Great social thinkers almost always start out as polarizing figures, admired by some and scorned by others, until their radical challenge to how we understand the world finally prevails. Milton Friedman was a giant among modern social thinkers for at least two reasons. First, he profoundly influenced not only his own field of economics, but also the social sciences more broadly. Second, judging by historical experience, his influence on public opinion and economic policymaking improved countless lives for the better.
For decades, Friedman remained stranded in the intellectual wilderness, spurning the postwar Keynesian consensus that governments should use fiscal policy to manage aggregate demand – a view that sustained statist economic policies through the 1970’s. Indeed, in the context of his age, Friedman was a true intellectual revolutionary, combining rigorous academic research and gracefully written popular books and journalism to argue for free-market policies – and to affirm the link, defended by writers from Adam Smith to Friedrich von Hayek, between economic freedom and political liberty.
In economics, Friedman revived and developed the monetarist theory that the quantity of money in circulation is the main determinant of how economies perform. In his masterpiece A Monetary History of the United States, 1867-1960 (written with Anna Schwartz), he famously attributed recessions, including the Great Depression of the 1930’s, to a decline in the money supply. Likewise, he argued that it was an oversupply of money that caused inflation.
In the 1960’s, Friedman showed that Keynesian demand management through government spending constantly increased the money supply, accelerating wage and price growth. Together with Edmund Phelps – this year’s Nobel Prize laureate – he proved that there is no stable tradeoff between unemployment and inflation. Any attempt to use expansionary government policies to drive unemployment below a certain level, they demonstrated, would fuel inflationary expectations and undermine both economic growth and employment. That analysis both anticipated and explained the combination of rising inflation and rising unemployment of the 1970’s that came to be known as “stagflation.”