Jennifer Burns on Milton Friedman

Jennifer Burns: Yeah, thanks for having me, Russ. It’s great to be here.

Jennifer Burns: Thank you. Thank you.

Jennifer Burns: Yeah, I think I came mostly with ignorance, but certainly with some biases and preconceptions. When I started I thought I was most interested in Friedman as sort of a pundit–a public figure, a public intellectual, someone who had kind of packaged ideas for mass consumption–because I had looked at Ayn Rand that way, and I’d looked at Ayn Rand as a sort of vehicle for ideas promulgated through fiction, which I thought was really interesting. So, I kind of came to Friedman that way.

So, the first thing that I was surprised by was that I found his economics so much more interesting, actually, than his pedantry, once I got going into the project. And, related to that was, I think the biggest misconception I had was about the New Deal and about economists’ reactions to the New Deal.

So, in the first stage of research, I was digging through the archives of the University of Chicago, and I kept finding these memos that Friedman’s professors had sent to, you know, high figures in the government. It was called the Chicago Plan, and it was what they thought should be done to address the Great Depression. And, these memos were urgent. They were sweeping. They called for massive federal intervention in the banking system, massive federal relief programs. And, I was like: Wait a second. This is the Chicago School, which is supposed to be like, ‘Let markets rip. Who cares what happens? You get what’s coming to you.’

That sort of shook me, to see that I had envisioned a certain set of responses–stylized responses I thought that Friedman’s professors would have had, and I thought that he would have been educated in. And, that wasn’t true at all. And so, that reset my clock a little bit to, like, ‘Okay, what is happening here? What do I actually know as opposed to what I think I know?’ And, I didn’t know that much, so I taught myself, through the archive, through reading other historians of economics, through drawing on what I knew about the broader picture of American history, and to try to put together, exactly as you say, a broader history of both economics and economic thought in the 20th century with Friedman as my lens into that.

Jennifer Burns: Yeah. Thank you. I mean, I think what I came to realize is that, just as I thought of him as a pundit, a lot of people around today, that they kind of got the tail end of Friedman’s career. They got the Friedman in the limelight, the Friedman as representative of a certain political synthesis, a certain political movement; and they got a snippet of him and not the full picture. And so, I really wanted to bring the full picture back and show how the ideas that he later became famous for promoting sort of grew and developed out of this academic matrix, out of the actual events that happened in the world, the challenge of inflation, the ins and outs of Keynesian Economics, all of that. And so, when you see Friedman in the 1980s as the exemplar of Reaganism, that’s definitely part of the story, but it’s the end of the story. It’s not the full story.

Jennifer Burns: So, there’s a couple of ways in which I think of Friedman as a conservative, and I’m aware he didn’t call himself a conservative. He didn’t want to be labeled a conservative. I’ve gotten pushback with this idea that he’s a conservative.

And so, there’s a couple ways I mean it. One is in the transcendent meaning of somebody who does their best to preserve the inheritances or practices of the past and carry them into the future. And, I think that actually describes his economics very well. He did a great deal to preserve the kind of methods and approaches of institutional economics, even though he’s not an institutional economist; but he believed in empirical research basing his theories on data from the real world, and he stuck with that, and at a time when a lot of the economics field was turning in another direction.

Similarly, he stuck with the quantity theory of money. He said, ‘There’s something here. Let’s update it. Let’s refresh it, but let’s not cast it aside and say: Oh, that’s an old idea that no longer matters.’ So, I think intellectually speaking, in terms of the orientation of his mind, he was someone who looked to existing or past ideas and tried to find out what was still valid in them and how it could still be used. So that, to my mind, is a sort of conservative bent.

And then, the other reason really was because he was associated throughout his life with this political movement that called itself conservative. American conservatism is no different than conservatism in the broader Western tradition in that it often embraces capitalism and is linked to capitalism, and Friedman really exemplifies that. Whereas in maybe the European intellectual tradition, it’s more suspicious of capitalism because the conservative tradition there is more bent on holding up different social hierarchies or formations that could be threatened by capitalism.

So, I’m aware that American conservatism is sort of its own unique version of the creed, and I’ve written plenty on that. And, I’m also aware that Friedman said, ‘I am not a conservative.’ But, just empirically speaking, if you look at the causes he took up, the people he spent time with, the politicians he admired, they all called themselves conservatives. So, I felt like, ‘Hey, I get it, but this is the case.’ He was very clear in his partisan identification.

Jennifer Burns: Right. Why is he the last? I think that’s a bit of a provocation or a question, but I think Friedman really exemplifies this 20th-century American conservatism synthesis, which tried to draw together an emphasis on tradition and affection for or belief in capitalism, free markets, free trade, and in opposition to communism. And, these three strands really came together in a variety of different ways, and they pushed aside a more moderate Republicanism and they mounted a very effective challenge to liberal politics and liberal governance. And, I see Friedman as really a sort of apogee of that.

And, I think that we are in a time of not seeing that synthesis holding quite the same way. I’m not completely convinced it’s gone and will never come back. I don’t think that’s the case at all. But, I think the pressures and questions that forged that synthesis, primarily the opposition to the Soviet Bloc and the Soviet Union, those pressures are gone; and we have a different set of pressures and we have a different set of questions about globalization, and now that we’ve seen it in practice for 25 years where we hadn’t before. So, I think the pieces are different.

The other thing that’s really different from the conservatism of Friedman’s time and what is called conservatism today, is I think in Friedman’s time, there was a significant part of it that was driven by ideas. It really was in many ways an intellectual movement, and Friedman really exemplifies that. He based his ideas on research and on being in a discipline, an academic discipline, and really trying to think through what were some different approaches. So, I think it was a much more intellectual movement rather than being driven by personality or mood or emotion.

Jennifer Burns: Yeah. I actually was very fascinated by Henry Simons, as well. So, Friedman did the first part of his graduate training at the University of Chicago, and Henry Simons was an assistant professor who really became sort of a guru figure to Friedman and his friends. And, first of all he was an architect of those memos to the federal government, the Chicago Plan. He was really the kind of mover and shaker behind that, calling for a restructuring of the banking system. This idea he had called 100% money, which basically would have eliminated fractional reserve banking entirely. It would have radically changed the banking system. Instead, we had the Banking Act, but 100% money was something that Friedman was talking about way into the 1960s.

Simons also wrote this book called A Positive Program for Laissez Faire. And I think this was really the biggest influence on Friedman. He saw himself as a Classical Liberal. He saw liberalism as being endangered, and so he also believed that you could use the principles of Classical Liberalism to design what he called progressive social programs, so that liberalism shouldn’t just be something that said, ‘No, no, no,’ but actually had creative potential to come up with new and different policy proposals.

Jennifer Burns: Yeah. Let me make a few other points about Simons. He valued what he called the heart of the contract–the ability of people to freely contract–and he worried about interference in that. And also, he’s writing at a time when our modern understanding of liberal–New Deal Liberalism–it’s really formed in the New Deal by Franklin Roosevelt. So, that word is in flux.

So, he wanted to protect the heart of the contract–free contract–but he also worried a lot about inequality. This was important to him; it was important to Friedman’s teachers; and they basically felt if capitalism generates too much inequality, it will not be able to survive.

And, inequality is bad unto itself. Simons went so far as to call equality his religion.

And so, while A Positive Program for Laissez Faire was a Classical Liberal tract, it also called for government ownership of railroads, of utilities. So, in ways that you think, ‘What? This isn’t conservative at all. This isn’t free market at all.’

I really think of Simons, though, as coming out of a sort of late 19th-century populist context in some ways, where he was wanting to support the small producer, the independent entrepreneur. That was kind of his desideratum. I also think he was in many ways a Georgist–in the tradition of Henry George–who would basically say, ‘We need one giant tax. Let’s tax all land, basically, and then nothing else.’ So, Simons wanted a few big interventions and then let the rest go.

And so, that was a very influential model for Friedman early in his career. What happens is that Simons dies right as Friedman comes back to Chicago. It seems, from all the evidence we have, to have been a suicide. And, what really fascinated me was, you could see the legacy of Simons continue and then eventually sort of fade out. And for me, one of the big questions is: What if Henry Simons had lived? What would be different in our understanding of economics, and what would be different with Friedman?

Jennifer Burns: Yeah; I mean, I think what Simons’ beginning insight was that Friedman carried on, or hope, was that the price mechanism itself could be used to generate social goods. So, rather than assume the price mechanism is the problem and the solution is to regulate or inhibit the price mechanism, instead why don’t we structure it so that people’s natural desire to barter and truck or to get a deal is actually used to create some of the social goods we want?

And so, I think Simons really sort of set that out. And Simons was also willing to write to the newspaper, willing to promote his work. There were definitely some economists who thought, ‘No, I should stay in my ivory tower,’ and then some who thought they should engage the world, and Simons really was a model of engaging the world.

Jennifer Burns: Yeah, for sure.

Jennifer Burns: Yeah. That was, again, something I hadn’t expected to find and just came at me as I read his work. And as I looked in the archive, like, ‘Wait a second. Like, why are so many of his works co-authored with women?’ Like, ‘That seems strange.’ And, I came to think of that as kind of his secret weapon. And, I think that, more so than other male economists of his generation, Friedman had the ability to sort of look at the person in front of them and see their intellect rather than their gender. And, instead of assuming, ‘This is a woman who has nothing to say because women can’t do math, or women can’t do economics,’ to kind of see to the actual person and say, ‘Well, what do they have to contribute?’

And so, I think that was this huge asset. And, I don’t want to say he was a feminist or he had modern gender standards or norms, or didn’t have stereotypes. All of that is there; but he also did have the ability to see beyond that.

So, Schwartz is probably the most famous example. So, I try to document the different aspects of their relationship, what she contributed to the book. I think that is honestly its own separate project, and I would love to see someone dig into that more because there’s a huge archive for both of them. And, she, I think, deserves her own biography.

Jennifer Burns: A Monetary History of the United States. Right.

And what’s really–I found this just fascinating episode where they get to the publication of the Monetary History, and Schwartz is, like, tells Milton, ‘Well, I’d really like to use this book as my doctoral dissertation.’ And he’s like, ‘What do you mean? You don’t have a doctorate?’ And, she’s, like, ‘No. The faculty at Columbia are telling me that this book is not doctoral quality, doctoral standards.’

And so, he gets really mad. Because it’s kind of an insult to him, too. Like, ‘What?’

And so, he literally has to call and sort of chew out the Chair of the Columbia Department. And they’re like, ‘Okay, fine, we’ll give her a doctorate.’

But, that just really stood out to me that the faculty in her own department–they had the evidence of her contribution before them and they just couldn’t see it or wouldn’t see it. Just: economics was a boys’ club and they didn’t want to let her in. So, that’s one of the stories I tell. [More to come, 21:24]

Jennifer Burns: Yeah. So there’s another book that’s less well-known except among economists, A Theory of the Consumption Function. And, this book came out of Friedman’s engagement with women researchers in consumption economics, which was kind of a side field that women were shunted into because they were thought to be good at shopping so they could study shopping.

And, there was a woman that was friends with both he and Rose [Friedman’s wife–Econlib Ed.], Dorothy Brady, who was the researcher in this field. And, there was Margaret Reid who went on to become his colleague at Chicago.

And, Friedman sort of picked up a letter that Dorothy had sent to Rose and said, ‘Well, I have some ideas.’ And they started a correspondence, and then they would all come and visit their summer home in New Hampshire.

And, basically they kind of had a mind-meld, where the women were showing him the research and they were puzzling over how to think it through, and Friedman had some ideas, and they had some ideas.

And eventually–this is the context in which it was written up, which I don’t think is heretofore known–is: Friedman was trying to get Margaret Reid and Dorothy Brady hired at Chicago. He wanted them to be his colleagues. And this was part of a sort of power struggle he was going through at Chicago.

But also, what’s really unique about Chicago, is they always had one woman on the faculty. Other economics departments did not have that. So, they had a one woman quota, and the woman who had held the job was retiring, and so they were looking for another one.

So Friedman, in order to make the case that they should hire not one but two women, started writing up this idea they had been talking about. And that’s what grew into the book, The Theory of the Consumption Function. So, now, he did succeed in getting one hired, not the other.

And the book is really interesting. I really puzzled over it because you can see over time, in his private correspondence, Friedman over time becomes more possessive of it, but in the early stages he really thinks of it as a joint project. And, he says in the book’s introduction: This is a joint project. But there’s only one name on the cover, and that’s the name of Milton Friedman. So, yeah, there’s a little bit of acknowledgement, but not what we would consider as sufficient today.

Jennifer Burns: It’s also interesting to me that one of the primary collaborators, Margaret Reid, she asked Friedman to write it up. She sort of pressured him to do it, and I think, ‘Well, why did she do that? Why didn’t she just write it up herself?’ And, I think she perceived that, like, ‘This is going to go further with him as the author. If I have him to cite from my research that’s ultimately going to benefit my research,’ where, I mean, they weren’t giving her a workshop. There were so many reasons for her to think, like, ‘This idea will not prosper if it is linked to me.’ So, you might think of her as kind of giving her child away to the better parent given the circumstances of the time.

Jennifer Burns: Oh, interesting.

Jennifer Burns: Yeah. So, that is also really interesting to me because I just sort of thought, coming into the project, like, economics and math are kind of the same thing, and I hadn’t realized how vociferously he fought not just against math, but even against modeling–like, extensive modeling. He just thought, ‘You can get carried away with the beauty of your own model, and you have to always be testing, testing, testing.’ So, yeah, he fought very viciously against this other group of economists who were kind of pushing it more in–not so much even modeling, but bringing in more sophisticated mathematical techniques.

And so, this had a couple of results. And, one thing I should say is, at that moment, most of the modelers and mathematicians were using the models and the math to design interventions into the economy.

So, there was a political difference with them. But there was also, I think, even more so an epistemological difference. Friedman thought we simply don’t know enough and the economy is too complicated to really model it and to base a plan on the model. We have to be much simpler–sort of paradoxically–to be able to capture the complexity.

And so, I found that so fascinating. I think it’s an interesting episode in the history of science or the history of the discipline. And, as a result, Friedman was really considered a crank and deeply unfashionable, and sort of the subject of ridicule, because he was doing things like trying to add up bank vault cash and figure out how much money there was in the economy, instead of creating a general equilibrium model that would predict whether we were going to go into recession or not, or how big the multiplier is, or what the budget should be. He just wasn’t thinking in those terms at all.

And I think, as you noted, it was when the Monetary History [A Monetary History of the United States] landed and had this incredible and convincing, or sort of revisionist take on why the Great Depression was so bad and lasted so long, that that really arrested his colleagues and the field. And, that’s really–after that he set the weather in economics, I would say, for a good 10 to 15 years after that.

Jennifer Burns: Yeah. Although the Lucas Critique was couched in a very type of models that Friedman opposed. And so, I think–

Jennifer Burns: It’s like his bastard child, basically. And he had a lot of ambivalence about Rational Expectations, especially in private. He tended to be more supportive in public. But, yeah, they were kind of reaching his conclusions, but not with his methods. And, he actually did think the methods were really important.

And so, I’m not sure what he would make of where we are today.

The other thing I think he had trouble reconciling was that a lot of the insights of monetarism were incorporated in what became called the New Keynesian Economics. And, I think that would have bothered him, for sure–

Jennifer Burns: But, I do think that’s why he’s so influential a figure, because his ideas became detached from the sort of disciplinary–the heterodox disciplinary strain that they once embodied and became more conventional wisdom. I mean, the way that we pay attention to the Fed and we worry about inflation, all of this type of thing, is the long tail of Friedman.

Jennifer Burns: I think probably the single most important is that reinterpretation with Schwartz of the Great Depression of focusing on the role of the Central Bank and the banking system in that crisis. I think that’s become the playbook that we still live with today. There’s a financial crisis: the Central Bank must take responsibility and must flood the economy with money quickly and not let it get too bad. And, I think the first place you really see that is Greenspan after the 1987 crash. He’s like, ‘The Federal Reserve stands by.’ You see it in the GFC [global financial crisis], you see it in the Corona Crisis. So, Friedman deserves some of the credit, not all, for the fact that we haven’t had another Great Depression.

I think, obviously, there were regulations that stabilized the banking system, but also the sense that the Federal Reserve has a role to play, or that it is a liquidity crisis and we know what to do in that crisis. I think that’s probably the biggest one.

I think the second one is related: the understanding of the centrality of the Central Bank and the price level in the paradoxical way that Friedman belabored and belabored, which is, when it’s doing its job, you shouldn’t notice at all. And so, basically, it’s this incredibly important institution, this incredibly important aspect of economic life that can’t really make things better, but can make them a lot worse.

And so, there’s sort of a passivity to when things are going well that it fades into the background, and I think honestly, that has been our experience in the past 25 years or so. And nobody has been really interested in inflation. No one’s talked about it. We’ve had a fairly steady price level. We sort of forgot it was an issue. Then suddenly it’s an issue and you kind of come roaring back and say, like, ‘Oh, a few mistakes by a few people in this key institution can really have broad ramifications.’ So, I think those are parts of it.

I think other economists might point to the permanent income hypothesis, which is part of the consumption function, as still being a kind of live idea that economists work with.

I do think in terms of the monetary policy and influence, people aren’t looking at the money supply. It seems like maybe they should be, a little bit more, but they’re not using all his technical tools. But, I think of him as having diffused into the water of central bankers around the world the importance of their role, what it means. And, I also think we could see this kind of 2% inflation target. Inflation targeting is not the same thing as a monetary growth rule, but they’re genetically related.

And, the monetary growth rule set out this idea of rules over discretion, which again–I didn’t bring this up in Simons, but let me go back to Simons. What Simons really emphasized was rules and a framework within which competition should be allowed to play. And, he had this famous article, “Rules Versus Discretion in Monetary Policy,” and he said: The monetary authorities ought to follow rules that are transparent, that are set out, that we can know about, that aren’t hidden behind some cloak, and then that will be better for the economy–versus this kind of discretionary piece.

Now, we have a discretionary monetary policy today, but we also have things like the Taylor Rule or Taylor Rules, which are these incredibly powerful heuristics that are kind of used to judge and evaluate how the discretionary policy is going. And so, the Taylor Rule really goes straight back to Friedman and Simons–just goes right through that lineage.

I think those are some of the ways he’s left his mark, not just on academic economists, but on policymakers and the kind of giant apparatus–financial apparatus–that surrounds central banking today.

Jennifer Burns: Yeah. I mean, I’m realizing–yeah, to answer the question of what is his contribution, this is probably like 10 points.

But I would say, what I try to emphasize in the book is, sometimes there’s an impression that these economists cooked up these ideas and got the politicians to go along and changed everything for the worse. And then, what I really try to show is, these ideas interacted very powerfully with what actually happened.

So, Friedman had a theoretical take on the fact that the Phillips Curve was a short-run trade-off, not a long-run trade-off; and that wasn’t enough to change people’s minds. It took the next five to 10 years for people’s minds to change.

So, it’s not the ideas. It’s how the ideas help people understand the reality that they’re experiencing. You know, and I would say–so, yeah, that is something I really want to emphasize, and I try to show in the book by kind of moving between his ideas and the actual events as they unfold in the world.

And as you said, the distinction between real and nominal interest rates, which is still not really well understood, especially if you read, kind of, top-line[?] media coverage of what’s going on–you know, ‘Monetary policy is super tight.’ I’m, like, ‘Is it really tight? I actually think we still have negative interest rates.’ You know? Like, so but people aren’t really talking about that.

But, again, it took the 1970s when you had incredibly high inflation and incredibly high interest rates for people to understand, like, ‘Oh, this is exactly what Friedman said could happen: that interest rates behave differently in an inflationary environment.’

And, it’s been so interesting to watch. I think the financial sector in particular has just a very short memory and little knowledge of history, and the fact that so many people have been proceeding as if the low interest rates of the past 15, 20 years are this state of play, when historically they are extraordinarily low and there’s no reason to expect they would stay that way forever. But so many bankers and financial institutions made decisions as if they would.

So, that’s my plug for understanding more history.

Jennifer Burns: Yeah. I mean, that said, you have to have interpretations of experience and arguments about it. So, I think they interact–

Jennifer Burns: I think he was perhaps being too modest. He was trying to be very modest and very generous, especially in the later years of his life, which I appreciate, although sometimes dulled his memory of what exactly had happened.

Jennifer Burns: Yeah. I mean, I think that–yeah–so, there’s a moment when he’s testifying before Congress and Paul Samuelson is testifying before Congress, and Paul Samuelson is, like, really making fun of him. He’s, like, ‘Well, some people think you can measure this and that and call it M2 and say you understand everything. That’s just foolish.’ It’s, like, Friedman is in the same room with him. And so, he was willing to put up with that.

And so, I think that’s something I came to appreciate later in the book, and amid our own debates about intellectual diversity is that, like: Wow, within the context of the economics world, he kept this sort of heterodox set of thinking alive, and he was willing to be completely unpopular. He was willing to be laughed at. He was willing to really fight with other people and have them just mock him because he had the belief in his own ideas. [More to come, 42:27]