Episode Ninety

Introduction

0:00Welcome to Smith and Mark's Walk into a Bar, a history of economics podcast. I'm Jennifer Jun, one of your hosts, and I'm joined here today by my fellow host, Jinla Akdure. Hi, Jinla. Hi, Jen. How are you? I'm good. How are you? Fine. Regular day. I had my class in the morning. Now I find you all and so happy to see you.

0:32Well, I'm happy to have you here as well. And I'm also joined by Francois Alisson. Hi, Francois. Hello, Jennifer. I'm happy to see you after this Easter break. And yeah, I just came out of a seminar where we discuss the Japanese Marxist value theory. And so I'm happy to join you after that. Oh my goodness. You've got busy schedules still. We just ended classes. So it's our reading week right now. So I did not teach at all this morning. In any case, I'm very excited to introduce today's

Guest Introduction

1:08guest. So we are joined today by Professor Jennifer Burns, who is Associate Professor in the History Department at Stanford University. And she's the author of a book, Milton Friedman, The Last Conservative, which came out in 2023. And we'll be talking a lot today about that book, which was named by The Economist as one of the best books of 2023. So this is really exciting. Jennifer, how are you doing today? Welcome to the show. Thank you for joining us. Thanks for having me. It's great to have like a multiple host podcast. I'm looking forward to a dynamic conversation. And it is like

1:42first, not first thing in the morning, but this is the first thing on my docket for the day. So I'm looking forward to getting the juices flowing. That's true. We've been, we're standing across what, I think 10 different time zones this time. So thank you for getting up early to talk to us

Milton Friedman Biography

1:56today. I've got the first question, so I'm going to kick things off. So Milton Friedman, a huge towering figure in the history of 20th century economics, but there hasn't been a biography like this one of Friedman until yours came along. Why is it that there hasn't been a comparable biography of Friedman before now? You know, I sort of had that question at the beginning of the project, like, oh great. Like I'm, I'm getting really lucky. This is this major figure in 20th century thought. You hasn't been the subject of an extended study. I've got this, you know,

2:29all this sort of greenfield to myself. And then as I started to get going, I was like, oh, like now I understand. And I think it's a combination of things. I think one is that his life is so long and it really spans the 20th century. You know, he's, he's born in 1912. He dies in, I think it's 20, 20, 24, 2004. So there's, the scope is very big. And then he also, as I talk about in the book, is part of this transformation of economics that's happening. So to sort of situate him in context,

3:03you have to go through a lot of different phases in the discipline of economics. Then he's not just an economist. I talk about this in the book and how there's kind of like three Freedman's, you know, there's Freeman, the economist, there's Freeman, the public intellectual, and then there's sort of Freeman, the policymaker. And so to really do him justice, you have to not just look at the economics, but the political history, and then the larger history. The final thing I would say is there has been a lot of work on Freedman, but it's papers. You know, economists tend to write papers and

3:37historians of economics also tend to write papers. So the amount of secondary literature you have to familiarize yourself with is stupendous. And this was really different than my first book, which was on Ayn Rand. And there was just a very thin secondary literature on her. So I really did have the space to myself. And here I felt, even though there wasn't, you know, other major books that I was interfacing with, there were like hundreds, even thousands of papers and perspectives on Freedman that I had to at least get a grip on before I could proceed. So I think it's a combination of

4:10the sort of timing, but also just the scope of his career, which covered so many different fields, really. And so I want to come back to this question about dealing with all the documents. I wanted to

Research Process

4:23ask a bit about your research and writing process, and in particular, what part did the Freedman archives at Stanford's Hoover Institution play in the development of your book? These archives have been available to researchers for some time, but we would like to know what, what did you discover in the archives? What, how did you work with the archival documents to develop a distinctive approach to Freedman and writing about Freedman's life? Yeah, I mean, those, those really were the, the foundation of the work. So, so I started though my just kind of reading a lot of Freedman's major works that I wasn't familiar with. So I literally

4:58sat down and I read like page one to page, I don't know, what is it? 1200 or something. Um, and so I've read a lot of his major works, but I did, so I had still had lots of questions and I still say my understanding of them was very incomplete. Um, then I actually went to Chicago. That was the first archive I went to. And what I was looking for there were the papers of his professors because there really weren't, he didn't leave many traces in the archives at the University of Chicago because he left his papers to the Hoover Institution. But I wanted to know who were the

5:32people he met and when he got there as a graduate student, what were those people thinking and talking about? And so the first thing I found in those archives was something called the Chicago Plan, which was just document after document. And I started reading them and I was like, what is this? And they were proposals being sent to the Hoover administration and then to the Roosevelt administration for a variety of relief and reform programs to address the Great Depression. And I was really surprised because I hadn't ever heard of this before. And as I was reading them,

6:04I noticed one, they were very radical. Too many of them had actually been adapted in the 1935 Banking Act. And so that was kind of my first surprise. Like, okay, so Freeman gets the University of Chicago in 1932. And what he's going to land in is a bunch of professors who are very activist in terms of the requests that they are making of the federal government to sort of deal with the economic crisis. And I had a sort of stereotypical view of like Chicago economics is like the government shouldn't ever do anything. And just very quickly, I was like, okay, that's not true.

6:37Um, and so then I was kind of thinking about, you know, what is, this is what Freeman's landing in. These are the people who are influencing him. These are the things they're doing. Um, and then from there, when I went into the Hoover archive, I really just started with like sort of the first box, which was his time at Chicago, you know, so I could see the, and I, there's some material from Rutgers, but I could see the courses he was taking some of the papers that he had written and trying to kind of like build out a picture of what his earliest influences would have been and kind of how he would make sense of them. And so at that point, I, you know,

7:11I knew about the history of the 1930s. I knew about the history of the new deal. And so I could see some traces of, okay, like now he's going to Columbia and that's more of a Roosevelt brain trust, um, you know, institutional economics, um, the center of that type of thinking. Um, and then it would kind of go back to the secondary sources. Um, and here that, you know, that literature became very helpful, not just the literature on Friedman, but the literature on, you know, Wesley Mitchell or institutional economics, what was happening in the twenties and thirties. So then it became sort of iterative of primary sources to secondary sources back to primary sources. But I always, I always

7:46want to see the documents for myself and as early as I can, because I'm very aware when you read others' accounts of a thinker, no matter how, um, alert you are or how critical you are, it's making a really fundamental impression in your mind. And so I sort of wanted the first impression to be this unfiltered archival material rather than someone else's interpretation of the person. Um, so yeah, so that, that was really, and then, I mean, another reason that I was able to do this is because I'm located

8:18at Stanford. And so, um, for Chicago, I had to photograph a lot. I also went to the archives at Duke. Actually, I didn't go to the archives at Duke. I had someone else go and send me material from the archives at Duke, but with the Friedman papers, I could literally go for a few hours and then go back and teach. And so I, it was very much a luxury and a benefit that I could be that close and I could kind of track things down. And then I could spend months in those archives without having to, you know, still be in like my home life and, and still be teaching regularly or, or at home. So

8:52that I think was just a huge benefit. Thank you very much. Um, you said that there are three

Friedman's Influences

8:58different Friedman for you, uh, Friedman, the economist, Friedman, the intellectual, and Friedman, the policymaker, but, uh, can you tell us a little bit, uh, first, uh, about young Milton Friedman, Friedman, as student of economics? He studied at the University of Chicago in 1930s, uh, you just mentioned that, uh, where he would eventually land as professor and chief representative of the later Chicago school. How was he influenced by, uh, Henry Simons, Frank Knight, Jacob Weiner,

9:30and other members of so-called early Chicago school? Yeah, that's a great question. And one of the, the things that I landed in was all these debates about, is there a first Chicago school, a second Chicago school, a third Chicago school? So I kind of knew those were out there when I went in. And so what I found was that Friedman formed in a very tight set of bonds, um, with fellow students. So people like George Stigler, um, you know, Allen, um, uh, I'm forgetting his name right now. Um,

10:03W. Allen Wallace, um, Rose, who became, Rose director, who became his wife. But then there was this kind of quasi group of very junior professors, we would say. They had kind of a rank that's not, doesn't really exist today. They had, they were working on their PhD, they were teaching, and these were people like Aaron director and Henry Simons. And then kind of at the top of the pyramid was Frank Knight. And what happened was basically Friedman fell into a group of students who were really clustered around Knight, really admiring of Knight and really sort of looking to

10:34him for everything. And so there was, I argue, a kind of social and effective dimension to this school in that they really thought of themselves as sort of a band of brothers. They also thought of themselves as swimming against the tide of economics in general. And partly this was because Frank Knight felt that way. And Frank Knight felt that way even before anyone heard of John Maynard Keynes. He felt like he was a neoclassical economist in an, in a, in a profession that was turning ever more to

11:04institutional economics. And so they sort of pick up this sense of embattlement from Knight. So I think that's very important to the sense of the school. I think the core intellectual enterprise of the school was in many ways, price theory. And I talk about it as Chicago price theory and that on the one hand, it's just microeconomics is what everyone is being taught. But in Chicago, they're taking that out of the classroom and they're thinking about that as a potential base of policy. And the first person to do that is Henry Simons. And so his book, a positive program for laissez-faire is very

11:38influential. And I, so I argue there's one piece that he gets from Simons and a bit from Knight, which is from Knight, it's, we are in a crisis of liberalism. It's the 1930s, there's fascism, there's communism, you know, the world is, is declining and, and liberalism is on the defensive and liberalism may not survive, but it's our best hope. So he really picks that up from Knight, but then the action item is Simons. Let's use this sort of tools of economics to think through how state and market should interact. So that's like one really big piece. The other piece I think

12:14is really important is that as a matter of course, Chicago teaches the importance of monetary systems, banking, he's exposed to the quantity theory. And here's where the timing is really important. He's exposed to all these from the first series of Chicago's 32 to 33, then he goes to Columbia, then he comes back. He's exposed to them before there's any alternate explanation of the Great Depression, specifically before the Keynesian explanation of the Great Depression is well known

12:46and becomes accepted by economists. So he has an explanation, or he has a set of possible explanations about what is causing the Great Depression. And again, it goes back to the Chicago plan I mentioned at the outset. The Chicago plan was really about the banking sector, reforming the banking sector. The reason I called it radical is they wanted to abolish fractional reserve banking entirely and just have what Simon's called 100% money. So he gets these sort of two impressions. I would kind of place them in two buckets. One is that banks, money are very

13:20important to the macroeconomy and specifically they have something to do with the depression. And the second is liberalism, the sort of ideal political philosophy is under siege, and we can use our understanding of economics sort of creatively and positively to try to either reconstruct or defend liberalism and its insights. And then what was really interesting to me is comparing his trajectory to, say, Paul Samuelson. So Samuelson is in the same circle as an undergraduate and by his tallying thinks very similarly to Friedman. Then he goes to Harvard

13:53and he ends up in the Hanson's fiscal policy seminar and completely converts to Keynesianism because he's at a more formative stage as a graduate student when he's exposed to Keynesianism. But Friedman, who's just a handful of years older, is in the intellectually formative stage through pre-Keynesianism. And so I think that accounts for so much of his differences from his peers in American economics as time goes on because he just got the training at a different moment in time. And then probably it just clicked more with whatever, I don't know, contrarianism

14:28he had or his own analysis of of what was good economics. And a final piece I want to add is that it's very important that he went to Colombia because and I know and I found from his discussions, he went to Colombia in his second year and he already thought of himself as someone who is a, quote, price theorist, that he was opposed to the institutional economics of Colombia. And he actually taught price theory. He did like an off, you know, sort of off the grid,

14:58you know, course taught by graduate students in price theory to try to push against what he thought was the institutional economics of Colombia. And so one, we already know he's pretty set in his ways by the time he gets to Colombia. But to be fair, at Colombia, he gets full exposure to institutional economics, he gets full exposure to mathematical economics, he gets full exposure to the range of economic ideas out there. So he's not uninformed in his allegiance to price theory.

15:27Thank you very much for all these important details. Okay, so in 1930, what role did the

1930s Economic Circumstances

15:37political and economic circumstances of these years, like the Depression, the New Deal, the growing dangers of antisemitism play, according to you in Friedman's early talk? What sorts of political and economic positions he adopted during these years? You already said that it was a little bit chaotic years of the history. How actually his political and economic positions were at that time?

16:08So, you know, I mentioned that he's very aware of and sort of influenced by Knight's idea that liberalism is in crisis, and that liberalism needs to be regenerated somehow. And after the war, he'll take part in the Mont Pelerin Society and the kind of efforts to do that.

16:26There's a couple ways it comes out in the 1930s. One of the things I found which really fascinated me in the archive was this document from 1939. It's called A Plan for Guaranteeing a Minimum Income to All. And this is the sort of first document of what we might today call universal basic income. And it really is an argument for a basic income. And he thinks this is the ideal liberal policy. And he thinks this is the way that, you know, liberalism, and by this, I don't mean New Deal liberalism. I mean, sort of classical liberalism or philosophical liberalism, the idea of the government

16:59should be limited. He says, nonetheless, in this era, we have poverty, and the government needs to have a response to it. And the important thing that is that it doesn't respond to it by intervening unduly in the price system. And if we gave everyone a minimum income, this would not be, this would be less interventionist than the options, the other options. So I find this from 1939. So no, he's thinking about this very early. And this is definitely a response to the sort of poverty he's seeing around him. When it comes to World War II, it has a slightly different effect in that

17:33um, Milam Friedman is very concerned about antisemitism. He's very, he's alert to the rise of the Nazis far before the general public would be. And the actually ancestral village of him and Rose are like stops on the train line to Auschwitz. Like, so they very much understand if they had not, they were not in the United States, they, their lives would be in peril. And so what it actually does, though, is it, it kind of disguises, I would say his true political economic stances, because he's like, we are not in ordinary time, we're in like emergency time, and the government has to fight

18:09the Nazis, however possible. And so, you know, he's saying much more positive things about government intervention. And then he also has this whole set of debates about taxation as a way to control inflation, which, you know, when people look back at him as a monetarist, they say, like, how could this be? But my argument throughout this time, and this is again, where it's helpful that I have the archival material, you know, he's still holding to the beliefs and the sort of preference for non intervention. But he's also saying we can set this aside right now, because the most important

18:41thing is to defeat the Nazis. And so after the war, that will make him slightly more

18:51globalist, maybe than he would otherwise have been in that he's, he's slightly more open to kind of multinational treaties and organizations, but over time, he becomes more suspicious of them. So it's kind of a hangover from from World War Two. The other place that really comes out is his dissertation, you know, which is the study of the comparative incomes of doctors and dentists. And over the course of the study, he becomes very convinced that the American Medical Association is not only a cartel that's protecting the incomes of doctors, but that's an anti Semitic cartel. And his evidence

19:24for this is that the AMA suddenly passes all these English language requirements in the late 1930s, right as doctors are fleeing the Nazis, German speaking Jewish doctors are fleeing the Nazis. And so he that's again becomes really foundational for him that that he comes to believe that market interventions are often done, you know, state interventions in the market or or private control of market access is often done by for nefarious purposes, by either majorities or organized minorities against other

19:57minorities. And so again, he's thinking, you know, sort of against the backdrop of, say, the Russian empire, telling Jews what occupations they can and can't have. And now he sees the American Medical Association saying you have to be able to speak English to be licensed in anything that this is he thinks this is what happens when you start regulating markets, people get in there

20:18for their own purposes that aren't public spirited, that aren't beneficial, and that some cases are like overtly anti Semitic. So that will become this very strong framework that he then carries forward. Okay, very interesting. You already mentioned Keynesianism a bit earlier, and I would like to know

Keynesianism

20:39how was Friedman influenced by John Maynard Keynes and Keynesianism. And especially you wrote that in the book, Friedman picked up where Keynes left off. And we tend to think usually of Friedman as an opponent of Keynesian economics. So can you dwell a bit on that for us? Yeah, and it's interesting because, you know, Friedman always said, well, Keynes was a great economist, and people sort of tend to discount that.

21:11I think he did mean that genuinely, although he did not, he did not buy Keynes's ultimate explanation of the Great Depression, or he thought it was incomplete. So what I try to do in the book at some, hopefully not too much length is to sort of clarify there's Keynes and there's Keynesianism. And so there's a set of ideas that John Maynard Keynes has, and then they kind of land in the United States, and they get intermixed with other American ideas and also with American political realities and American

21:42political needs. So there's this famous anecdote where Keynes goes to Washington and he comes back and he tells, you know, his friends, I was at this very interesting dinner in Washington. I was the only non Keynesian there. And so, you know, you see that in things like, you know, price control, you know, American Keynesian, American Keynesian supported price controls, Keynes himself did not, for wartime purposes. So to some degree, there is a way that Friedman is more influenced by the early Keynes,

22:13who was thinking about things like money, interest rates, trying to, and using some versions of the quantity theory and trying to kind of piece together a picture. Now, in retrospect, Keynes says, I was kind of confused, and then I kind of break through with the general theory. And Friedman ends up not believing in the general theory. And in part, that's because he already has a bit of an explanation for the Great Depression in the back of his mind. And I think that one of the things that made the general theory so powerful was that, you know, economists didn't,

22:47in the United States, didn't have a good explanation for the Great Depression. And, you know, Wesley Mitchell, the great tribune of business cycles, didn't see the business cycle to end all business cycles coming, and he didn't have an explanation for why it lasted. Irving Fisher, you know, is saying, stocks have reached a permanently high plateau, you know, in summer of 1929. So the kind of two major schools of economics in the United States just have no credibility when it comes to what, what has happened, and why are we suffering so much. And so that, I think, is why Keynes lands as such a

23:19thunderclap, because he does have an explanation, and it's convincing to many. So the interesting thing about Keynes, though, and the one of the ways that Keynesianism diverges from Keynes is that very quickly, it becomes simplified, and it becomes the basis of mathematical approaches to economics. And this is very useful in the American political context, because it seems more objective, and it seems more rigorous. And it's like you can go to a policymaker with numbers and figures and a plan.

23:50But Keynes is very skeptical of this, he's very skeptical of the increasing formalization, increasing use of mathematics. And so too is Milton Friedman. And

24:02there's this one of the early works that is sort of an effort to model

24:08the entire economy of the nation. I think it's Jan Tingerman's work. It's in two volumes, sponsored by the United Nations. In the first volume, Keynes like totally pans and says like, this is a terrible idea. And then Keynes dies, and then the second volume comes out, and then Friedman pans it and says it's a terrible idea for very similar reasons. So methodologically, is what I was trying to kind of dig into is methodologically, they have maybe more similarities than differences, although they take these methods to different conclusions. And so in large part,

24:42what I meant by pick off where Keynes left off is in trying to sort of carry the banner forward of a type of economics that's a political economics that's attuned more to politics, to institutions, to speaking in a voice that others can understand, and is very suspicious of oversimplification and over quantification that becomes like the, you know, the raison d'etre of American economics. Very clear, thanks. And now I want to talk a bit about monetarism, the theoretical position with which

Monetarism

25:19Friedman is more closely identified. In the book, still you write that monetarism was compatible with Friedman's broader political economy, in that it suggested that many of the state interventions developed since the Depression were unjustified or unnecessary end of code. So what is, according to you, monetarism and what circumstances led Friedman to develop his monetarist ideas?

25:51So, I mean, Friedman, one of the main calling cards of monetarism was inflation is always and everywhere a monetary phenomenon. So on one level, it's a theory of inflation, but more so it's a kind of theory of what powers activity in a modern economy or in a money economy. And for him, it's just simply money. Like money is the kind of baseline of economic activity. If you have more of it, you have more activity. If you have less of it, you have less. And money connects strongly to prices. And he didn't like being a monetarist at first, and then eventually he was

26:26like, okay, fine, I'm a monetarist. And so what's interesting is that it sounds like sort of really obvious. Like, of course, economics has something to do with money. But when post-World War II, when Friedman came into the sort of organized American economics profession, there had been a real shift away from thinking about things like interest rates or reserves or bank policy and thinking, well, now we have this enormous federal government. It's grown through primarily through World War II. And this government and what the government does, how much it taxes, how much it

27:00spends, this is the engine. This is the motor of the economy. And the other stuff is kind of off to the side. And so in many ways, the Federal Reserve was structured in a way that didn't have much independence. It didn't have much power during the post-war era. But Friedman was saying, no, this is still important, especially if you look historically, the sort of circulation of money through the economy is kind of the baseline of what we need to be paying attention to. And so then he comes up with a policy prescription, which is, well, if this is so important, how should money be managed in

27:33the economy? And he always believes that the state has a role to manage money. That's almost the definition of the state is the entity that kind of manages the currency in any given political unit. And so he says, what it should do is it should just grow it steadily. And he comes up with this, like the K percent rule that eventually is like, okay, like 4%, like the money supply should grow at 4% a year. But, you know, to him, the issue is not so much the percentage, it's that there is a clear, defined standard that everybody knows, and that it does not change based on economic circumstance,

28:08except in an extreme emergency. And so what he really wants, this goes back to one of Henry Simon's ideas is rules over discretion. So there should be a monetary rule that guides policymakers, rather than policymakers deciding sort of based on my forecast or my insight, I think we should do this, like you can turn the dial a little bit, turn it back. So, so it creates a more hands off task for policymakers, and that they set this framework, they set the rule, but they're not in there on a quarterly basis kind of tinkering. So, so

28:44immediately that's one step back from activist government. The other piece that's really important is, as part of the rise of Keynesianism in the United States, there's a theory about how capitalism functions, and particularly how advanced industrial capitalism functions. And in the United States, it goes something like this, the United States used to have a frontier where there was new expansion, new building, you know, new energy. And that was what powered the growth of the

29:14American economy. But now the frontier is closed, it's settled, it's tamed, and we have no more engine of growth. And therefore, the state needs to become the engine of growth. And Friedman simply doesn't believe that he believes there will always be new sources of growth. And so this, this idea that the frontier has closed is the first version of secular stagnation. That's what the American Keynesians call it. It's secular stagnation. And so the federal state has to act. And so, and the Great Depression is evidence of that. The Great Depression happened because we entered this new sort of phase

29:51of history or phase of capitalism defined by structural stagnation. And so, or secular stagnation. And so then Friedman says, well, if the Great Depression is a great piece of evidence for this, if I have another explanation of the Great Depression, then I have a totally different theory of capitalism. And that's, in fact, what he develops along with Anna Schwartz. They, and the sort of kickoff of monetarism is their theory of the Great Depression, which goes something like this, we've measured the money at various historical points in time. And we see that money decline by 30% during the Great Depression.

30:25But hey, wait a second, we had an institution that was supposed to be the lender of last resort and save banks that were in trouble. And this institution is the Federal Reserve. So what did the Federal Reserve do? And then it's really Anna Schwartz who goes and digs into it and finds out the Federal Reserve sort of did nothing. And they were too passive, they kind of stood by. And so again, here we have Friedman actually wanting a more activist government and wanting the Federal Reserve to have done something different than it in fact did. And so the book comes out, and it's like this enormous critique

30:56of the Federal Reserve. But it's also an argument that this, at that time, not very well known government entity is actually the name of the game that all this other stuff that you're worried about the budget and taxation and this and that actually what's really important as a Federal Reserve. And that's not the consensus view, you know, in 1963, 1964. It's our consensus view, in part, because we live in the aftermath of Friedman and Schwartz. And so then that reinterpretation of the Great Depression is, makes a huge impact, you know, it's, it's, it's been amended and changed,

31:32but this sort of general outline of money and banks being really central is still, has still held up. And then other scholars and a little bit of Friedman's work start kind of embroidering that, well, like, what should we do? So what should monetary policy do? It should have a rule.

31:47And then the, the monetarist school grows up as a real alternative to Keynesian analysis. And by the late 60s, like 70s, you kind of have like this monetarist Keynesian debate. And eventually a lot of the monetarist insights will get kind of folded into the new Keynesian economics. And going back to that original quote you started with, that, you know, Friedman's monetarism is compatible with less government. Friedman's monetarism is emphasis on the Fed turns out to be somewhat compatible

32:19also with a fairly activist government, because it can be seen as a just a technocratic view on what the Federal Reserve should do and how money should be managed, that you could pair with other you know, views of politics and the role of the state. But you don't have to, whereas Keynesianism, because the federal government ends up being playing such a role to kind of pump priming and running the economy, Keynesianism is sort of has the politics baked in more profoundly in some ways and monetarism.

32:49Thank you very much. You mentioned the name of Anna Schwartz. Maybe you have to, you will be,

Collaborators

32:58I mean, you'll tell us more a little bit after my question. One of the notable aspects of your historical approach is the emphasis you place on various lesser known intellectuals and their influence on Friedman. What can you tell us about his relationship with Arthur Burns, for example, who later served as chairman of the US Federal Reserve? Also, what about his wife, Rose Director Friedman and Anna Schwartz, that you mentioned also, his most important collaborators, co-author of the

33:32monumental monetary history of the United States? How did these women influence Friedman, both personally and intellectually? So yeah, starting with Arthur Burns, you know, this is this lifelong relationship. So Friedman meets him at Rutgers and he, Friedman's father dies when he's in high school and he really kind of latches onto Burns as sort of a father figure. And they stay in touch throughout their life. Burns is a really different person. He's about as different than Friedman as could be. He loves being, you know,

34:07an advisor to presidents. He's kind of a schmoozer. And he really seems to be more of an institutional economist. And somehow Friedman kind of misses this. They disagree economically and Friedman kind of misses this. And he thinks of Burns as his great patron and he will always be Burns' defender. And when Burns takes over as the head of the Federal Reserve, it's widely interpreted as this is like Milton Friedman's Federal Reserve, because journalists know they're friendly and there's all these articles. Oh, Arthur Burns is going to do all this stuff. He's going to just have Friedman on speed

34:38dial. And then, you know, that's not what happens. Burns runs a very loose into Friedman's view, very erratic monetary policy. He comes out in favor of sort of price supports and then price controls. And he also decides that the Federal Reserve has no responsibility to address the inflation that's emerging in the 1970s. So he just rejects Friedman's proposals and Friedman's ideas kind of top to bottom. And so it causes this huge fracture in their relationship. And there's some very

35:11intense letters between them that I document in the book. And eventually, Friedman just kind of has to, he makes up personally with Burns, but he has to really separate him. And this, the Burns Federal Reserve, although it's this great loss for Friedman of his closest friend or someone he thought was his closest friend, it turns out to just vindicate Friedman's theories in a very powerful way because Burns really does a kind of stop and go monetary policy, which is the opposite of what Friedman wanted. Friedman wanted that rule that you know at all times what's happening. And the other

35:44thing that's happening is the Fed, in the course of the second half of the 20th century, the Fed becomes more known and it becomes more modern and it starts to kind of keep track of itself a little bit more. But so your listeners probably know now if you're looking for good economic data, you know, in the United States, you just go to the Fred website and you find everything you want. And it's, you know, very well organized and, you know, reliable and all of that. But at the time when Friedman

36:16starts arguing and attacking the Fed, they don't have their own numbers and they use words like tone and feel, like we adjust according to the tone and feel of the market. And Friedman's like, this is nuts. And so because of his collaboration with Anna Schwartz, he has really hard numbers about what's going on. So during the time that Burns is at the head of the Fed, Friedman will send him numbers, like this is what's happening with M2, like what's going on, like policy's really loose. And Burns will be like, no, no, it's really tight. Your numbers are all wrong or vice versa. And then going back and forth.

36:51So over time, the Fed was responding to the criticisms of Friedman and Schwartz starts generating their own numbers because they're kind of like, we can't have this. We can't have these two academics out there telling us what we're doing. We need to better know what we're doing ourself. So that's just one of these relationships that I cover. And I think what's distinctive about my approach, like I want to know who Friedman is reading, you know, what are the books he's ingesting? What are the messages he's hearing in class? But I also really want to know, like, who are his friends? What do his friends

37:26believe? Who is he spending time with? Because I think it's true of all intellectuals, they create very strong relationships and their ideas develop in relationship and their ideas are often influenced by those relationships. And so in Friedman's case, the most interesting set of relationships that I found was all these women who he worked quite closely with. And at one point, I just kind of paused and I said, well, wait a second, all of his major work has a woman co-author. Like, how could this be? You know, why is this happening? And so, you know, I don't know that I had a definitive answer

38:01to it. But part of it was through his wife, Rose Director, who was his classmate. So, you know, he married an economist. Now, that's true of many economists in the 20th century. But through Rose, he stayed connected to her friends who were also economists. And most women economists at that point in time, they were not offered professor positions, but they could work in the government. And they were often doing consumption research coming out of the New Deal to figure out, like, what's going on in the economy. And so he got plugged into this set of women who were doing consumption

38:35research. And they were using methodologies that the rest of the economics profession had decided was outdated, not important, not helpful, sort of women's work, because they're all doing models and ever sophisticated mathematics. And Friedman has tapped into this whole set of another way of thinking that sort of never went away, but got sidelined into, you know, the sort of government agencies, consumption research, but he's got a mainline into that. And so that really influences thinking. And so one product of that is a theory of the consumption function, which grows out of

39:10originally a paper that Rose wrote with Dorothy Brady. And then there's another woman, Margaret Reed, who becomes involved in the sort of this, this collaboration evolves over time. And one thing I found in the archive, which hadn't been known before, is that Friedman wrote the first draft of this paper, because he was trying to get Dorothy Brady and Margaret Reed hired at Chicago. And so he wrote a memo to be distributed to his colleagues to say, hire these women. And then over time, that grew into the book. And so that brings me to another really important discovery I made, which is that Chicago

39:43was really unique in having a woman on the faculty of economics throughout the 20th century. So Berkeley had one in the 20s, but then not again until I think the 70s. Harvard didn't have one until I hired Claudia Golden. There just weren't women in, on economics faculties, but Chicago always had one. And so when Friedman was a graduate student, there would have been a woman, Hazel Kirk was a tenured professor. So I think something about that maybe shifted in his mind, the possibility that women could do research or could be research partners. And then the biggest partnership that I explore is his relationship

40:17with Anna Schwartz and their, which Arthur Burns was kind of the matchmaker who brought them together. And then, you know, Schwartz is absolutely fascinating. I hope someone will write a biography of her and she's got all her papers are at Duke and there's a lot of material in the Friedman archives. And so she, I just think she had such a huge impact on Friedman. I think she probably had the biggest impact on him. I mean, a monetary history of the United States, which you can still read today. It's a book, it's a story. It would have been just a bunch of numbers. It, you know, would have been,

40:49it would not have been a book without her because she was a historian. And so you can kind of see, I've looked through their correspondence at a certain, she's kind of pushing always for it to be a book. And at a certain point, he kind of goes along with it. But I don't, I just don't think Milton Friedman would have become Milton Friedman without Anna Schwartz. And so I really try to make that clear in the book. That makes me curious as to, so that in the philosophy department here, we host a project called Project Box, which documents women and female philosophers who

41:23have become, and actually other neglected voices as well. And I'm wondering if there's a similar thing going out there for economics and political economy. But in any case, Friedman and Schwartz's monetary history comes out in the 60s. So we moved forward in time, but we started kind of in the 30s. Now, Friedman's star seems to have dipped a bit in the 50s and 60s, and it comes roaring back

Friedman's Star

41:47in the 70s. So why does, why does, why that down and then the up? What's going on in the 50s and 60s that, you know, what eclipses Friedman during that time? And how did he become relevant again in the 70s? So the 50s is really when the profession is turning increasingly to math, to modeling entire economies, to playing around with sort of game theory and more sophisticated methods. And Friedman's there at the beginning of that. He writes a few papers, and then he decides this isn't telling us

42:18anything about how economies actually work. Like the way we should figure out how economies actually work is we should look at sort of data from the field, not models. And, and so he starts this money project with Anna Schwartz, and he becomes extremely critical of the mathematical economists, I trace his whole battle against the Coles Commission. And people in the field just think he's nuts. They don't understand what he's doing. He's being, you know, honestly, a real jerk to a lot of the most important people doing the work that's considered field defining. And it looks like he was

42:50someone who was on the cutting edge, and then just dropped off for his own peculiar reasons, and actually for his own ideological reasons. So it looks like we had a brilliant mind who's lost to ideology, and has disappeared down the rabbit hole of his weird obsession with money. So that's the 50s story. And then a few papers start coming out. And then all of a sudden, this giant book comes out, and the book is sort of unanswerable at first, and everybody's sort of on the back foot. So then the 60s becomes this battle between now that Friedman has the prestige behind him of this book,

43:25trying to disprove him, you know, and you have people saying like, it seemed like, basically, the way that economics made progress is like Friedman would write something, and everyone would criticize it, and Friedman would write something else. And it just he was kind of the engine and the motor. At the same time, he comes out as a supporter of Barry Goldwater, so very conservative Republican. And that also drives his colleagues crazy, because there are very few Republicans. At that point in time, many of the most prominent economists go on to work for the Kennedy

43:55administration. And so they're very much involved in that sort of new frontier, what can the government do, and this belief, in the very optimistic days of the 60s, that you could fine tune the economy that economics has gotten so good, that we can sort of have prosperity forever. You know, you see these really, it's sort of laughable today claims of like, we're, you know, we're not going to have poverty, and like, everything's always going to be great, and land a plenty. And so, so that puts him in the spotlight in the 60s, in terms of being this sort of, you know,

44:29he's, he's who everyone's fighting, he's kind of the boogeyman. And then, and then by the late 60s, he's saying, we're headed towards an inflationary period. Things are going to get really bad. And he has this famous paper on the relationship between unemployment and inflation, and says, it's really different than you all think. And then in the 1970s, inflation starts to emerge, unemployment starts to go up. And all these ideas that people have been saying are totally crazy, start to emerge in the data, and economists start to see them, and their models stop working, and they realize their

45:00models were built on a different set of assumptions. And so then, that's really kind of the era of Friedman's triumph, I would say the early 70s. And so, you know, you have people saying, like, well, now we're all sort of monetarists, you know, and they're still disagreeing with Friedman, but they're saying, okay, we have we have to incorporate monetarism in some way. And so monetarism kind of gets incorporated into the new Keynesian economics. And then this is sort of going too far. But then there's another Chicago school that's kind of post monetarism. And it's methodologically different than Friedman. But there is a whole this idea of expectations and

45:34inflation expectations. Friedman really puts that on the table in the late 60s, early 70s. And then just the whole new school of economics grows out of that. So he's still extremely foundational, extremely fertile. His ideas are being picked up and kind of spread out by others. But he hits, you know, mandatory retirement, I think, in 74. And so he's, you know, he retires, he actually moves around then he moves to Stanford. And he sort of cultivates more of his public image, his public

46:05intellectual image, because he's kind of made his contribution. And he I think he loses some of the energy to be in the fight.

46:14Let's move now to South America. Because in chapter 12 of your book, Six Days in Santiago,

Chile Visit

46:23you explore Friedman's visit to Chile, Chile and his relationship with Chilean dictator Augusto Pinochet, and the resulting controversy surrounding it. And we would like to ask you, how do you interpret the apparent contradiction between Friedman's defense of classical liberalism and individual liberty, and his willingness to engage with an authoritarian regime like Pinochet?

46:54Yeah, I, you know, I don't actually think it's a contradiction. It's not the only government he gives advice to that's politically different than what he would want. You know, he visits communist governments, he spends time in China. So he doesn't see interacting with a government and providing economic advice to a government as an endorsement of that government. And that's, that's what his opponents see, you know, his, his, the people who criticize him have a sort of model in their mind, where if you engage with a government, that must mean you're endorsing it. And I just think

47:25that's, I don't, that's not the, that's definitely not the case that, that Friedman saw things that way. So he, the metaphor he used was like a medical doctor, and I have a sick patient, and I've been asked to help this patient, and I'm going to go. In the case of Chile, when he arrived, inflation was, I think it's something like 600% is, has been the standard understanding, but I've heard some scholars say recently, it's probably more like 12,000% or 1200% annually. So this is a hyperinflation and a runaway inflation. And this is the type of thing that Friedman's been studying, and he's sort

47:58of the world expert. And so he comes and he gives his advice on what they should do, which actually is probably, it would be hard to find an economist in the Anglo-American world who wouldn't have given like pretty much the exact same advice that Friedman gave, given the hyperinflation that was loosed. But then this becomes interpreted as Friedman supporting what the regime is doing more generally. And so he's really not prepared for that. And it takes him a while to understand that's the, that's where people are coming. That's the assumption people have when they come to him. And

48:29it's not his assumption. He has to kind of clarify what he, what he is actually about and what he actually means. And so I talk about that in the book. And it, one, one piece of it is that in the United States, he's talking so much about economic freedom. He doesn't really talk about political freedom because in the United States, he feels like the problem is that there is not enough economic freedom by which he means less regulation, stronger property rights, this and that when he's in Chile and he's just talking about economic freedom, it takes him a while to figure out

49:00like, wait a second, there's not political freedom in this country. And so when I don't talk about the lack of political freedom, it seems like the only thing I care about is economic freedom. So over time, he kind of recalibrates his public statements. I think another kind of twist on this is that, you know, at the same time Hayek comes and Hayek makes a lot of discussions. And I think sometimes the sentiments that Hayek expressed get kind of attributed to Friedman. And I think there's, I find more legitimate grounds for criticizing Hayek is anti-democratic, given some of the things he

49:35says about Chile, than Friedman. So to my mind, it's kind of the collision of a more technocratic vision from the 50s and 60s, in which American economists, you know, fanned out across the globe and gave lots of advice to lots of people to a human rights politics in the 1970s, which is really defined by a sort of politics of purity, and the idea of the boycott, and the sanction and the withdrawal. Like if you oppose a regime, you simply don't interact with it. And that's how you show

50:07that's how you act, you act through purification of yourself away from the regime. And there's a whole other model that's like, well, you engage with a regime that you don't like, right? And you can see this in many different fields, like, it's not an automatic answer that the way to deal with an authoritarian regime is to isolate it and disengage from it. There's a whole other set of arguments that maybe you engage with it, maybe you try to open it up in different ways. So yeah, that's how I see

50:38Friedman's connection to the country. And I tried to bring some context to it. He's not without fault in that he is pretty cavalier about the military dimensions of the dictatorship, and even his own private reflections, you know, he's like, gee, there's like soldiers with machine guns everywhere, but he kind of like leaves it be. I think a lot of it is like a sort of optics challenge that he just didn't realize part of his role. For many people, he was supposed to sort of denounce the country and

51:13not just give advice. And I think he felt like the, the way I best help Chile is by ending their inflation and the way I best end the inflation as I tell them what to do economically, and I don't comment politically. And I've looked at his, from what I can see, and they wouldn't have the Chilean press wouldn't have reported any critical remarks that he made. So it's, it's unclear how accurate this is. But this talks he gave are just highly technical about like currency and monetary policy. I mean, they are just, they're not very interesting at all. Because they're just sort of, you know,

51:50geared at spreading his economic ideas in, in a very sort of technocratic way.

51:57Yes, mentioning inflation, we all know that Friedman is famous for arguing that inflation is always and everywhere a monetary phenomenon. How do you think he would have explained our cost for COVID inflation then? Would you have been horrified, sorry, would he have been horrified by the fiscal and especially monetary policies followed by the American government and Federal Reserve during the pandemic years? So, yeah, I think a couple of things about this. One, just kind of stepping back,

52:33I mean, Friedman and Schwartz's analysis of the Great Depression is that the Fed did not create enough liquidity when it should have. And so that has become the kind of basic playbook of not only the Fed, but of central banks, like economic crisis equals provide liquidity. And so I think that is the message of Friedman and Schwartz, but it also can be over applied, or it can be sort of under theorized. I think in the case of COVID, because of how he responded to the Great Depression, I do think he

53:04would have supported extraordinary measures and relief payments. And he probably would have been really pleased that a lot of the mechanism people, governments use was cash disbursements, just as he had been proposing for many decades. But I think he probably would have stopped at one or two rounds of relief. And I think in the American context, there were maybe four rounds of the American relief and rescue plan, direct cash payments. And he would have said, it's great that we're giving

53:38people this money because they need it, but there's a strong risk of inflation. And what was really interesting in the United States conversation was that that was really pushed aside and almost not allowed to be said, it was almost seen as if you were opposing relief, if you mentioned this might cause inflation. And, you know, the last chapter or the epilogue, my book, I call helicopter drop, because Friedman has this paper where he talks about like, well, what would you do if you wanted to create inflation? And he has this scenario where like, you would, you know, drop money out of

54:11helicopters, you know, right to people, which is a version of what happened. And you can see it in the M2 measure went up very strongly. So I don't think monetarism and Friedman's ideas, you know, they don't map perfectly onto the current institutional setting. I don't think they're right in all cases. But I think at the 30,000 foot view, there's a lot left to them. And I think he just would have said like, hey, this, these relief payments come with a danger of inflation, and we ought to be quite vigilant about that. And that's really not what happened in terms of the

54:41idea that inflation can be something to worry about really was was seen as sort of a kooky view until the inflation unfolded, in which case it became pretty hard to slow down because of the sort of lags of monetary policy and things like that. So I think, yeah, if that makes sense, I think the general gist he would have supported, but he would have been more cautious and probably more prudent in the execution of it. Now we've come to the last question, which I'm sure you've been getting

COVID Inflation

55:13a bazillion times. This is the million dollar question. Why is Milton Friedman the last conservative? Why is that the subtitle? Yeah, so there's a couple different things that I'm kind of gesturing to with that one is, I think, within the discipline of economics, I just don't think there is a comparable figure has been a comparable figure who's trying to say the way the discipline once worked, and once approached problems is still valid. And so he kind of single handedly keeps alive

55:46a lot of these methodologies and ideas and approaches. And he keeps them in academic economics. So things like the quantity theory, or the type of empirical research that he's doing, or just the very kind of big picture questions about what is the role of the state. I think he keeps them in the mainstream, basically until he retires, and then they fall out, and they're still taken up by other disciplines, other fields, and by economists who are not in the top research universities in the mainstream. So I think

56:19that's sort of to the detriment of economics. And then also, I talk about throughout the book, his connection and alliance with political figures who call themselves conservatives. And one of the things that makes conservatism distinctive in the United States is that it incorporates these kind of libertarian, more quote, liberal ideas, you know, people like Milton Friedman, or like the Ayn Rand, the subject of my first book, like these, this idea of, you know, capitalism's sort of animal spirits and dynamic energies gets built into American conservatism. And this is sometimes like illegible outside of

56:55United States, where conservatism can take a more suspicious view of capitalism, or is seen as something different, that they're combined in the United States. But I think this combination is under pressure. And when you look at the way that Friedman represented a sort of 20th century conservatism, which had some elements of religious traditionalism, it had elements of libertarianism that he represented, and then it had a very strong, outward facing engagement with the world through military

57:29alliances, free trade, this and that. And there's just been a pivot away from that, there really has been in the parts of the American political spectrum that continue to call themselves conservatives. So this is kind of what I was looking at with that subtitle, like he's, he's the last of a certain type of 20th century conservative, and other people will come along, who will call themselves conservatives. But I don't think they'll have that same combination that Friedman had.

57:55That was Professor Jennifer Burns. Thank you so much for sharing with us your book. This book is really fascinating, really enjoyable to read. Once again, for our audience members, it's called Built in Friedman, The Last Conservatives. If you haven't checked it out, go check it out. Once again, Professor Burns, thanks so much for joining us today. Yeah, thank you for inviting me. I really enjoyed it.

58:21Join us again next month for another episode of Smiths and Marks Walk into a Bar, a History of Economics podcast.