A Moment with the Master

Monday, October 30, 2006

You can tell from the cracked bindings, the loose pages, and the frequent underlining and margin markings what the four most loved books in my library are. They are all by Milton Friedman. I first read them while I was a student, long before I met Milton, and I will always find pleasure in pulling them off the shelf, rereading passages, learning, and remembering. Essays on Positive Economics made the case for monetary policy rules, inflation control, and flexible exchange rates—the three bedrocks of my approach to monetary theory and policy. A Monetary History of the United States: 1867–1960, with Anna Schwartz, convinced me more than any modern econometric method that money is inextricably tied to the business cycle and inflation, with long and variable lags. Price Theory: A Provisional Text, based on his lectures at the University of Chicago, helped me to think like an economist—even a Chicago economist—more than any other textbook. Capitalism and Freedom, which I first read in college in 1967, still inspires me to promote economic freedom, most recently in our foreign policy.

It was not until I moved to Stanford and Hoover in 1984 that I had the privilege of really getting to know the person who authored these favorite books and to benefit from a whole new set of personal influences. True to legend, Milton was impressive in conversations and seminars with his sharp mind and quick debating skills, but even more impressive to me were his gregariousness, kindness, and humor. He was genuinely interested in what people had to say; he respected people. He always answered letters and
e-mails—and you can imagine how many he got from around the world. He told me that if someone took the time to write to him with a question that he felt he should find the time to answer. He was always willing to be a guest lecturer in my Economics 1 course. He would start by telling the undergraduates that two major things the government is involved in are a mess: education and drugs—and that would set off a lively round of questions, with his memorable answers impressing both those on the left and those on the right. He put MV = PY on his California license plates, a story I always use to help students remember that famous formula. When I called him from Washington in 1990 during a stint at the Council of Economic Advisers to ask for his support for the president’s “revenue enhancements” he simply said, “You better come back to Stanford right away, John. Washington is corrupting you.” On my more recent stint in Washington I did not have to ask his support for that kind of policy, and I was pleased to get his help and support for noninterventionist exchange rate polices, removal of capital controls in trade agreements, and IMF reform.

One of the best things about returning from Washington last year was the opportunity for my wife, Allyn, and me to see more of Milton and Rose, usually in San Francisco, and for me to talk more with Milton about monetary theory. Last winter Milton wrote a technical paper on some of my monetary research, which we had been discussing at length in the previous months. Using data and charts, he demonstrated in a convincing and sophisticated way that the improvement in economic stability in the United States in the past 25 years was mostly due to monetary policy. I assigned the paper to my graduate students. I debated the technical parts of the paper with Milton, and the debate was televised for a conference just last August. You do not have to ask who won the debate, but it was a moment for me with the master that I will never forget.