• • • • Sample • • • • www.harriman-house.com/miltonfriedman MILTON FRIEDMAN • • • • Sample • • • • * $ 3 4 + 2 % % 9 % $ = £ * £ 1 * € + %+ + % = $ * 3 =3 £ *= £ 4 £ % ££* € + % 4 + + 1 5 % 7 8 £ £ = % * 2 $ 1 % = $ 5 * $ 5 % £ ii MILTON FRIEDMAN A concise guide to the ideas and influence of the free-market economist EAMONN BUTLER * $ 3 4 + 2 % % Hh 9 % $ = £ * £ 1 * € + %+ + % = $ * 3 =3 £ *= £ 4 £ % ££* € + % 4 + + 1 5 % 7 8 £ £ = % * 2 $ 1 % = $ 5 * $ 5 % £ HARRIMAN HOUSE LTD 3A Penns Road Petersfield Hampshire GU32 2EW GREAT BRITAIN Tel: +44 (0)1730 233870 Fax: +44 (0)1730 233880 Email: [email protected] Website: www.harriman-house.com First published in Great Britain in 2011 Copyright © Harriman House Ltd The right of Eamonn Butler to be identified as the Author has been asserted in accordance with the Copyright, Design and Patents Act 1988. ISBN: 978-0857-1-90369 British Library Cataloguing in Publication Data A CIP catalogue record for this book can be obtained from the British Library. All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the Publisher. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior written consent of the Publisher. No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result of reading material in this book can be accepted by the Publisher, by the Author, or by the employer(s) of the Author. Published in association with the Institute of Economic Affairs. The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. Set in Minion, Gotham Narrow and Frutiger. Printed and bound in the UK by CPI Antony Rowe. Hh Harriman House cONTENTs About the author vii Introduction 1 A timeline of Milton Friedman's life and work 7 1. The economist who changed everything 11 Worldwide influence 13 The making of an economist 17 The public intellectual 25 2. How to end financial crises 33 The false trust in governments 34 A better explanation 41 Lessons for today 47 3. Curing inflation and unemployment 49 The disease of inflation 51 Other explanations of inflation 58 Inflation versus unemployment? 59 How to control inflation 61 How not to control inflation 65 4. A bonfire of controls 69 Free people and free trade 71 Setting currencies free 77 The poverty of regulation 82 5. The failure of government 89 The role of government 91 Why governments fail 94 The fraud of government 98 A different approach 105 v MILTON FRIEDMAN | EAMONN BUTLER $ 6. The merits of markets 109 Friedman on markets 111 Diversity, not discrimination 118 Markets help ordinary people 122 7. Freedom and equality 127 The quest for equality 130 Why freedom works 134 The importance of personal freedom 137 Friedman's view of humankind 139 Further reading 143 Index 147 vi $ £ $ % € ABOUT ThE AUThOR = Eamonn Butler is director of the Adam Smith Institute, rated one of the world’s leading policy think tanks. He has degrees in economics, philosophy and psychology, gaining a PhD from the University of St Andrews in 1978. During the 1970s he worked on pensions and welfare issues for the US House of Representatives, and taught philosophy in Hillsdale College, Michigan, before returning to the UK to help found the Adam Smith Institute. Eamonn is author of books on the pioneering economists F. A. Hayek, Ludwig von Mises and Adam Smith. He is also co-author of Forty Centuries of Wage and Price Controls , and of a series of books on intelligence testing. Eamonn contributes to the leading UK print and broadcast media on current issues, and his recent popular books The Best Book on the Market , The Rotten State of Britain and The Alternative Manifesto have attracted considerable attention. vii 1 $ + 1 $ 5 $ $ % £ 4 INTRODUcTION 9 $ “Milton Friedman was a very great man indeed – a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived.” – Nobel economist Paul Krugman, New York Review of Books What this book is about his book guides the reader through the startlingly original ideas of Milton Friedman (1912–2006) – a Nobel laureate Tin economics, but best known to many for his TV series and book Free to Choose (1980), a searing critique of big government and robust defence of individual freedom. Friedman’s thinking had a powerful influence on world leaders such as Margaret Thatcher in Britain and Ronald Reagan in America. In the 1970s, it underpinned the replacement of fixed exchange rates by open currency markets and free trade. In the 1980s, it contributed to the demise of Soviet communism in the East and to privatisation in the West. In the 1990s, it provided the blueprint for reform as countries in Eastern Europe and Latin 1 MILTON FRIEDMAN | EAMONN BUTLER America emerged from years of totalitarianism. By the 2000s, it had helped cut world inflation to a tenth of what it had been a decade before. Friedman was the best-known economist of his generation. He undid the grip that Keynesianism – based on the thinking of John Maynard Keynes, with its faith in large-scale government spending and intervention – held over postwar politicians and economists. The radical alternative he created – Monetarism – called instead for sound money, balanced budgets and deregulation. And he showed how the Great Depression of the 1930s was caused, not by some failure of capitalism, but by a profound failure of government – drawing lessons that are just as relevant to how we should handle financial crises today. But Friedman was much more than an economist. At a time when the world was bitterly divided between capitalism and communism, he threw himself into every major debate on how society should be organised. He became the world’s leading advocate of personal and economic freedom; and his arguments helped change the politics of a generation. What this book covers This book does not go into the academic detail of Friedman’s economic ideas – though it does explain many of them in a straightforward and accessible way. It focuses more on his innovative public policy thinking – and how his prescriptions led to real and powerful policy changes that still determine, in part, how millions of people across the world live and work today. Accordingly, the book covers Friedman’s thinking on such varied subjects as how best to organise education, healthcare, mail delivery, defence and other public services; how governments create monopolies, and how to end them; radical tax simplification; how free markets coordinate the work of people across the world; why we should deregulate commerce and trade; why government grows, and why so much that it does is counterproductive; why 2 INTRODUCTION drugs policy has failed, and what we should do instead; why freedom cannot be traded for equality; the rights of minorities; and indeed the whole relationship between government and the citizen. The book seeks to outline and explain Friedman’s thoughts and prescriptions on all these subjects. It puts them in the context of the time, showing just how revolutionary they appeared to his colleagues and contemporaries. And it places them in the context of the policy debate today, showing how many of them, once shocking, have become commonplace parts of our lives. Who this book is for This book is consciously written for the intelligent layperson who is interested in the debate on how our social and economic lives should be organised. It is perfect for anyone who wants to understand, or learn more about, the free-market, liberal (in the European, not the American, sense) side of the argument. After all, Milton Friedman, the book’s subject, himself laid out most of that case at one point or another in his various books and articles. This book organises all that material into a short, structured guide. The book aims to explain Friedman’s ideas straightforwardly, without distortion and in plain language. Hence there are no academic-style footnotes or bibliography – just an essential reading list of Friedman’s most significant books and articles. It should also interest school and university students of economics, politics and social philosophy, giving them a concise insight into a set of radical ideas and opinions that are frequently dismissed or ignored in orthodox economics and social science teaching. There is plenty in here to challenge those teachers! There is also a political interest to the book, in that Friedman was one of the greatest intellectual inspirations behind the rise of the New Right in the 1980s and 1990s. His ideas had huge influence on policy makers such as Reagan, Thatcher, the US Federal Reserve Chairman Alan Greenspan, the Estonian Prime Minister Mart 3 MILTON FRIEDMAN | EAMONN BUTLER Laar, the Czech Prime Minister and President Václav Klaus, and many others. This book explains how Friedman’s ideas came to shape the views of such leaders all round the world, from America to China. Friedman and the author… I knew Milton Friedman. As a student I found his Capitalism and Freedom (1962) breathtaking in its originality – an exhilarating libertarian alternative to the prevailing mood. So I was thrilled to meet him at the 1974 conference of the Mont Pelerin Society – the international association of free-market, liberal thinkers which he co-founded – and again a year later at the next conference in my own university of St Andrews, and at many other events over the next 30 years.