns notes those still working fruitfully in the monetarist tradition, such as Peter Ireland. As discussed in an earlier post, the most recent inflationary episode and the current disinflation were predictable with reference to monetary aggregates, even if you do not view that relationship as a causal one.
Burns does not reference Scott Sumner and market monetarism in her discussion of Friedman’s posthumous relevance and influence, which is a major oversight. Sumner is in many ways Friedman’s natural heir, not just in giving a central role to monetary policy, but also as a methodological pragmatist and in his use of narrative identification. Yet market monetarism also departs from Friedman in downplaying monetary aggregates as an indicator of the stance of policy, while also rejecting long and variable lags in favour of a view that monetary policy actions are mostly contemporaneous in their effects.
Sumner did for the 2008 financial crisis what Friedman and Schwartz did for the Great Depression. Sumner also reinterpreted the Great Depression in terms of gold reserve ratio and real wage shocks. Friedman was an early advocate of macro futures markets and Sumner’s proposal for a nominal GDP futures targeting regime is in many ways the logical evolution of Friedman’s ideas on monetary policy. The second monetarist counter-revolution is a live project and still writing the final chapters on Friedman’s legacy.
It is worth reflecting on why Friedman was so effective as a scholar and advocate for his ideas. Kevin Murphy gave a very good exposition on the Friedman production function at a meeting of the Mont Pelerin Society in Prague in 2012, another version of which can be seen here:
One element that Burns recovers is the key role played by women in Friedman’s career, most notably his wife Rose and Anna Schwartz. Friedman had an entirely meritocratic view of women as scholarly collaborators and they played a key role in his development of the theory of the consumption function, consumption economics having once been viewed as the domain of women economists. Schwartz was responsible for the critical narrative element of A Monetary History of the United States. Rose did the heavy lifting on his popular books including Free to Choose and his Newsweek columns. Burns notes that these contributions were not always fully acknowledged, but the fault lies more with the broader economics profession as a reflection of the society in which it was embedded than with Friedman. Friedman supported his female colleagues in a way that holds up remarkably well even from today’s vantage point.
Friedman was also a model of intellectual engagement, cheerfully sparring with his many academic and non-academic critics, even in the face of sometimes vicious and ad hominem attacks. As Burns notes, Friedman is still actively demonised on the left and by some academic economists long after his death, but Friedman was above it and remained relentlessly upbeat and optimistic in face of open hostility. The way in which Friedman agonised over his break with Arthur Burns speaks to someone determined to be true to both his personal and intellectual commitments even as they came into direct conflict. Friedman as a person is a model most of us can only aspire to. At the same time, his engagement with the Pinochet regime, dealt with extensively by Burns, serves as a cautionary tale, regardless of where you come down on it.
Burns had the advantage of drawing on Ed Nelson’s epic multi-volume intellectual biography, a work still progress. As Peter Ireland said, ‘Nelson knows more about Milton Friedman’s economics than anyone else alive.’ She was also able to draw on George Tavlas’s The Monetarists, also published this year and manages to synthesize insights from both. As a historian, Burns’s focus is mainly on placing Friedman’s life and work in historical and contemporary context. For economists, Nelson’s work will be the definitive intellectual history (Nelson’s research is so exhaustive, even I feature in the acknowledgements). But Burns’s work is the more accessible and should be read in particular by economists seeking to engage with public policy.
ICYMI