“His views have had as much, if not more, impact on
the way we think about monetary policy and many other
important economic issues as those of any person in the last
half of the twentieth century.” These words in praise of
Milton Friedman are from economist and Federal Reserve Chair
Alan Greenspan. They are spoken from a vantage point of
experience and knowledge of what really matters for policy
decisions in the real world. And they are no exaggeration.
Many would say they do not go far enough.
It is a
rare monetary policy conference today in which Milton
Friedman's ideas do not come up. It is a rare paper in
macroeconomics in which some economic, mathematical, or
statistical idea cannot be traced to Milton Friedman's early
work. It is a rare student of macroeconomics who has not
been impressed by reading Milton Friedman's crystal-clear
expositions. It is a rare democrat from a formerly communist
country who was not inspired by Milton Friedman's defense of
a market economy written in the heydays of central planning.
And it is a rare day that some popular newspaper or magazine
around the world does not mention Milton Friedman as the
originator of a seminal idea or point of view.
Any
one of his many contributions to macroeconomics (or rather
to monetary theory, for he detests the term macroeconomics)
would be an extraordinary achievement. Taken together they
are daunting:
[bull ] permanent income theory;
[bull ] natural rate theory;
[bull ] the case for
floating exchange rates;
[bull ] money growth rules;
[bull ] the optimal quantity of money;
[bull ] the monetary history of the United States,
especially the Fed in the Great Depression, not to mention
contributions to mathematical statistics on rank-order
tests, sequential sampling, and risk aversion, and a host of
novel government reform proposals from the negative income
tax, to school vouchers, to the flat-rate tax, to the
legalization of drugs.
Milton Friedman is an
economist's economist who laid out a specific methodology of
positive economic research. Economic experts know that many
current ideas and policies—from monetary policy rules
to the earned-income tax credit—can be traced to his
original proposals. He won the Nobel Prize in economics in
1976 for “his achievements in the field of consumption
analysis, monetary history and theory and for his
demonstration of the complexity of stabilization policy.”
Preferring to stay away from formal policy-making jobs, he
has been asked for his advice by presidents, prime
ministers, and top economic officials for many years. It is
in the nature of Milton Friedman's unequivocally stated
views that many disagree with at least some of them, and he
has engaged in heated debates since graduate school days at
the University of Chicago. He is an awesome debater. He is
also gracious and friendly.
Born in 1912, he grew up
in Rahway, New Jersey, where he attended local public
schools. He graduated from Rutgers University in the midst
of the Great Depression in 1932. He then went to study
economics at the University of Chicago, where he met fellow
graduate student Rose Director whom he later married. For
nearly 10 years after he left Chicago, he worked at
government agencies and research institutes (with one year
visiting at the University of Wisconsin and one year at the
University of Minnesota) before taking a faculty position at
the University of Chicago in 1946. He remained at Chicago
until he retired in 1977 at the age of 65, and he then moved
to the Hoover Institution at Stanford University.
I
have always found Milton and Rose to be gregarious,
energetic people, who genuinely enjoy interacting with
others, and who enjoy life in all its dimensions, from walks
near the Pacific Ocean to surfs on the World Wide Web. The
day of this interview was no exception. It took place on May
2, 2000, in Milton's office in their San Francisco
apartment. The interview lasted for two-and-a-half hours. A
tape recorder and some economic charts were on the desk
between us. Behind Milton was a floor-to-ceiling picture
window with beautiful panoramic views of the San Francisco
hills and skyline. Behind me were his bookcases stuffed with
his books, papers, and mementos.
The interview began
in a rather unplanned way. When we walked into his office
Milton started talking enthusiastically about the charts
that were on his desk. The charts—which he had
recently prepared from data he had downloaded from the
Internet—raised questions about some remarks that I
had given at a conference several weeks before—which
he had read about on the Internet.
As we began
talking about the charts, I asked if I could turn on the
tape recorder, since one of the topics for the interview was
to be about how he formulated his ideas—and a
conversation about the ideas he was formulating right then
and there seemed like an excellent way to begin the
interview. So I turned on the tape recorder, and the
interview began. Soon we segued into the series of questions
that I had planned in advance (but had not shown Milton in
advance). We took one break for a very pleasant lunch and
(unrecorded) conversation with his wife Rose before going
back to “work.” After the interview, the tapes were
transcribed and the transcript was edited by me and Milton.
The questions and answers were rearranged slightly to fit
into the following broad topic areas:
[bull ] money
growth, thermostats, and Alan Greenspan;
[bull ]
causes of the great inflation and its end;
[bull ]
early interest in economics;
[bull ] graduate school
and early “on-the-job” training;
[bull ] permanent income theory;
[bull ] return of monetary economics;
[bull ] fiscal and monetary policy rules;
[bull ] use of models in monetary economics;
[bull ] use of time-series methods;
[bull ] real business-cycle models, calibration, and
detrending;
[bull ] natural rate hypothesis;
[bull ] role of debates in monetary economics;
[bull ] capitalism and freedom today;
[bull ] monetary unions and flexible exchange rates.
