two lucky people: memoirsby milton friedman; rose d. friedman

Two Lucky People: Memoirs by Milton Friedman; Rose D. FriedmanReview by: Charles K. RowleyPublic Choice, Vol. 99, No. 3/4 (1999), pp. 474-480Published by: SpringerStable URL: http://www.jstor.org/stable/30024542 .

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Public Choice 99: 474-480

Milton and Rose D. Friedman, Two lucky people: Memoirs. Chicago and London: The University of Chicago University Press, 1998. xii + 660 pages. $35.00.

This book represents the joint memoirs of Milton Friedman, the pre- eminent figure of twentieth century economic science, and of his gifted wife Rose, who has contributed so much, both through her own joint scholarship, and through her home-making talents, to the dazzling success of her husband. It also represents a great love story in which two children of immigrant Jewish families forge a lasting relationship, rise above the pressures of racial discrimination, hold on to their academic dream through the trough of the Great Depression, lead a sustained counter-revolution in economic science against a flawed Keynesian hegemony, regenerate the case for liberty in a Western World well on the road to serfdom, and finally demonstrate how great talent coupled with unremitting hard work can triumph over all obstacles, achieving great happiness and dazzling success. This book is mis-titled. There is no luck involved; just well-deserved success earned one

day at a time. The Memoirs are unusual not just in that they are jointly written but also

because they consist of interspersed contributions by Milton and by Rose, each commenting separately from their own perspective. This is a high risk technique for any publication, perhaps especially so for a husband and wife of manifestedly different talents. That it succeeds so well in this instance itself is a credit to the closeness of this couple, to the way in which time has molded them into a cohesive team. From Milton, the reader obtains the scholarly insight, on seemingly mundane as well as on academic issues. From Rose, the reader obtains the personal insight, the important detail that typically escapes the attention of her husband but which nonetheless is essential to the unfolding story.

Chapters One through Nine chronicle the early years of Milton and Rose's life, their meeting at Chicago, their marriage and the Wilderness Years, 1934- 1946, before Milton was appointed to the Department of Economics at the

University of Chicago. Rose was a first generation and Milton a second generation immigrant, both from Eastern European Jewish backgrounds. Rose was brought up in a middle class environment in Portland, Oregon, Milton somewhat more modestly in Rahway, New Jersey. In Fall 1928, Rose com- muted to Reed College, a small private school, transferring from there to the

University of Chicago at the end of her sophomore year to join her brother, Aaron Director, who was a graduate student and teaching fellow at Chicago.



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Milton entered Rutgers University at New Brunswick in 1928, and worked his way through college, graduating with a major in mathematics and economics in 1932 at the depth of the Great Depression.

Acting on the advice of Arthur Burns and Homer Jones, Friedman accepted a scholarship from the University of Chicago to study economics and enrolled in the master's program in the Fall of 1932. In his first quarter, he took a class from Jacob Viner, then arguably the foremost price theorist in the United States. This class revealed to him the logical and coherent nature of economic theory. Because the students were seated alphabetically, this class also introduced him to his future wife and co-author Rose Director. Milton completed his degree in 1933, benefiting professionally from the wisdom of a faculty that included Jacob Viner, Frank Knight, Lloyd Mints, Henry Simons, Paul Douglas and Henry Schultz and personally from a blooming relationship with Rose.

In 1933, while Rose continued her graduate studies with Frank Knight at Chicago, Milton accepted a fellowship from Columbia University where he completed his professional training with an introduction to mathematical sta- tistics from Harold Hotelling, with an introduction to institutional economics from John Maurice Clark and with an introduction to business cycle analysis from Wesley C. Mitchell. His year at Columbia imbued Milton with a lifelong interest in high quality empirical research.

There then followed an extremely difficult period, ending only in 1946, in which Milton struggled not only against the dearth of academic jobs brought on by the Great Depression, but also against overt anti-semitism in the American academy, a combination which left him without a tenure track appointment for twelve years at a time when lesser-gifted Gentiles readily obtained such positions. Although Milton and Rose play down this cruel experience, undoubtedly it was a direct result of the not-for-profit basis of the U.S. academy. A competitive for-profit system simply could not have preferred competence over genius without invoking stockholder dissatisfaction.

The reader of these Memoirs will trace the rocky path followed by Milton and Rose during these Wilderness Years. Suffice it to say that they managed to maintain their personal relationship throughout these travails, marrying on 25 June, 1938, just sixty years ago. Although Rose makes light of this in the Memoirs, the instability of the Wilderness Years probably put paid to her doctoral dissertation, which was not to be completed. Milton himself completed his doctorate at Chicago only in 1946 at the age of 34.

In my opinion, which I share with Rose but evidently not with Milton, the worst intellectual mistake in Milton's career occurred during his time at the U.S. Treasury in 1942 when he pressed for the introduction of income tax



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withholding at source against the opposition of the Internal Revenue Service! This initiative arguably is the major cause of the growth of government in the United States during the second half of the twentieth century since it obscures the full cost of government to the taxpayer. Milton claims in the Memoirs that withholding would have occurred with or without his support, but that he helped to make it more efficient than it otherwise would have been. Public choice now advises us that we should never attempt to make government more efficient in its taxing capacity. Until the early 1980s, Milton failed con- sistently to recognize the wisdom of this insight. His distinguished work on the negative income tax would later threaten to make the U.S. government yet more efficient in transferring wealth, a potential disaster for private property rights.

Chapters Ten to Sixteen of the Memoirs chronicle the most productive years of Milton's scientific career, starting with his appointment as Associate Professor in Economics at the University of Chicago in 1946 and ending with his receipt of the Nobel Prize in Economic Science and his mandatory retirement from the University of Chicago at age 65, both in December 1976, the latter reflective of the serious distortions imposed by a highly regulated, not-for-profit higher education system.

The appointment at Chicago was a blessing indeed, not just for the Fried- mans themselves (Rose states simply in the Memoirs that "[c]oming back to Chicago in September 1946 was like coming home") but for capitalism and freedom itself worldwide. For Chicago was to be the anvil on which the Friedmans would forge weapons which ultimately would help to destroy the Keynesian hegemony in macroeconomic theory and the new welfare economists' pro-intervention stranglehold over microeconomic policy. Ultimately, a New Chicago School would emerge under Milton's intellectual leadership, replacing the Old School of Viner, Knight and Simons with such household names as Stigler, Director, Coase, Becker, Peltzman, and Posner whose work once again would confirm for the University of Chicago a pre-eminent place in high quality free market economics.

What both Rose and Milton treasured most about the University of

Chicago was its intense and stimulating intellectual atmosphere, its judgement of discourse in terms of ability and not of status, its tolerance for unconventional ideas, and its interaction among scholars in different fields. Such an atmosphere is very rarely cultivated in the United States academy and most likely was the product of two influences.

The first such influence was the role played by Robert Maynard Hutchins, president of the University from 1929-1951, both in introducing the Great Books program into the undergraduate curriculum and in creating compen- sation contracts that taxed the consulting fees of faculty. The latter alone



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encouraged true scholars to locate in Chicago leaving the rent seekers to locate on the East and West Coasts. It is no accident that Chicago is the most frequent home of U.S. Nobel Prize winners. The second influence is the accident of geography which provides Chicagoans with much needed distance from Washington and with a climate and environment conducive to sustained hard work.

If Chicago was an ideal location, the Department of Economics was the Friedmans' intellectual home, indeed still remains so more than twenty years since they moved to the West coast. Chaired by Theodore W. Schultz throughout the first fifteen years of the Friedmans' stay, the department, diverse as it was in its approach to economics, provided an ideal environment for rigorous scholarship. Members of the Chicago School evidently enjoyed a close-knit social as well as academic life, a life that would be extremely important for a group of scholars as isolated as they were from the mainstream of the economics profession and as scorned as they were by leading members of the Keynesian and the new welfare economics hegemony.

Throughout the Chicago phase, Milton and Rose enjoyed a close fam- ily life, rearing two highly successful children, dividing their time between Chicago and Vermont, first at Oxford and later at Capitaf (shorthand for their joint book Capitalism and Freedom where they found the peace from day-to-day pressures essential to creative scholarship. From this secure home base, Milton quickly showed his abilities, both as a first-rate teacher and as a profound scholar.

During his thirty years at Chicago, Milton taught mostly price theory (from 1948 to 1962 and from 1971 to 1976) and monetary theory (an ele- mentary course at first and then an advanced course from 1963 to 1970). He also ran his now famous Workshop in Money and Banking. These courses became the fulcrum of the New Chicago School as successive generations of graduate students imbibed a heady brew of freshwater economics that would have been denied to them almost everywhere else. A unique combination of brilliant economic theory, impressive technical competence and outstanding debating skills guaranteed that students must take notice of Milton's peda- gogy, however startling much of it must have been for the large majority who had been indoctrinated in socialist dogma prior to enrolling at Chicago.

Milton's scholarship during the Chicago years can only be categorised as phenomenal. A review such as this simply cannot do it justice, but the Mem- oirs provide a succinct summary and an impartial assessment of the major results. In 1976, Friedman (belatedly in my opinion) was awarded the Nobel Prize in Economic Science and was cited 'for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration



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of the complexity of stabilization policy'. In each of these areas, Milton had made path-breaking contributions.

In his 1957 masterpiece, A Theory of the Consumption Function, Milton demonstrated that the Keynesian consumption function was mis-specified, that households adjusted their expenditures only with respect to perceived changes in their long-term or permanent income, and that any leveraging of real income through short-run increases in government expenditure was much smaller than enthusiasts for fiscal policy believed. His concept of permanent income would reform virtually every field of applied economics where scholars previously had relied on current household income as an explanatory variable. His empirical analysis in this book remains a model of what positive economics purports to be.

Milton's counter-revolution in monetary theory was to absorb the greater part of his energies over the period 1956 to 1976. The engines were fired with the publication in 1956 of the workshop's Studies in the Quantity Theory of Money, a text which succeeded in restoring the classical quantity theory to academic respectability. Milton's introduction to this book came to be regarded as the definitive restatement of modern quantity theory. He argued that the demand for money was a stable function of several variables, that the income velocity of circulation of money was not a constant as the classicals had suggested, but that it tended to accentuate the impact of any increase in the money supply on nominal income rather than to operate as a cushion as the Keynesians had suggested. In the short run money mattered for the per- formance of nominal income and in the long run money was all that mattered for the determination of the level of prices.

Friedman's theory was met with skepticism within the profession even though it was supported by empirical analysis published in Studies in the Quantity Theory of Money. Skepticism continued even following the 1963 article by Friedman and Meiselman demonstrating that over the period 1897 to 1958 monetary velocity in the United States displayed greater stability than the investment multiplier. The profession had to sit up and take notice, however, following publication also in 1963 of the monumental book

by Friedman and Anna Schwartz entitled: A Monetary History of the United States: 1867-1960.

This book presented extensive evidence from history of a consistent re-

lationship between monetary change and subsequent economic change, thus

offering substantial support for the restated quantity theory. In so doing, it

explained the Great Depression primarily as being induced by monetary fac- tors and not by a deficiency of aggregate demand. In essence, this publication finally turned the tide in favor of the view that money mattered, even though it would take some time for the Keynesian fallacy to be fully exposed.



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Subsequent research by Friedman determined that the impact of a fiscal deficit on nominal income was short-lived whereas, after a lag that was long and variable, an increase in the rate of growth of the money supply perma- nently augmented the rate of price inflation. This confirmed Friedman in his opposition to active monetary policy. In 1968 came Friedman's famous attack on the Phillips Curve, which had suggested the existence of a stable functional relationship between the level of unemployment and the rate of price inflation. Friedman counter-argued that the Phillips Curve was unstable in the short run unless the economy operated at the natural rate of unemployment and that in the long-run the Phillips curve was vertical.

I have focussed disproportionate attention in this review upon the scholarly contributions chronicled in the Memoirs because of the nature of this readership. The book also discusses the joint contributions to classical liberal- ism of Rose and Milton provided through their best selling books, Capitalism and Freedom (1962) and Free to Choose (1980) and provides a fascinating account of the filming of the television series that formed the basis for the latter publication. Many friends of freedom rate these more popular contributions more highly than Milton's technical work on the ground that they have reached out to a much wider audience. In my view, this judgement is incor- rect. Without the technical contributions, the Friedmans' voices would have carried much less weight with the intellectual elite that still plays a powerful role in shaping public opinion world-wide.

Chapter Seventeen through Thirty One of the Memoirs provide the reader with a fascinating birds-eye view of the changing world situation during the second half of the twentieth century. Virtually every country of political sig- nificance has been visited by the Friedmans and their perceptive evaluations repay close attention. The participation by Milton in the affairs of the ill- fated Goldwater candidacy and in the administrations of Nixon and Reagan are also noteworthy. I must say that these political experiences confirm my own prejudice that great economists should entirely dissociate themselves from politicians, who never comprehend the subtleties of their contributions and who shamelessly misuse their works for political advantage. Here again, perhaps, my public choice prejudices are showing.

I commend this book as a first-rate chronicle of the lives of two people who have lived the American Dream to its best advantage, who have demonstrated that individuals and families can attain happiness and great success by sustained hard work and by dedication to the highest ideals of scholarship. In particular, I commend this book to those young economists, just starting out on their careers, who may be tempted by the high monetary returns to consulting, lobbying and journalism to trim their scholarly goals and to settle for academic mediocrity. The Friedmans could have chosen that route and



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become as rich as Croesus. The Free World is immensely in their debt that they chose not to do so.

It is just as important to choose to be free as to be free to choose, as those freedom lovers old enough to remember the road to serfdom chosen by large majorities in the Western World throughout much of the second half of the twentieth century are well aware. Throughout their long lives, Rose and Milton Friedman have carried the torch of freedom with dignity and determination. This book is a testament to their joint contributions. It is now the responsibility of the next generation to pick up the baton and to carry the torch of freedom on its next lap.

CHARLES K. ROWLEY, Economics, George Mason University, Fairfax, VA 22030, USA

References

Friedman, M. (1956). Studies in the quantity theory of money. Chicago: University of Chicago Press.

Friedman, M. (1957). The theory of the consumption function. Princeton: Princeton University Press for the National Bureau of Economic Research.

Friedman, M. (1968). The role of monetary policy. American Economic Review 58: 1-17. Friedman, M. with assistance of R.D. Friedman. (1962). Capitalism and freedom. Chicago:

University of Chicago Press. Friedman, M. and Friedman, R.D. (1980). Free to choose. New York: Harcourt, Brace

Jovanovich. Friedman, M. and Meiselman, D. (1963). The relative stability of monetary velocity and the

investment multiplier in the United States, 1897-1958. In The Commission on Money and Credit, Stabilization policies. Englewood Cliffs, NJ: Prentice-Hall.

Friedman, M. and Schwartz, A. (1963). A monetary history of the United States, 1867-1960. Princeton: Princeton University Press for the National Bureau of Economic Research.



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