TRIBUTES AND REMEMBRANCES:
From Pariah to Priest

By Robert J. Barro

Robert J. Barro

When my son Jason was an economics Ph.D. student at Harvard in the 1990s, he said, “I have observed that only two economists can push you around, Milton Friedman and Gary Becker.” I agreed but argued that it was a good thing. Everyone needed heroes, and Gary had only Milton. Milton had no one, except Ronald Reagan in the 1980s, but Reagan did not truly qualify as an economist. Arthur Burns may once have been the economist’s hero—as an instructor at Rutgers, he apparently helped persuade the undergraduate Milton not to be an actuary. Burns’s exalted status ended in 1971, however, when he went over to the dark side by endorsing Richard Nixon’s outrageous price controls.

The only person to rival Milton for policy influence in the twentieth century was John Maynard Keynes, who had a strikingly different view of the role of government. Keynes advocated more government intervention into what he perceived as poorly functioning private economies caught up in the global depression of the 1930s. In contrast, Milton put the primary blame for the U.S. depression on government failures, especially of the Federal Reserve’s monetary policy. Hence, the existence of the Great Depression posed no dilemma for Milton’s broad preference for small government, and he found in the Fed’s failures to prevent deflation an argument in favor of monetary rules. As the world evolved—with price stability becoming the major mission of central banks, and free markets and property rights becoming the key policies to promote economic growth—Milton surely won the intellectual and policy battles.  

Milton is often cited, starting with Time magazine in December 1965, for the famous quote “We are all Keynesians now.” But Milton pointed out in his autobiography that the quote was taken out of context to change the meaning. The full statement, reconstructed by Milton in a letter to Time in 1966, is “In one sense we are all Keynesians now; in another, nobody is any longer a Keynesian.” Milton explained that the first sense refers to the rhetoric and style of macroeconomic analysis—Keynes essentially invented macroeconomics as a distinct field. The second sense applies to substantive implications, specifically, to the idea that (almost) no one now advocates the simplistic policy activism recommended in Keynes’s General Theory. Although the second observation is more significant, the first one got most of the press.

The Force of Ideas

High esteem by the economics profession was not always Milton’s status, and he had to endure a long march from pariah to priest. This transition culminated in the Nobel Prize in Economic Sciences in 1976, a great choice that confirmed the widespread impact of his economic ideas. In contrast, in the mid-1960s, when I started as a graduate student in economics at Harvard, my professors viewed Milton as a right-wing, midwestern crank. (The Harvard economics department is much better now than it was then!)

Milton avoided government service and always gave this advice to academic economists: “By all means spend a few years in Washington—but only a few. If you stay more than two or three years you will become addicted and will be unable effectively to return to a scholarly career.”

Despite his fame in the macroeconomic area, Milton’s most important contributions to the policy debate were on the microeconomic side. His overarching theme was the benefits from free markets and private enterprise. The conceptual framework is in the outstanding 1953 book Essays in Positive Economics. Many of the policy proposals were expressed as early as the 1950s and appeared in Capitalism and Freedom (1962). That book—developed from a series of lectures in 1956—is the classic work on economic ideas for a general audience. I learn something every time I reread this remarkable work.

Capitalism and Freedom expressed numerous ideas once thought to be radical but now viewed as mainstream. The all-volunteer army has worked well in the United States and other countries for many years, privatized social security lives in Chile and other places, the U.S. earned income tax credit is a form of negative income tax, the flat-rate income tax prevails in many countries (even Russia), school vouchers work in some U.S. localities and are under active consideration in others, and market-oriented welfare reform was enacted by Bill Clinton of all people. In addition, open capital markets are the norm in the developed world, and flexible exchange rates prevail in many countries. The spirit of monetary stability has also been accepted, although in the more modern form of inflation targeting. Some years from now we may add Milton’s recent proposals on the decriminalization of drugs to the list of generally accepted proposals.

Anyone who wants to understand Milton’s policy ideas should start with Capitalism and Freedom and then go to Free to Choose, the best-selling 1980 book from the television show that made Milton a household name. He notes in his autobiography—Two Lucky People: Memoirs, written in 1998 with his wife, Rose—that France was the only European country never to air the television program. Seems that some things never change. As evidence of the celebrity status conveyed by Free to Choose, I recall being with Milton in Chicago’s O’Hare Airport when a man noticed my companion and became euphoric, in the manner of an avid fan who comes in contact with a rock star.  

Capitalism and Freedom is the classic work on economic ideas for a general audience. I learn something every time I reread this remarkable work.

One thing I learned from Two Lucky People is that Milton’s influence was achieved mainly through the force of ideas, not by direct participation in the policy process. Except for work in 1935–37 in New Deal Washington (when Milton had no academic job opportunities) and during World War II, Milton avoided government service. His key advice to academic economists: “By all means spend a few years in Washington—but only a few. If you stay more than two or three years you will become addicted and will be unable effectively to return to a scholarly career.” My only disagreement is that two or three years in Washington are too many.

In any event, Milton probably would not have been an outstanding policymaker. His main output in Washington during World War II involved work on the establishment of income tax withholding. Ironically, no other law has likely done more to enlarge the size of the federal government. Certainly Milton regretted the existence of income tax withholding, but he also said (no doubt correctly) that this institution would be present even if he had never set foot in Washington.

High esteem by the economics profession was not always Milton’s status, and he had to endure a long march from pariah to priest.

Milton’s well-reasoned and lively writings in Newsweek from 1966 to 1984 are the model toward which any economic commentator ought to aspire. In Two Lucky People, he describes his initial nervousness about being able to generate enough topics to fill the columns; hence, he did not accept Newsweek’s offer until he had assembled a substantial list of potential ideas. But Milton said he never used anything from the list—something interesting and timely always came up, and he had no problem producing a column every three weeks.

Academia

Milton’s longtime friend and colleague George Stigler told the story in his memoirs of how Milton got his faculty appointment at Chicago:

In the spring of 1946 I received the offer of a professorship from the University of Chicago, and of course was delighted at the prospect. The offer was contingent upon approval by the central administration after a personal interview. I went to Chicago, met with the President, Ernest Colwell, because Chancellor Robert Hutchins was ill that day, and I was vetoed! I was too empirical, Colwell said, and no doubt that day I was. So the professorship was offered to Milton Friedman, and President Colwell and I had launched the new Chicago School. We both deserve credit for that appointment, although for a long time I was not inclined to share it with Colwell.

Stigler and Milton were finally united at Chicago in 1958 when Stigler left Columbia to accept the lucrative Walgreen Professorship.

One of the best things about the University of Chicago environment is the workshop system in which Milton was still running the famous Money and Banking Workshop in 1972–75. He conducted the workshop in a “page-one/page-two” format; instead of allowing the speaker to present the paper, Milton began by asking, “Does anyone have comments on page one?” The speaker was then allowed to respond to the comments on page one and so on for subsequent pages.

In 1973, I presented a paper at a workshop attended by the three great pillars of the Chicago School—Milton, George Stigler, and Gary Becker—the only time I witnessed a seminar attended by all three simultaneously. At one point, Gary and I got involved in a heated dispute on a technical point in the paper. I recall Milton putting his head down, deep in thought for at least a full minute, while the room was silent. Given Milton’s mental quickness, this prolonged deliberation was unusual, and the atmosphere in the room was tense. Finally, Milton lifted his head and declared, incredulously, that Gary was wrong (a nearly unprecedented event) and that I was therefore right. For some reason, Gary lacks any recollection of this event.

Milton moved to San Francisco and joined Stanford University’s Hoover Institution in 1977. He wrote Two Lucky People with Rose at Hoover, and his mind remained remarkably nimble even into his nineties. On one occasion, Milton remarked how surprised he was still to be alive at such an advanced age, that somehow it was a contingency for which he had not planned. Nevertheless, we can all only be grateful for this outcome.

More generally, we are all fortunate that Milton had the good humor and self-confidence to persevere in the face of many years of scorn by left-wing economists and journalists. The tables were turned on his detractors many years ago, and—to paraphrase his misused quote about Keynes—we are all Friedmanians now.

Robert J. Barro is a senior fellow at the Hoover Institution and the Paul M. Warburg Professor of Economics at Harvard University.

Barro's expertise is in the areas of macroeconomics, economic growth, and monetary theory. He is currently researching the interplay between religion and political economy.