Content area
Full Text
Milton Friedman died November 16, 2006, at the age of 94. Any attempt to put his contributions to economics into perspective can only begin to suggest the vast variety of ideas he discussed. Burton (1981, 53) commented that "attempting to portray the work of Milton Friedman . . . is like trying to catch the Niagara Falls in a pint pot." 1 At the beginning of his career, Friedman adopted two hypotheses that isolated him from the prevailing intellectual mainstream. First, central banks are responsible for inflation and deflation. Second, markets work efficiently to allocate resources and to maintain macroeconomic equilibrium.2 Because of his success in advancing these ideas in a way that shaped the understanding of the major economic events of this century and influenced public policy, Friedman stands out as one of the great intellectuals of the 20th century.
1. FRIEDMAN'S INTELLECTUAL ISOLATION
Until the 1970s, the economics profession overwhelmingly greeted Friedman's ideas with hostility. Future generations can easily forget the homogeneity of the post-war intellectual environment. Friedman challenged an intellectual orthodoxy. Not until the crisis within the economics profession in the 1970s prompted by stagflation and the failure of the Keynesian diagnosis of cost-push inflation with its remedy of wage and price controls did Friedman's ideas begin to receive support. More than anyone, over the decades of the 1950s and 1960s, Friedman kept debate alive within the economics profession.3
Because economics is a discipline that advances through debate and diversity of views, it is hard to account for the near-consensus in macroeconomics in the post-war period and also the antagonism that met Friedman's challenge to that consensus. In order to place his ideas in perspective, this section provides some background on prevailing views in the 1950s and 1960s. The Depression had created a near-consensus that the price system had failed and that it had failed because of the displacement of competitive markets with large monopolies. Intellectuals viewed the rise of the modern corporation and labor unions as evidence of monopoly power. They concluded that only government, not market discipline, could serve as a countervailing force to their monopoly power. Alvin Hansen (1941, 47), the American apostle of Keynesianism, wrote:
In a free market no single unit was sufficiently powerful to exert any...