Today, you may have heard, is Milton Friedman Day, a celebration of the late great monetary theorist and winner of the Nobel Prize in economics. In a proclamation, President Bush called Freidman “an extraordinary economist, a revolutionary thinker, and one of America’s greatest citizens.” On Friedman’s passing late last year, National Review founder William F. Buckley Jr. described him as the “dominant economic and libertarian voice of the 20th century.” All true, but Buckley also focused on the economist’s “capacity for friendship and fine company.” This, I believe, is critical. To all who knew him, Friedman was a genuine, sincere, affable, nice guy — a series of linked attributes that served this man, and the advancement of his theories, so very well.
It was in 1976 that Friedman received his award from the Nobel committee “for his achievements in the fields of consumption analysis, monetary policy and theory and for his demonstrations of the complexity of stabilization policy.” It’s easy to forget today just how revolutionary Friedman’s monetary ideas were when they emerged in the decades after World War II. In short, Freidman brought us to the elegant formulation that inflation is a monetary phenomenon, which among other restatements of the quantity theory of money was ignored or rejected by mainstream economists. Keynesianism, and its convoluted demand-side premises, was the consensus, and a stubborn one at that.
Yet Friedman’s ideas eventually, and decidedly, influenced policy at no less an institution than the Federal Reserve.
Prior to Friedman’s emergence on the monetary scene, there were few substantive policy debates among Federal Reserve member banks. In the mid-1960s, however, a battle royal erupted between Friedman sympathizers clustered at the St. Louis Fed and Keynesian skeptics writing missives at the New York Fed. This monetary clash was highly charged, and it continued into the late 1970s and early 1980s when then-Fed chair Paul Volcker at last tamed runaway inflation with an aggressive, hawkish program.
Friedman’s influence on Volcker is still debated a quarter-century later, testament to the high stakes involved. (Imagine Keynes and Friedman looking down at a tree full of popinjays and mockingbirds battling for ears.) But it’s funny how that oft-used term “runaway inflation” has no application to what is now the Fed’s Volcker-Greenspan-Bernanke era — a period known, despite some bumps here and there, for low and relatively stable inflation. Though debate on how to properly manage monetary policy has by no means ceased at the Fed in the last twenty-five years, the parameters of the conversation have: Inflation, in the realm of serious folk, is now a monetary phenomenon, and for this insight we have Friedman to thank.
But now to an important question for Milton Friedman Day: How’d he do it?
The quick answer is that Friedman, in addition to being a master theorist, was a master tactician — although his tactics were of the most affable sort.
To begin, Friedman did not make the tactical error of preaching to the choir. How easy it would have been for Friedman to follow his libertarian instincts and retreat to a safe perch where he could have spent a lazy career basking in the “hear, hear” applause of those demanding sermons. Instead, Friedman built support for his ideas by actively engaging the American people. The best examples were his Newsweek columns on monetary policy and the 10-part PBS television series, Free to Choose. By humanizing his premises, he won converts — and a few grudging critics.
Next, Friedman did not make the procedural mistake of insulting, or talking down to, elected officials. PhD status, whether earned or honorary, does not necessarily translate to the people skills and horse sense required to build the coalitions that result in new policies, laws, and successful litigation. As an advisor to presidents Nixon and Reagan on successful policy initiatives, Friedman succeeded by following the adage, “honey, not vinegar.”
Finally, Friedman and his colleagues identified the government institutions with the power to put their ideas into action. Is it more important to capture the ear of the Fed chair, or the intellectual curiosity of the rank-and-file economists at one of the Fed’s member banks? Well, hooking a curious few worked just fine for Friedman. The St. Louis Fed gave credence to Friedman’s ideas in the 1960s, and a decade later they were debated at the institution’s highest levels.
To be sure, if Friedman were peddling junk, Friedmanism would have stopped well short of a multi-decade march through the lofty halls of the U.S. central bank. But we also must tip our hats to this affable tactician. Milton Friedman knew what to say, but he also knew how to say it for the greatest effect.