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Home , Aaron Director, Eugene Fama

Remembering Milton

by allen r. sanderson

This year marks the 100th anniversary of ’s birth and the 50th anniversary of the publication of Capitalism and Freedom — which offers a great excuse to reflect on the man and his work. university tk

Second Quarter 2012 79 The latter needs little exposition from membering names or perhaps just had a streak of OCD, sat students in alphabetical me. Both his research and polemical order. With no one in the class between writing are touchstones of modern (Rose) Director and (Milton) Friedman, the economic thought and are hardly rest is history – or at least economics. likely to be neglected in this anniver- Milton spent the last two years of the war at Columbia working on military applica- sary year — or, for that matter, any tions of mathematical statistics. Steve Stigler, other. But it’s fun to think about Fried- a statistics professor at Chicago and the son man in a more personal way, to re- of economist , told me that member his influence on students, Friedman could have been a superstar if he’d stuck with the discipline: the “Friedman Test” friends and faculty at the University of for assessing differences between samples re- Chicago, many of whom have become mains an important contribution in the field. brand-name economists in their own Then, after a brief sojourn at the Univer- right. sity of Minnesota, it was back to Chicago for his date with destiny. Actually, his destiny as Friedman needs no introduction, but I founder of a unique brand of monetary eco- can’t resist. Milton (let’s drop the last-name nomics had to wait a while, since he mostly pretense of objectivity) was born in Brooklyn, taught price theory (the old name for micro- the child of Eastern European immigrants, economics). Only after 1963 did he dive into and grew up over his parents’ store in Rahway, , teaching two courses in NJ. He went to Rutgers intending to become monetary theory. an actuary, but instead continued to Chicago to study economics – one of the few great universities that welcomed Jews in those days. Academic jobs were beyond scarce in 1935, when he finished his coursework. So, like many other talented economists, Milton went to work for the New Deal in Washington be- fore stints at the National Bureau of Eco- nomic Research and the University of Wis- consin (which was, in those last years before Pearl Harbor, a hotbed of pro-German anti- Semitism). He returned to Washington in 1941 to work for the Treasury on ways to make the income tax easier to collect. (Tea Partiers, take note.) He was now married to Rose Director, sis- ter of the larger-than-life conservative Chi- cago economist . Milton had met Rose in a class taught by the great . Professor Viner, who had trouble re-

80 The Milken Institute Review Milton the Man

Herewith, some ramblings gleaned from one-on-one conversations in late 2011 with Chicago faculty who were influenced by Milton . . .

f those who are still active at Chicago, ate, my first real interaction with him was as Professor Emeritus George Tolley was a graduate student at Chicago in his two- O the first to have been a student of quarter price theory course. It was a fantastic Friedman’s (not to mention a teacher of Nobel- experience, one that had a profound effect on ist ). However, Tolley knew him me. He used economics as a powerful tool to best when both were on the Chicago payroll, understand the real world.” and remembers him as a colleague who never Lester Telser, then a grad student and now let ideological passion trump professionalism. an emeritus professor, met Friedman at the “I was an assistant professor and the lone per- Cowles Commission office at the university son teaching Keynesian economics,” Tolley when Friedman stopped by to look at some recalls. “In spite of his strong feelings … Mil- charts Telser had constructed of 100 years of ton insisted that students have thorough cotton prices. Not a disciple (though Fried- knowledge of Keynesian economics.” man was Telser’s thesis supervisor), he and Gary S. Becker, the 1992 Nobel laureate: Friedman nevertheless shared an interest in “Although I met Milton when he came to lec- monetary theory and the banking system, and

courtesy of courtesy stephen stiger ture at Princeton when I was an undergradu- maintained a long correspondence over the years after Friedman moved to the West Coast. Telser took a job at Iowa State University before completing his degree. He would ride the train to Chicago regularly on weekends, and Friedman would meet him on Saturday mornings to discuss his PhD dissertation. As Lester quipped, “try getting a faculty member to meet you on a Saturday morning nowadays.” (The Ames-Chicago train traffic was signifi- cant over the years, at least in one direction. Along with Telser, luminaries T.W. Schultz, D. Gale Johnson and George Stigler all taught at Iowa State before being hired by Chicago.) , who teaches at the business school and is widely considered the father of modern , began his graduate training in Friedman’s price-theory course. He (unlike

A lesson in regulation.

Second Quarter 2012 81 remembering milton But Milton had to make his points to skeptics, me and many others) was not afraid of Milton, and that included students.” and was willing to challenge him in the class- Nonetheless, Sam Peltzman (now emeri- room – something Friedman may not have tus at the business school) notes that Milton appreciated at the time. But Fama chalked it was an optimist even in the troubled times on up as a sign of the times: [the Chicago School campuses in the late ’60s and early ’70s. “He of Economics] “was under attack, so in part that felt that good will and educating people created a mentality to put up the barricades.” would get them to do the right thing.” Fama greatly admired Milton’s rhetorical This was the one major area of disagree- skills. Ditto Gary Becker, who recalled the ment between Friedman and George Stigler. year (1964-65) Friedman spent at Columbia In Becker’s words: “George was far more pes- when Gary was teaching there. Goldwater was simistic, arguing that you can preach all you running for president and Milton couldn’t want to but people won’t change, in part owing to the power of special-interest groups. riedman’s class focused Milton thought that if you gave people good F information they’d make the right decision. I on the use of economic think George won that argument.” Milton was hardly stuck in a time warp, theory in thinking about though. According to Telser, “Milton was in- substantive economic terested in computers right from the start. He didn’t like mathematical economics or gen- questions of all kinds. eral equilibrium modeling. But he had a high opinion of Jon von Neumann. And his The- wait to sing his praises. “I tried to warn him, ory of Games and Economic Behavior [written but he said that he wasn’t worried – no one with Oskar Morgenstern] is the one book that had ever heard a forceful intellectual defense Milton wished he had written.” of the positions he was espousing and it Peltzman, who first encountered Fried- would be easy to convince them. … He was man in the fall of 1960 as a first-year graduate persistent, but not mean. He would even en- student, remembers Friedman teaching en- gage cab drivers – and continue to talk – until tirely from index cards and newspapers – he had convinced them of his views.” generally the Wall Street Journal. “He would Telser and Fama both recalled how Fried- come to class and read an article, a paragraph, man ran a tight ship in his money and bank- or maybe just the title,” and then they would ing workshop. A student’s paper would al- examine it. ways be distributed in advance. But come the Lucas explains (again): “Friedman’s class day, Friedman would carefully control the was not devoted to training us in the techni- discussion, asking if anyone had any ques- cal nuts and bolts of economics. He assumed tions about the title of the paper, then asking that we already had been through this … and if there were any questions about the first focused instead on the use of economic the- paragraph and so forth. ory in thinking about substantive economic Robert Lucas, another Chicago Nobelist, questions of all kinds.” explains: “It was a time of liberalism among Lucas describes classes with Friedman as “a intellectuals. They’re more conservative now. life-changing experience. He changed my

82 The Milken Institute Review university of chicago Chairman Friedman

T he World According to With some notable exceptions,notable some favorWith businessmen enterprise free If you put the federal government in charge of the Sahara Desert,Sahara the of chargefederal governmentin the put you If The case for prohibiting drugs is exactly as strong and as weak as and strong as exactly is drugs prohibitingfor case The The free man will ask neither what his country can do for him for do can country his what neither ask will man free The in general but are opposed to it when it comes to themselves. to comes it when it to opposed are generalbut in History suggests that capitalism is a necessary condition forcondition necessary a is capitalism that suggests History Only a crisis a Only arrangement under which greed will do the least harm; least the do will greed which under arrangement political freedom. Clearly it is not a sufficient sufficient condition.a not is freedom.it political Clearly The problem of social organization is how to set up an up set to how organizationis social of problem The as the case for prohibiting people from overeating.from people prohibitingfor case the as When that crisis occurs, the actions that are taken are that occurs, actions crisis the that When Concentrated power is not rendered harmless rendered Concentratednot is power by the good intentions of those who create it. create who those of intentions good the by depend on the ideas that are lying around. lying are that ideas the on depend in five years there’d be a shortage of sand. there’dof five years shortage in a be nor what he can do for his country.his for do can he what nor capitalism is that kind of a system.a of kind that is capitalism — actual or perceivedor actual — produces real change.realproduces

remembering milton that we should base our assessment on the viewpoint on almost everything. And it was theory’s predictive power, and I argued that fun! But I was scared to death of him. … [None- [what mattered] was how it affected our un- theless,] he didn’t make jokes at others’ ex- derstanding of the workings of a system.” pense, and didn’t want anyone to feel small. His Nobelist Robert W. Fogel’s office was next courtesy was remarkable. And he was fearless!” to Friedman’s, which facilitated end-of-day I met with Nobelist Ronald H. Coase – conversations when they left for home at the who, among many other things, taught me same time. Fogel regarded Friedman as an antitrust history and policy 40 years ago – a empiricist (“to the extent he built models it week shy of his 101st birthday. (The Chicago was to understand the real world better”) air seems to agree with economists, or maybe with an unrelenting belief in markets: “There it’s the style of disputation: Friedman lived to will never be a computer big enough to out- 94; T.W. Schultz to 95; Aaron Director to perform the market, Milton would always say.” 102.) His only serious disagreement with Mil- But Fogel says that Friedman “would ac- ton was over methodology – no small issue at knowledge his mistakes without the slightest Chicago. “I held a very different view of the hesitation. … He was hard to provoke; open- worth and validity of a theory. Milton argued minded; catholic in his views.”

Milton and Me

he closest I came personally to witness- Obama – to be on a panel focusing on sweat- ing one of Milton’s rare putdowns was shops. Students were agitating about unfair Twhen a bold student asked a question in labor practices in countries that made logo class. Milton answered it and then turned back apparel merchandise. So, in typical U of C to his material. But the kid immediately raised mode, we dedicated an evening to discussing his hand and said, “Can I ask another ques- the issues. It was pretty clear that the modera- tion?” to which Milton responded: “I’m sure tor and three panelists already chosen were that you can, but the relevant issue is may you?” going to be very anti-sweatshop, so Michelle The foil quickly answered: “Okay, then. May I was looking for someone who would present ask another question?” to which Milton shot a contrarian view; I agreed to participate. back: “No,” and went on with the lecture. In preparing for the event, I recalled read- A few months before his death, I sent Mil- ing Milton’s account of Rose’s coming to ton a copy of a news magazine from Poland America and working in what we would now that contained an interview with him. (One refer to as a sweatshop, but never disparaging of my Polish students had given me the copy.) the experience. I couldn’t find the passage, so He wrote back on a postcard (with a drawing I called him to ask. He wanted to know why I of David Ricardo on the front) thanking me was interested. I explained the situation, in- and noting: “I enjoyed to the fullest reading cluding the fact that there would be four pan- what I had to say in Polish.” elists on one side and me on the other. To In 2002 I was asked by the associate dean which he countered: “Those aren’t bad odds of student services – now First Lady Michelle … don’t give an inch.” m

84 The Milken Institute Review