On November 16, 2006, Milton Friedman, one of the 20th century's two most influential economists – the other being John Maynard Keynes –died, at age 94. Friedman’s impact went far beyond economic matters, because of his pronouncements on public-policy issues, and his facility at communicating his thoughts to both the general public and political leaders.
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Milton Friedman was born on July 31, 1912, in Brooklyn, New York, the fourth child, and only son, of the former Sara Ethel Landau and Jeno Saul Friedman. Both parents had emigrated from Beregszasz, in Carpathia, Hungary (today Berehove, Ukraine), as teenagers, in the mid-1890s.
When Milton was one, the family moved to Rahway, New Jersey, where his parents ran a business that sold dry goods to retail stores. The family was moderately traditional in its Jewish religious observance, although Milton went through a period of extreme Orthodox piety at age 12 before becoming, by the time of his bar mitzvah, a lifelong agnostic.
After graduating Rahway High School in 1928, Friedman entered Rutgers University on a scholarship. With a focus on mathematics and economics, Friedman originally intended to become an actuary, but at Rutgers he came under the mentorship of two influential young economists, Arthur Burns – years later the chairman of the Federal Reserve Board -- and Homer Jones – also a future Federal Reserve official, and the individual who introduced Friedman to the University of Chicago.
Thanks to Jones’ intervention, Friedman received a fellowship to pursue an M.A. at Chicago, which not only was his introduction to the institution whose economics department later become identified with him and where he groomed a generation of economists in his image, but also the place where, on his first day of classes he met Rose Director. They married in 1938, and collaborated frequently through their careers.
Death and taxes, then more taxes
In the years before Friedman returned to the University of Chicago to teach, in 1946, he did his doctoral work at Columbia, taught there and at several other schools, and also spent several years in Washington, working in the taxation department of the Treasury Department.
Somewhat to his later embarrassment, it was Friedman who proposed the policy of withholding income tax at the time that salary is paid. Without that the U.S. would not have been able to pay for World War II, but it also made it easier for the government to raise taxes following the war. The latter was the source of his chagrin.
According to the Keynesian model that dominated world economic theory following the Depression, reducing unemployment would always stimulate inflation. Friedman, however, successfully predicted a point after which unemployment would resume its rise, leading to a low-growth period that came to be known as “stagflation.” And indeed, stagflation began rearing its head in the 1970s.
He consistently believed that government’s interference in economic policy should be limited to regulating the amount of money in circulation – a neo-classical approach that challenged Keynesian economics.
Friedman’s laissez-faire philosophy went far beyond economics, though: He was a libertarian who believed that small government was good government, and that individual freedom should be maximized in every area. When he came under criticism for the consulting he did in Pinochet-era Chile – and he had students from Chicago who actually worked for the military government that had overthrown the socialist government of Salvador Allende – he responded that it was the opening-up of Chile’s economy under Pinochet that made it possible for the country’s return to democracy in 1990.
After winning the Nobel Prize for Economics in 1976, Friedman’s influence became especially pronounced both in the U.S. and internationally. In the 1980s, the Reagan government in the U.S. adopted many of his policies, and formerly communist countries consulted with him on the transition to free economies. In 1978, he and Rose published a wildly popular book, “Free to Choose,” which was adapted to a 10-part public-TV series.
After his retirement from Chicago, in 1977, Friedman joined the faculty of Stanford’s Hoover Institution, and he remained intellectually productive up to the day of his death, in 2006. Rose Friedman died on August 18, 2009.