Niall Ferguson

Friedman’s century

The economist who was right about almost everything

Friedman's century
Nobel prize-winning economist Milton Friedman sitting w. his hand to his forehead. (Photo by Chuck Nacke//Time Life Pictures/Getty Images)|Nobel prize-winning economist Milton Friedman sitting w. his hand to his forehead. (Photo by Chuck Nacke//Time Li
Text settings

Milton Friedman would have been 100 later this month. As well as being one of the great economists, if not the greatest economist, of the 20th century, he was also what the Americans call a public intellectual. He was a regular on PBS, the American equivalent of the BBC, writing and presenting Free To Choose, a ten-part series that aired in the late 1970s. He also wrote a column for Newsweek for an astonishing 18 years. Among today’s public intellectuals, it is extremely fashionable today to say that the financial crisis has proved Friedman wrong. You can read that on an almost weekly basis in the New York Times or the Guardian: that deregulation was the problem. But it is extremely hazardous to say in public that anything has proved Milton Friedman wrong.

An illustration of this point was made  before the financial crisis by Paul Krugman, who argued in a long piece for the New York Review of Books that monetarism had been comprehensively disproven by the fact that the Federal Reserve and other central banks had stopped targeting the growth of broad money. The authorities, he said, had abandoned Friedman and instead embraced the discretionary monetary policy that he had been so against. The great success which Sir Alan Greenspan’s Federal Reserve had enjoyed with this discretionary monetary policy, said Krugman, had clearly falsified Friedman’s theory. Subsequent events did not treat this article kindly. If one wanted to point to a single cause of the great bubble that ultimately triggered the financial crisis, one would point to the easy-money policy of the Federal Reserve, after discretionary policy replaced a monetary target.

When I was trying to explain to my students at Harvard what the Fed was likely to do when the financial crisis got going in late 2008, I said the simplest thing to do is read Friedman and Anna Schwartz’s chapter ‘The Great Contraction’ in their book The Monetary History of the United States and assume that the Fed will do the exact opposite. So it proved.

But Friedman wasn’t just an economist. As a public intellectual, he generated an idea a week and in almost every case those ideas turn out to be right. He was a consistent opponent of agricultural subsidies and import tariffs, a passionate believer in free trade. He was against military conscription. (One forgets too easily the part he played in the creation of an all-volunteer force out of the wreck of the draft army that lost the Vietnam war.) Friedman was an early and passionate advocate of voucher schemes to create choice in education; he was a forceful and justified critic of American state schools long before it was fashionable to point out that they were no longer very good and indeed were failing the poorest children in American society.

Confronted with the problem of pollution, long before anybody had heard of Al Gore or the phrase ‘climate change’, it was Friedman who argued, in his columns and elsewhere, that a system of tradable emissions permits was preferable to crude state controls.

Initially seen as a crank, Friedman was ultimately vindicated as, one by one, his policies were adopted. Only perhaps in his campaign for a legalisation of drugs has he so far been unsuccessful. But watch this space. I believe ultimately the United States will have to admit defeat in its misnamed ‘war on drugs’, as surely as it abandoned the war on alcohol known as Prohibition in the 1930s.

What, then, of the widespread claim that Milton Friedman was wrong about deregulation? Hasn’t the financial crisis dealt a lethal blow to his reputation as a pundit? ‘The question is,’ he famously wrote, ‘do corporate executives … have responsibilities in their business activities other than to make as much money for their stock holders as possible? My answer to that is no, they do not.’ This was from an article published in 1970 in, of all places, the New York Times Magazine. Grist to the mill, you might think, of those today who argue that the financial crisis was caused by precisely such attitudes.

Except that Friedman wrote something slightly different, which I deliberately abridged. The full quotation is in fact: ‘The ­question is, do corporate executives, provided they stay within the law, have ­responsibilities in their business activities other than to make as much money for their stock holders as possible?’ That was, and remains, a rather important qualification, as the management of Barclays bank now know to their cost.

Milton Friedman understood not only the benefits of free markets but, like Adam Smith, he understood the failings of businessmen: the shortcomings of capitalists as a class. Another wonderful Friedman observation that one doesn’t hear often enough comes from a 1983 lecture entitled ‘The Suicidal Impulse of the Business Community’: ‘The broader and more influential organisations of businessmen have acted to undermine the basic foundation of the free market system they purport to represent and defend.’

It is not the teaching of Milton Friedman, any more than it was the teaching of Adam Smith, that we should just leave businessmen — and especially bankers — to it. On the contrary: the real wisdom of Friedman’s work lay in his capacity to see the perils as well as the opportunities of a sensibly regulated free market.

As the world rushes to create regulation upon regulation, of ever-increasing complexity, in the belief that it was a lack of regulation that caused the financial crisis, we should remember what Milton Friedman had to say on this subject, too: ‘One of the great mistakes’, he wrote, ‘is to judge policies and programmes by their intentions rather than their results.’

In my experience, the left can nearly always claim to have good intentions, but what it does nearly always has disastrous results. Milton Friedman spent his entire career as an economist and as a public intellectual, pointing out how disastrous those results could be. We miss him.

Niall Ferguson is Laurence A. Tisch Professor of History at Harvard University. His BBC Reith Lectures can be heard at