By James Gwartney

Milton Friedman, who passed away at age 94 this November, was awarded the Nobel Prize in 1976, but as high an honor as that is, it does not begin to illustrate the magnitude of his contribution to the world. Friedman was the supreme spokesman for free markets, limited government, and a free society. He was a scholar’s scholar, but capable of explaining complex ideas to the common man. In my judgment, he was the greatest economist of the 20th century—perhaps the greatest ever.

His impact on both the views of economists, and indirectly on economic policy around the world has been profound. Persons under age 50 are largely unaware of what economists believed in the 1960s and how the scholarly work of Milton Friedman eventually altered those views. The decade of the 60s was the golden era of Keynesian economics, or the New Economics, as it was called at the time. In the Aftermath of the Great Depression, Keynesians believed that market economies were inherently unstable and government intervention through fiscal policy was necessary to remedy the situation. According to the New Economics:

• planned deficits during recessions and surpluses during periods of inflation would promote unprecedented stability,
• monetary policy was impotent and totally incapable of combating a recession, and
• there was a trade-off between inflation and unemployment--if we were willing to tolerate a little inflation, the unemployment level could be maintained at 3 percent or less.

Furthermore, macroeconomists were not the only ones in love with government planning. Most mainstream economists of the 1960s, particularly those at elite schools like Harvard, Yale and MIT, favored central planning on a much larger scale. The students of the 1960s were told that if the United States and other market economies wanted to keep up with the Soviet Union, they must recognize the attractiveness of government planning and emulate, perhaps with an American twist, the successes of the Soviet system.

Except for a few enclaves like the University of Chicago, these views dominated the economics profession when I entered graduate school in 1962. Milton Friedman challenged every one of them, and over the course of the next two decades, the power of his intellectual skills and scholarly work almost single-handedly transformed the profession. His Monetary History of the United States (1963) with Anna Schwartz presented powerful evidence that monetary policy not only mattered, it was the major source of economic instability. The chapter on the Great Contraction illustrated that the Great Depression was primarily, if not exclusively , the result of perverse monetary policy by the Federal Reserve rather than a defect of market economies. In his 1967 presidential address to the American Economic Association, Friedman summarized the link between perverse monetary policy and instability in the following manner:
Every major contraction in this country has been either produced by monetary disorder or greatly exacerbated by monetary disorder. Every major inflation episode has been produced by monetary expansion.

Friedman’s empirical work with David Meiselman found that changes in monetary policy had a far greater impact on total demand and growth than budget deficits. In other words, their work indicated that monetary policy was more potent than fiscal policy as a source of demand stimulus. Early on, Friedman recognized the nonsense of the Phillips Curve, the theory that inflation could be used to reduce the unemployment rate. He correctly noted that once people come to expect the inflation, the alleged trade-off between inflation and unemployment will dissipate. Further, an economy that follows inflationary policies in an effort to reduce unemployment will soon be plagued by both. The so called stagflation of the 1970s, when both inflation and unemployment were high, proved Friedman correct.

Rather than responding to every turn in the economic road, Friedman argued that monetary policy makers should focus on monetary stability. He believed that this would best be achieved if the monetary authorities were required to expand the supply of money at a low and steady rate, 3 percent annually for example. While his monetary rule never really caught on, his general principle that the monetary authorities should focus on price stability and follow policies that would keep the inflation rate at a low level is now widely adhered to by central bankers throughout the world.

History has illustrated the validity of Friedman’s views on the potency of money, absence of the inflation –unemployment trade-off, and ineffectiveness of fiscal policy as a stabilization tool. Even his critics, albeit sometimes grudgingly, now admit that Friedman was right.

In addition to his scholarly work, Friedman co-authored with his wife Rose, Capitalism and Freedom (1962) and Free to Choose (1980). Both were immensely popular and the latter was an out-growth of his PBS television special, which broke all audience records for a program of this type. He had an uncanny ability to connect with both the general public and the brightest in his field. He knew how to state his position with clarity, zeal, and diplomacy. He was able to disagree without being disagreeable.

At a Mount Pelerin Society meeting in 2003, Friedman was asked to identify the policy change affected by his ideas of which he was most proud. Without hesitation, he cited the elimination of the military draft. Friedman certainly played a critical role in this change. In 1966 the University of Chicago hosted a four-day conference on the military draft attended by just about everyone who had written or expressed strong views on the topic. A poll taken at the beginning of that conference found that approximately two-thirds of the participants were in favor of the draft and opposed to an all-volunteer military. Along with several other economists, Friedman presented the case for an all volunteer military. A poll taken at the conclusion of the conference found that the attendees had flipped – two-thirds were now opposed to the draft. Several scholars believe that this conference provided the intellectual foundation for the eventual elimination of the draft.

Friedman was a superb debater and he refused to allow others to use emotionally charged words to gain advantage. When Friedman was a member of the Presidential Commission appointed by President Nixon in 1969 to study how the draft might be eliminated, General William Westmoreland, who had been the commander of the troops in Vietnam and was Chief of Staff of the U.S. Army at the time, told the commission that he did not want to command an army of mercenaries. Friedman stopped him and asked, “General, would you rather command an army of slaves?” General Westmoreland retorted, “I don’t like to hear our draftee soldiers referred to as slaves.” Friedman shot back, “I don’t like to hear our patriotic volunteers referred to as mercenaries. If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general; we are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher.” That was the last the Commission heard from the general about mercenaries.

I had the opportunity to work with Milton Friedman on the Economic Freedom of the World project for more than a decade. I remember getting an invitation to participate in a 1989 conference focusing on how to develop a measure of economic freedom. The idea struck me as an impossible task, but the invitation was from Milton Friedman. Thus, I quickly fired back my acceptance letter. Actually, the conference was part of a series held between 1986 and 1994, sponsored by the Fraser Institute of Vancouver, British Columbia and organized by Michael Walker, the institute’s president. Walker recognized that Friedman's participation in the project would make it possible to recruit a number of the world's finest minds to participate. He was right. Lord Peter Bauer, Gary Becker, Douglass C. North, Armen Alchain, Arnold Harberger, Alvin Rabushka, Gordon Tullock, and Sir Alan Walters were among the participants. The conference series led to a clear definition of economic freedom and eventually to an index that provides an annual measure of the consistency of institutions and policies with economic freedom for 130 countries. Milton Friedman is the godfather of this project and it could not have been undertaken without his leadership and direction.

During those conferences, two things made a vivid impression on me. First, Milton was convinced that despite the complex and multidimensional nature of economic freedom, it could be measured. Moreover, it was important to do so. He told conference participants that social scientists at the University of Chicago often argued, "If you can't measure it, measure it anyway." His insights provided inspiration that a reasonably good measure of economic freedom could be developed.

Second, Milton was constantly reminding us that our goal was the development of a scientific instrument. To the fullest extent possible, the measure needed to be based on objective data. We did not want our subjective views to influence the rating of any country. We wanted to develop an index that others could replicate and that even those who disagreed with us would utilize as a research tool.

During a debate with Walter Heller about the presence of an inflation-unemployment trade-off and other aspects of stabilization policy in the late 1960s, Professor Heller attempted to refute Milton's arguments by stating that he was an optimist. Milton responded, "I am an empiricist." Milton Friedman has always been an empiricist and that is why he was interested in developing a measure of economic freedom. The opportunity to work with him on this project is one of my greatest blessings.

It is difficult to over-estimate the impact of Milton Friedman. In recent years, several other countries have followed the U.S. lead and eliminated the draft. Monetary policy throughout the world now focuses on control of the money supply and achievement of price stability. The economies of Chile, China, India, and Eastern European countries are now considerably more free than was true two decades ago. Marc Larr, the youthful President of Estonia, confirmed that he had read only one economics book, Free to Choose, when he assumed the leadership of his country. He thought that the book represented the views of all economists and used the ideas as a road map for his policy initiatives. The result: Estonia now has the fastest growing economy among the former Soviet bloc countries. The world is more prosperous and more free because of the life of Milton Friedman. His leadership will sorely be missed.

(James Gwartney is a Professor of Economics and Director of the Gus A. Stavros Center for Free Enterprise and Economic Education at Florida State University.) This article initially appeared in the 2007 Winter issue of the quarterly Journal of The James Madison Institute.)