The Price of Revision

Chuck Nacke / Alamy Stock Photo

By Amity Shlaes

This review is from Amity Shlaes’s regular column “The Forgotten Book,” which she pens for “Capital Matters” as a fellow of National Review Institute.

Time was, the merits of Universal Basic Income were up for debate. No longer.

As so many arguments on federal entitlement expansion, the UBI debate has slid over from “whether” to “how.”

Or even, “how many?” How many undocumented migrants and Minnesotans can join the few in a pilot program of regular payments is the question in Minnesota’s plan to “advance equity” via subsidy. 

Those who dare stick with “whether” used to lean on Milton Friedman or Friedrich Hayek. But such free-market pillars do not feel as solid as they once did.

Even as politicians stage new entitlements, academics have been doing their own staging of the free market’s Old Masters. Or, more accurately, restaging. A curious new literary subgenre has emerged. Call it “The Sorta Friendly Biographical Revision of the Free Marketeer.”

Quality Revision

Such books leave open the possibility that even Friedman or Hayek might have supported the expansions mooted by both parties today.

The revisions are easy to spot. They convey biographic details in friendly fashion—but from a safe distance. They cover the evidence of some of the benefits of free-market philosophy—but only some. And they tend to imbue the development of free-market theories with a subversive aspect. In such tellings, the humdrum challenges that academics of the 1940s, 1950s, and 1960s offered to traditional antitrust doctrine sound like conspiracies. Here, to be fair, the revisers have an eager audience. Spooked as they are by the number of antitrust skeptics now occupying federal judgeships, fans of, say, the Justice Department’s case against Apple have developed a fascination with early antitrust reform that borders on weird.

The revisers would be easy to dismiss if they were second-rate.

But many are not. The latest example of quality revision is Jennifer Burns’s Milton Friedman: The Last Conservative. Early on, Burns quotes from the royalty of the economic mainstream, former treasury secretary Lawrence Summers, presumably to invite magnanimity from those who would ordinarily bash Friedman: “In many ways Milton Friedman was a devil figure in my youth,” Summers said. “I grew to see the issue”—the reputation of Friedman—“as more nuanced.”

In any case: The Last Conservative is a title Friedman himself would have rejected. To class Friedman as “conservative” is error. Friedman’s natural impulse was to be “a zero-government libertarian,” as he told Brian Doherty in 1995. The adjective last likewise would have stuck in the Friedman craw. From time to time, Friedman did forsake classroom principle, but only precisely because doing so enabled him to avoid becoming “the last.” Friedman was the Happy Warrior of Economics.

If the price of talking a Margaret Thatcher or an Augusto Pinochet into leading a free-market revolution was being called “conservative” or “fascist,” Friedman would pay it.

Suspecting that some author might one day try to curate his stunning record, the older Friedman devoted energy to explaining himself. In their later years, in San Francisco and at the Hoover Institution, Friedman and his wife, fellow economist Rose Director Friedman, coauthored the memoir Two Lucky People. Friedman made clear to anyone who visited him on Russian Hill that as far as biography went, Two Lucky People sufficed.

A vain effort. For Burns’s book is heavy, disciplined, and well-credentialed: the first “full” biography, as the publicity material puts it. Enriched by access to Friedman’s papers and support from Hoover, Burns pulls together in satisfying fashion details of Friedman’s life that formerly lay scattered. She also provides the academic background with a compelling portrait of Friedman’s first revolution, the revolution at his original academic home, the University of Chicago. Her analysis of how Friedman and his allies made price theory king at Chicago is not to be missed.

Nor are the stories. Future University of Chicago president and attorney general Edward Levi, then only a law professor, magnanimously invited the antitrust skeptic Aaron Director to serve as guest lecturer in Levi’s antitrust class. To the amusement of students who, then as now, love nothing better than tension between professors, Levi and Director dueled past each other on antitrust. “For one day each week,” a student recalled, “Aaron Director would tell us that everything that Levi had told us in the preceding four days was nonsense.”

The Uses and Abuses of Milton Friedman

Burns opens her book with the struggles of the young Friedman in the years of the Great Depression. Both Friedman and Director (who was Friedman’s brother-in-law) found jobs in the Roosevelt administration and spent years “toiling away in obscurity within the obscurity of the steadily growing administrative state.” 

Like car owners today, the newly married Friedmans lived through the eerie experience of seeing the market value of their used car go up with each year they owned it. The Friedmans sold their Mercury convertible after six years for $1,350, quite a profit from the $795 they had originally paid. Unlike today, the reason for the odd price movement then was not an unnecessarily thorough pandemic shutdown. During World War II, the government curtailed production of cars for civilians. Typically, shortages ensued, driving up the price of available cars. For Friedman, this was a pretty convincing lesson on the merits of “letting the price system do the job.”

Burns goes on to explain that Friedman’s experiences with rationing and price-control damage also led him to accept higher taxation as the lesser evil and, as he put it at the time, “a step in the right direction.” Burns concludes: “He understood that the realistic alternative to wartime taxation was not an unfettered free enterprise system paired with wise monetary management, but rather continuous monitoring of consumer and industry prices by a newly empowered government bureaucracy.”

Burns plumbs the depths of another Friedman irony. Friedman’s bosses at Treasury tasked him with studying tax collection in Great Britain and Canada. The young economist also traveled to Detroit to discuss the mechanics of tax payment with automakers. Thus did the later star of the television series Free to Choose help lay the ground for that great curtailment of American freedom, withholding of the income tax.

Burns also spends energy on Friedman’s early support of a negative income tax, rebates to the lowest earners to reduce disincentives for working at the bottom of the income scale. Burns points out that the Friedmanian negative tax was later “reborn as the Earned Income Tax Credit,” a rebate that then became a standard and expensive part of the tax schedule. As for the Universal Basic Income that is so popular today, Burn contends that UBI is a “lineal descendant” of Friedman’s work.

Moving on, the biographer covers Friedman’s development of monetarism and then his shift to microeconomics and his authorship with Rose of the 1962 Capitalism and Freedom. There, in near Randian fashion, Friedman assailed John F. Kennedy’s exhortation: “Ask not what your country can do for you, ask what you can do for your country.” Instead of serving as votaries to the state, the Friedmans wrote, Americans should protect liberty, “a rare and delicate plant.” Coming to Friedman’s later years, Burns addresses Friedman’s deeply controversial decision to advise the autocrat Pinochet of Chile, his battle with his old mentor Federal Reserve chairman Arthur Burns, and his public opposition to the 1964 Civil Rights Act, all of which to Burns’s mind “casts a shadow over his legacy.”

Credit Burns for compiling the material enabling us to ponder the one great contradiction this free-market giant permitted himself and the world—that between his first legacy, monetarism, and his second, recognition of the importance of restraining government intervention in the economy. Whatever Friedman intended, enthroning monetarism as the world’s doctrine shifted authority to fine-tuners at the top and elevated the Federal Reserve’s status to that of Economic Overlord. This trend Friedman failed to halt, perhaps out of devotion to his first brainchild.

From time to time, Federal Reserve officials have capitalized on that omission, ostentatiously praising Friedman for the gift of power: Few in attendance will forget the 2002 speech of thanks that future Federal Reserve chairman Ben Bernanke delivered on the occasion of Friedman’s ninetieth birthday. Friedman had shown, as Bernanke and others noted, that the Federal Reserve’s failure to supply liquidity in the early years of the Great Depression deepened the downturn. Bernanke promised Friedman that, “thanks to you, we won’t do it again.”

Bernanke didn’t. Six years later, via quantitative easing, Bernanke’s Fed dumped unprecedented amounts of cash into the economy. A cottage industry has developed in guessing what Friedman, who passed away in 2006, would have made of the 2008 financial crisis. The reality was that, since Bernanke’s Fed was taking care of matters, both Presidents George W. Bush and Barack Obama felt free to sanction all sorts of other measures Friedman would have deplored, including the bailout of Chrysler and General Motors. 

It was Friedman who had warned in 1979, during an earlier Chrysler disaster, that one bailout always leads to another; Friedman told television host Phil Donahue that Washington “should not help to save Chrysler, of course not.”

Friedman vs. Friedman

What comes clear in Burns’s book is that the most interesting battle in Friedman’s biography is not Friedman versus John Maynard Keynes, or Friedman versus John Kenneth Galbraith, or Friedman versus Krugman. It is Friedman versus Friedman—a battle never entirely resolved.

Still, more than the title of The Last Conservative errs. As pragmatic a player as Friedman was, he did “understand,” to use Burns’s term, that the case for free markets can’t make headway in a nation in war mode. But he also resented being hijacked for political purposes he did not support. When the topic wasn’t monetary policy, he felt freer to make that clear. The much-vaunted negative income tax provides a good example. While Friedman did moot one even in 1939, he did so only because he believed there should be a counter to the disincentive to work that Social Security taxes imposed on lower earners.

Decades later, in 1965, objecting to funding for lower earners in the Great Society, Friedman asserted that a negative income tax “makes sense only as a substitute for the present program, not as another rag in the bag.” The same year, a snarky New York Times reporter wrote, “Friedman, who is what is called a free market economist, said the antipoverty drive was a ‘political gimmick’ and a ‘slush fund.’”

Burns acknowledges, but doesn’t underscore sufficiently, that Friedman went out of his way on multiple occasions to explain that, for him, other benefits and the negative income tax were an either/or proposition. “The negative income tax would be a satisfactory reform of our present welfare system only if it replaces the host of other specific programs that we now have,” he wrote in 1980. 

As far as the UBI goes, Friedman is not father. He is foe.

Classical Liberalism Misunderstood

Armed with evidence of which even Friedman’s fans were ignorant, Burns, who also operates in the “Shakespeare’s Sister” genre, does not neglect to emphasize the lower status of the women in his life. Rose Friedman did interesting work on consumption theory, but she had little time for serious projects after marriage to Friedman.

In the 1950s, while Friedman was away in India, an intruder broke into the Friedmans’ home and raped Rose at gunpoint. Friedman did not race home the next day. Burns excuses Friedman—again, sorta—by offering the possibility that he wasn’t initially aware of the gravity of the situation. Still, Burns doesn’t showcase the fact that, for a man of his day, Friedman was extraordinarily respectful of women’s work, whether the woman was Rose or his colleague Anna Schwartz, whom he gave coauthor status on his monetary magnum opus. When other colleagues denied Schwartz a doctorate, Friedman vowed to take “the bit in my teeth” to fight for Schwartz. Schwartz duly became Dr. Schwartz. Many of Friedman’s peers would have obscured Schwartz’s contribution.

Burns’s drive-by slap at Friedman’s civil-rights “legacy” reflects Burns’s unwillingness to concede the consistency in Friedman’s thought. Friedman sought to overlook racial differences not because he was blind to injustice or an economic geek, but because he foresaw that emphasizing any group’s grievances would lead to benefits for that group and divide the country. “Senator Goldwater believes improvement in the lot of the negro depends primarily on freedom of economic opportunity,” Friedman once told the Chicago Tribune of presidential candidate Barry Goldwater. So too in that case did Friedman. Friedman truly was a classical liberal, not a conservative. But classical liberalism is not understood today, and the gifted Burns does too little to illuminate it.

When Revision Goes Too Far

It could be worse. Vikash Yadav offers an equally skillful and more aggressive update on Hayek in Liberalism’s Last Man: Hayek in the Age of Political Capitalism. That the word last is in both Burns’s and Yadav’s title is no accident. Yadav claims to rescue Hayek from “sinister caricature.” “Liberal, meritocratic, capitalist” ideas are presented in outdated fashion, Yadav posits. Hayek is relevant, he suggests, but only if we begin “pruning the branches of Hayek’s argument that are no longer productive.” The pruning will “open new lines of thought” on Hayek.

As an example of prunability, Yadav cites Hayek’s reliance on Western civilization, which Yadav treats as regrettable “Eurocentrism.” Hayek noted that top-down regulation of daily life was undermining liberal tradition in Europe, “moving away from the basic ideas on which Western civilization has been built.” To Yadav, “the argument seems rather unnecessary and overstated”—Hayek’s “transhistorical notion of ‘the West’ is arguably too vague”—and can be dropped to make Hayek useful to the rest of the world. Many Hayek fans would consider this argument amputation, not pruning. Indeed, they would rate that Eurocentrism—root, trunk, and leaf—essential to the kind of freedom Hayek envisioned.

But such new biographies represent a challenge worse than book-club presentism. The mainstreaming effort contains an implicit threat. The threat starts with the premise: Figures such as Friedman and Hayek are in danger. We have reached “The End of Milton Friedman’s Reign,” as per a New Republic headline.

Those who revere the masters, or want to retain credibility for representing their ideas, must therefore hold their tongues and accept revision. In an era when the free market is sometimes barred from the salon, this invitation may tempt. 

But the answer remains “no.” Revising a Friedman or Hayek too heavily reduces the power of such philosophers to inspire free-market reform anywhere. And that price—as Friedman would have put it—is just too high.

Amity Shlaes chairs the Coolidge Foundation and is the author of Great Society. This article first appeared in National Review’s “Capital Matters.”