1965: Friedman publishes The Optimum Quantity of Money: And Other Essays, outlining his monetarist ideas.
The Friedmans build a hilltop home in Vermont, where they spend every summer and autumn.
1966–84: Writes a regular column for Newsweek magazine.
1967: Friedman becomes president of the American Economic Association, using his presidential address to introduce the idea of a ‘natural rate of unemployment’.
1968: Publishes Dollars and Deficits, on inflation, monetary policy and balance of payments problems.
Recommends flexible exchange rates to US president-elect Richard Nixon; other advice follows, but Friedman splits with Nixon over the wage and price control policy of 1971.
1970: Friedman’s Wincott Memorial Lecture The Counter-Revolution in Monetary Theory brings his ideas to the UK.
1971: Nixon allows the US dollar to float against gold and other countries, precipitating a worldwide move to free exchange rates.
1972: Publishes Price Theory, an important academic work.
Friedman has open heart surgery at the Mayo Clinic.
1975: Visits Chile, refusing to speak on official platforms but telling the military dictator, Augusto Pinochet, of the need for economic liberalisation. Pinochet brings in Chicago-trained economists, including students of Friedman, to make the economic reforms.
1976: Receives the Nobel Memorial Prize in Economic Science for his work on consumer behaviour, monetary history and economic stabilisation policy. Published as Inflation and Unemployment, his acceptance speech rejects the idea of a trade-off between inflation and unemployment.
1977: Retires from Chicago and becomes a fellow of the Hoover Institution at Stanford University, California.
1979: Prime minister Margaret Thatcher starts implementing Friedman-style monetarist policies in the UK.
1980: Friedman begins advising US president Ronald Reagan on economic policy.
Free to Choose, a book and TV series, brings Friedman’s ideas to millions of people around the world.
Friedman invited to Peking to advise China on the adoption of market-economic reforms.
1984: Publishes Tyranny of the Status Quo, noting the “iron triangle” of politicians, officials and beneficiaries that fuels the growth of government.
1988: Friedman is awarded the US Presidential Medal of Freedom.
1989: Collapse of the Berlin Wall and decline of Soviet occupation in Eastern Europe.
1992: Mart Laar becomes prime minister of Estonia and takes his economic policy straight out of Free to Choose.
1998: The Friedmans’ autobiography, Two Lucky People, is published.
2002: The Cato Institute of Washington DC inaugurates the Milton Friedman Prize for Advancing Liberty.
2006: Friedman dies on November 16 in San Francisco, aged 93. Rose Friedman dies three years later.
Chapter 1. The Economist Who Changed Everything
“There are very few people over the generations who have ideas that are sufficiently original to materially alter the direction of civilization. Milton is one of those very few people.”
– Alan Greenspan, former chairman of the US Federal Reserve
Worldwide Influence
Alan Greenspan was right: the change in direction that has resulted from Milton Friedman’s powerfully original work is indeed remarkable. For most of Friedman’s career as a professional economist, from the 1930s to the 1980s, the world was dominated by the ideas of government planning, management and control. But at last a new set of ideas started to spread – Milton Friedman’s ideas of free markets, open trade, freedom and capitalism. Though these ideas remain controversial to many, they have become part of the everyday life of billions of the world’s citizens.
On the fall of the Berlin Wall and the ending of Soviet occupation in Eastern Europe, the small republic of Estonia embarked on a comprehensive reform programme that lifted the prosperity of its citizens to previously undreamed-of levels. Within a decade it had become the most internet-wired country in the world; state industries were privatised, business taxes were abolished, personal taxes were slashed, controls were swept away. Estonia became the Baltic Tiger, a model to which other ex-Soviet countries aspired.
Mart Laar, Estonia’s prime minister at the time (1992–94 and 1999–2002), explained the source of his radicalism as he received the 2006 Milton Friedman Prize for Advancing Liberty. In the Soviet era, Western economics books were unobtainable. The only one he could get hold of was Milton Friedman’s Free to Choose (1980). And luckily, he joked, he had none of the West’s mainstream economists around to assure him that these ideas could not possibly work. Facing 1,000% inflation, a 30% drop in the economy and 35% unemployment, he simply adopted Friedman’s ideas. They worked far better than anyone expected.
“Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.”
– Milton Friedman, Capitalism and Freedom, Preface to 1982 edition
The passing of the revolutionary communist Mao Zedong saw China opening up to Friedman’s economic thinking too. In 1980, just over a year after the reformist Deng Xiaoping became China’s ‘paramount leader’, Friedman was invited there to lecture on the use of market mechanisms within a planned economy. Today, China’s adoption of market mechanisms has seen it storming up the league table of world economies, and has improved the lives of hundreds of millions of its citizens.
Meanwhile, a billion people in India are enjoying another huge economic boost, following the country’s economic liberalisation of 1991, which ended price controls, cut taxes, abolished public monopolies and scrapped regulations. India’s free-market reforms made it one of the fastest-growing economies in the world, and brought its people rising literacy and life expectancy. The people of India and China may not realise it, commented Nobel economist Gary Becker, but “the person they are most indebted to for the improvement of their situation is Milton Friedman.”
On the other side of the world, Friedman’s influence can also be seen in Chile. After the military coup that ended the socialist government of Salvador Allende, Friedman accepted an invitation to lecture there on the merits of economic freedom; and he wrote to the military dictator, Augusto Pinochet, outlining a programme to end the country’s hyperinflation and establish a market economy. Pinochet promoted a number of young Chilean economists – dubbed the Chicago Boys – who had studied at the University of Chicago, where Friedman was a professor. They cut import tariffs, replaced the failing state pension system with one based on personal savings and accounts, privatised farms, stabilised the currency and liberalised the financial sector. Their reforms turned Chile’s economic crisis around, making it one of Latin America’s most thriving economies.
Ongoing impact
Today, in countries as diverse as Estonia, China, India and Chile, we can see the benefits of the economic prosperity and personal freedom that have followed the adoption of Friedman’s ideas. Alan Greenspan summed up Friedman’s legacy, saying that: “His impact is not