Nov. 17 (Bloomberg) — Today's papers are filled with tributes to the scholarly contributions of Milton Friedman, who died yesterday at the age of 94.
They note how the great economist invented modern monetarism and vanquished orthodox Keynesianism with a single phrase: "Inflation is always and everywhere a monetary phenomenon." He also inspired former Federal Reserve Chairman Paul Volcker to push interest rates to the sky to stop inflation, an event whose benefits we still see in the shape of the yield curve today.
Yet there is something Friedman did that is less talked about: He showed us how free markets can be humane.
Consider how Americans have viewed economics for the past 75 years — the period since Franklin Delano Roosevelt blamed the Great Depression on "princes of property." Americans have always understood that free marketeers may have valid arguments. For decades, though, profit was generally considered corrupting. You made money so you could move on and do good in other areas, such as government or charity.
Not only Marxists, but also the mainstream believed this. In 1958, Friedman's own academic home, the University of Chicago, published a book titled "The Perils of Prosperity." Traditional market theories were perceived to be cold, anti-people.
As for free marketeers themselves, they were likewise deemed heartless. I grew up in Chicago's Hyde Park, not far from Friedman's economics department at the University of Chicago. Even as a child, I was aware that people beat a path around that department's doors.
Earned Income Tax Credit
What Friedman was doing all that time was methodically demonstrating how market-oriented thought was more humane than any charity — not to mention welfare.
The performance happened, first of all, on a professional level. In the 1960s, appalled at welfare, he floated the concept of a negative income tax to replace it. Such a tax would encourage people to work and help their families in the longer term, according to Friedman. The Earned Income Tax Credit has its problems, yet it has reduced unemployment. By the Clinton era, the EITC, a version of Friedman's concept, had become a favorite policy tool of the Democratic Party.
In the 1970s — to much outrage — some of Friedman's colleagues and former students, influenced by his ideas, persuaded General Augusto Pinochet to privatize and liberalize Chile's economy. Friedman believed that free markets would bring greater freedom and better living standards in what was then a stricken country. In the years since, Chile has indeed recovered its democracy, and its economic-growth rate has outpaced that of the rest of Latin America.
The 2006 World Health Report, published by the World Health Organization, shows the chances of a Chilean dying before the age of 5 is nine in 1,000, compared with 28 in 1,000 for Mexico and eight in 1,000 for the U.S. Even by the nonprofit sector's measures, the Chile that Friedmanites formed is a success.
Friedman's personal humanity shouldn't be overlooked. The 1976 Nobel laureate and author of "Capitalism and Freedom," the book he wrote with his wife Rose, had enough financial resources to create a school-voucher foundation in 1996, targeting the poorest children. Such programs have proliferated in the past 10 years in the U.S.
He was a great teacher, though a no-nonsense critic. Once I hazarded that a certain bit of tax legislation was imperfect — "Any tax cut is good," he snapped back.
Stick to Knitting
Another time a friend told him I was thinking of starting a nonprofit organization. Friedman wrote to me to say there were too many charities in the world. "One of my main reasons for favoring elimination of the death tax is because doing so would reduce the flow of funds into nonprofit areas," he wrote in the letter. "It would lead to a larger fraction of accumulated wealth being invested in productive enterprises."
The message: If markets needed fighting for, I should stick to my knitting — "You will do more in this direction by your writing than by your organizing."
There was always a strong sense of friendship emanating from him and Rose. Though he really didn't know me well, he invited me and my children to visit them in their San Francisco apartment. We still have the Polaroid photos of our boys posing with the Friedmans. I wasn't the only one: The Friedmans have helped push forward the careers of hundreds of people, with free-market advice and affection.
I learned of Friedman's death after a lunch at the Council on Foreign Relations for Muhammad Yunus, the winner of this year's Nobel Peace Prize. Yunus won it for making micro-lending to the poor a global phenomenon through his Grameen Bank in Bangladesh.
'Never Seek a Job'
There were for-profit and not-for-profit people in the audience — two different worlds. Yet when Yunus said, "I'm not saying that money is dirty," every head in the room nodded. We all nodded again when Yunus said a good maxim would be "I shall never seek a job" — meaning that even beggars should think about creating businesses, not just taking positions provided by others.
To us, these arguments seemed almost obvious. Yet Yunus, like so many, would have found it harder to voice such views if Friedman hadn't done so before him.
(Amity Shlaes is a visiting senior fellow at the Council on Foreign Relations. The views expressed here are her own.)
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