Washington, D.C. On
Thursday, November 16, I attended a conference on Federal Reserve policy
at Washington's Cato Institute, arguably America's most prominent
libertarian think tank. Meeting in the Friedrich von Hayek Auditorium,
the conferees focused on what the Fed should do in view of the nation's
growing fiscal imbalances and the erosion of the dollar's value in
the world currency markets. The final presentation by Robert Barro
of Harvard University was to concentrate on Milton Friedman's pioneering
ideas on monetary policy.
After all, among all libertarian economists, none are as highly esteemed
at the Cato Institute as Friedrich von Hayek (1899-1992) of the Viennese
School of Economics and Milton Friedman of the Chicago School.
Two of Hayek's books led the way to a comprehensive understanding of
libertarian thought: The Road to Serfdom (1944) and The Constitution
of Liberty (1960). Following in Hayek's footsteps, Friedman explained
in technical detail the requirements for monetary policy in a free
market, and he popularized libertarian economics with his book on Capitalism
and Freedom (1962). On his 90th birthday, the Cato Institute established
in his honor the biennial $500,000 Milton Friedman Prize for Advancing
Liberty.
As often in deliberations at Cato, on Thursday morning again, Friedman's
ideas shone through several of the presenters' papers. Then, shortly
before noon, the moderator interrupted the proceedings with the sudden
announcement that Milton Friedman, at age 94, had just passed away
in San Francisco. Standing in silence, the audience was stunned. Yet,
there was no reason to halt the deliberations, because Friedman's ideas
and spirit so strongly pervaded them, explicitly and implicitly.
Already in 1953, Friedman's essay on "The Methodology of Positive Economics" set
the research direction for the Chicago School when he insisted that, to be
a science, economics had to be free of value judgments. Subsequently, he emerged
as the leading proponent of the crucial role of monetary policy, rather than
fiscal policy, for the development of employment and prices.
Perhaps the most venerable panelist at the conference was Anna Schwartz with
whom Friedman had published A Monetary History of the United States
43 years ago. Their research revealed how fluctuations in the money supply,
rather than government spending, had contributed to the decline of consumption
and output during the Great Depression under the Hoover and Roosevelt administrations.
Friedman rejected fiscal policy as tool for the management of demand. He opposed
government intervention in the currency market and advocated freely floating
exchange rates. The Federal Reserve was to keep inflation in check by controlling
the money supply. It was essentially for his scholarly work on monetary policy
that he received the Nobel Prize for economics in 1976.
Some of Friedman's ideas met with vociferous dissent--to the extent that at
present a majority of Americans remains unwilling to adopt them. Consistent
with his libertarian philosophy, Freedman proposed the replacement of America's
government-controlled welfare system with a negative income tax. He played
a major role in the abolition of military conscription in the 1970s. He urged
the decriminalization of drugs and prostitution. Last year, he and some 500
other economists called for a national dialog considering the economic benefits
of the legalization of marihuana.
He and his wife established the Milton and Rose D. Friedman Foundation for
School Choice, promoting school vouchers to pay for tuition at both private
and public schools, thus enabling private schools to compete with public schools
on a more even playing field. "What is needed in America, " Friedman
insisted, "is a voucher of substantial size available to all students,
and free of excessive regulations."
Politically, Friedman considered himself a libertarian on principle and a Republican
only on grounds of expediency. He judged political leaders not by the material
gains they brought the masses but by the degree to which they decreased government
control and increased personal freedom. Friedman again and again warned: "The
power to do good is also the power to do harm."