F*ck Milton Friedman.
The Chicago school of economics.
Summary: Here we are, Unf*ckers. It’s our great hope that we contextualize the Chicago school of economics and its high priest Milton Friedman by alternately expanding our view of the world and narrowing in on crucial moments that changed the course of history.
Today we’re going to cover a little more than 100 years of economic theory through two world wars, The Great Depression, stagflation in the ‘70s, post war booms, market busts and the rise and fall of looming intellectuals. Our story has it all. War, peace, love, sex, money, ego, fame. You name it. Okay, not a ton of sex, but it’s there.
That said, it’s almost embarrassing how many great economists we left on the cutting room floor. Too many, in fact, to even run through in a list.
In assembling the notes for this essay over the past few months, I decided it best to tell the story in chronological order. So it’s actually going to take a bit for us to get to Uncle Fucknut. To understand what was done in the Friedman years when the Chicago school ruled the discipline, we have to understand what was undone.
It’s my great hope that we contextualize the Chicago school of economics and its high priest Milton Friedman by alternately expanding our view of the world and narrowing in on crucial moments that changed the course of history. The idea is ambitious, but so were the men—mostly men—and the institution behind these ideas. They might not be household names, but their work has impacted every citizen of the world. And that’s no exaggeration. The latter part of the 20th Century and the beginning of the 21st belonged to them in both theory and practice, and our existence is the very real manifestation of their policies.
As I mentioned in the teaser last week, I will give credit where credit is due. At no point will I call into question the intellect or even integrity of Milton Friedman, or the institution he is synonymous with. To the contrary, I firmly believe that Milton Friedman was indeed a man of great integrity. His downfall, as I’ll argue, was his undying commitment to orthodoxy. His belief that economics is an exact science and that markets are inherently just and therefore capable of taming the worst instincts of human nature.
That, and his ego, the intellectual’s surrogate for avarice, the true villain of our story.
Thomas Midgley, Jr. was by any standard a brilliant engineer and chemist. This son of an inventor held a few positions before being recruited to work at what would become the research arm of General Motors in 1919. Midgley is credited for discovering that adding lead to gasoline eliminated chronic engine knocks, a discovery that earned him great recognition, as well as lead poisoning.
Still, Midgley was convinced that lead could be used safely in gasoline and he continued a successful career as an executive of companies that helped popularize the use of it, despite the widespread understanding that it was harmful. Later in his career, he would discover that freon could be used as an effective, non odorous refrigerant in air conditioning and refrigeration. Midgley would be honored by his industry peers throughout his illustrious career, which slowed down considerably when he contracted Polio in 1940. Ever the inventor, Midgley devised a pulley system that allowed him to hoist himself in and out of bed so he could continue to work.
Thomas Midgley is credited today as quite possibly the single most environmentally destructive person to ever walk the Earth. Sadly, for us, Midgley wouldn’t live long enough to hear himself referred to as such. He strangled himself to death with his homemade pulley system in 1944.
That was weird.
Confused as to why we would start with a story about lead gasoline? Don’t be. We’ve drawn our conclusion up front through our analogy to Midgley and will spend the balance proving our theorem.
Midgley was a scientist’s scientist. He was an excellent craftsman, the top of his trade in chemical engineering. In the beginning of his career, he toiled in obscurity and fought the tide until backed by an institution that became infatuated with what his discoveries could accomplish in the short-term, regardless of the long-term implications. And those implications grew beyond the man and the organization itself.
Midgley’s chemical engineering might have been inevitable. Had he not discovered the benefits of lead additive to reduce engine knocking or freon as an effective non-odorous refrigerant, someone else probably would have. But he was as much a master salesman as he was an engineer. So firm was he in his belief that lead was non-toxic in small quantities that he inhaled the vapors of his own invention in a public forum to prove a point. That he was then committed to bed rest for several weeks as a result of lead poisoning hardly mattered to him. What remains beyond his rather ignominious demise by his own hand, is catastrophe.
Milton Friedman was a pure scientist. In fact, one of the ideas he held dear was that economics was indeed a science and not an art. It was a science based upon immutable laws that were to be respected. And if applied as prescribed by capable theorists and not the political class, it would work perfectly under natural governing laws, and ultimately benefit the human race.
What we’ll argue is that, like Midgley, Friedman was a skilled economist who adhered to strongly held convictions throughout his life. Like Midgley, he was a master salesman who pushed through professional ridicule to emerge at the top of his field and would unleash catastrophe on the world. Unlike Midgley, he would live long enough to see it with his own eyes, and yet his ego wouldn’t allow him to accept any blame.
Pretty fucking clever. Amirite?
The “Dismal Science”
Perhaps the first main character we should properly introduce is the field of economics. We’ll paint a pretty broad picture of the discipline quickly in order to place other key figures in relation to the field. You see, economics wasn’t much of an intellectual or academic field, especially in North America, prior to the 20th Century. That doesn’t mean economic theory didn’t exist and wasn’t important, it just wasn’t a field unto itself.
Even the greats such as Smith and Marx were considered social theorists and philosophers first and foremost. They were concerned with society and economic systems, and they created the foundations of thought that would ultimately forge economics as an independent field of study, but it was considered philosophy more than science.
For example, the London School of Economics, a member of the federally chartered University of London was founded in 1895. Harvard University followed suit in 1897 by establishing an economics department as MIT and Cambridge University did in 1903.
The University of Chicago, as we’ll cover later in the essay, was one of the first schools to pursue economics as a field of study from inception, though it too was established at the turn of the 20th Century. Frank Knight, an important figure in the Chicago school story, divided economics into five parts:
- How society decides which goods and services will be produced
- How production of said goods will be organized
- The distribution of goods and services
- A system that brings production and consumption in line
- How the facilitation of the above maintains or improves society
Economics wasn’t much of a profession and was considered even by leading academics to be the “dismal science.” The giants of classical theory such as Adam Smith and David Ricardo were pre-Industrial philosophers who were thinking out loud about the best ways to structure a society. Marx and Engels had the benefit of witnessing the beginning of the Industrial era and thought to therefore infuse insight about the plight of the classes that emerged as a result. But even their frameworks were largely philosophical and less mathematical.
The aforementioned philosophers are considered the founders of modern economic theory, to the extent that they were writing in the post-feudal landscape of burgeoning nation states and the beginning of the end of monarchical systems. Each would possess fundamental flaws given the periods they existed, but on the whole they helped to create a universal language around the concept of capital, labor and the distribution of resources and wealth. What emerged in the beginning of the 20th Century is now referred to as neoclassicism, which focuses on the mechanics of economies with supply and demand as the driving forces behind production and consumption.
Neoclassical economics would evolve over the past century to include the concepts of John Maynard Keynes, as well as competitive theories that emerged after the Keynesian period. Elements of traditional Keynesian economics would be infused with ideas regarding consumer behavior and expectations and developing theories on pricing, trade, interest rates, inflation and employment. At various points, particular elements would be disproven, then refined and re-adopted, but on the whole, the past 120 years has produced a system of scientific beliefs on how the world operates according to economic theory.
Ultimately, economics seems to have split into two camps: Those who side with John Maynard Keynes and the preeminence of fiscal policy and others who side with Milton Friedman, the godfather of monetarism and champion of free markets above all things.
One thing about the discipline that remains true, and is something we must carry with us throughout this essay, is that every theorist, regardless of which camp they reside, believes in the final concept of Knight’s tenets of economic theory. That their work exists to help determine a system that ultimately provides the maximum benefit to society.
Two Roads Diverged
While we’re hanging at the turn of the 20th Century, it’s a good time to introduce two central characters in our story. Not people, but organizations. The first is obvious, and that’s the Chicago school. Today, the University of Chicago is one of the finest and most prestigious schools in the world. As a New Yorker, it’s not something I ever thought about growing up, as conversations of elite schools usually ended with the Ivys. But Chicago is no fucking joke.
In his book, The Chicago School, which Milton Friedman himself reviewed as “thorough and extraordinarily well informed,” Johan Van Overtveldt describes the characteristics of the Chicago tradition as:
“A strong work ethic, an unshakable belief in economics as a true science, academic excellence as the sole criterion for advancement, an intense debating culture focused on sharpening the critical mind, and the University of Chicago’s dimensional isolation.”
By the way, I read the shit out of this painful fucking book so you don’t have to.
Overtveldt is describing the economics school here, but it’s reflective of the whole school ethos. Its first president, a man William Rainey Harper, was responsible for wooing the great financier and businessman John D. Rockefeller to establish an institution in the midwest that would rival the elite institutions back east. Prior to its founding as the school we know today, the University was actually a religious institution that ultimately failed under endowment. Harper saw the opening to create a research-based institution and vigorously pursued Rockefeller, who would wind up giving a whopping $35 million between 1888–1920. If not for Harper’s genuine salesmanship and enthusiasm, there would be no Chicago school.
We mentioned the last tenet of the Chicago tradition characteristics was its two-part isolation. The campus is isolated, and this fact alone has created an insular community feel among the faculty in particular like few other elite schools. Secondly, it was far from Washington D.C., which theoretically shielded it from the policy groupthink of the political class.
Debate among the faculty was encouraged and expected from the outset, and the familial nature of the living quarters made those who survived the rigor of discourse almost fanatical in their loyalty to the school. They referred to their debates as bullfights and encouraged dissent among their ranks. For the first 50 years, there was no particular dogma to the economics department. In fact, to the extent there was consensus, it typically looked a great deal like what was espoused by Keynes.
Chicago school professors viewed themselves as outsiders. They thumbed their noses at the elite schools in London, New York and Boston. They were argumentative, almost religiously so. And they believed that economics was a science.
This was where the die was cast for Friedman. This is where he was cultivated and nurtured. The only approval he would ever require was from this place.
In stark contrast to the arguments, the rigor, the science of this formative institution, was the organization that nurtured and best explains John Maynard Keynes.
In the early 1900s, well before Keynes was a proper economist, he joined a secret society among Cambridge undergraduates known simply as the “Apostles.” The Apostles were pure intellectuals, and they carried with them a healthy disdain for the old world aristocracy and the debased political class. As Keynes grew in stature as one of the keenest minds in the group, he grew further apart from their distrust of politics and would eventually part ways with a handful of other luminary figures of the time such as Leonard Woolf, E.M. Forster, Adrian Stephen and his sister Virginia who would later marry Leonard. Yes, that Virginia Woolf.
The new sect adopted the name of the quaint neighborhood they moved to called Bloomsbury. The Bloomsbury Group, as they would henceforth refer to themselves, were lovers of discourse, of the arts and sciences and, in large part due to the influence of Keynes, liberal politics. The group experimented with sex and held dinner parties and discussions that went well into the night. Keynes was known as a prolific lover, with a particularly keen eye for young men, and would frequently steal the love interests of his fellow group members.
Throughout their lives, members of the Bloomsbury Group would fall in and out of favor with one another and often argue about war, government and lovers. But they were forever linked by their time at Bloomsbury, which they regarded as the greatest period of their lives. For his part, Keynes would seek the approval of this group of confidants more than he sought the approval of presidents, prime ministers and generals for the rest of his life. His motivations were fueled by the deep, abiding love and respect between the members of this illustrious group.
Milton Friedman and John Maynard Keynes never met in person. The only recorded interaction between the two was when, in 1935, Keynes refused to publish one of Friedman’s papers in a British journal he ran. It’s tempting to think that this was the moment of Keynes’ undoing like that scene in Casino when Robert DeNiro’s character refuses a favor to the commissioner played by L.Q. Jones, which unwittingly touches off the beginning of the end of his career in Vegas.
I don’t think it’s that at all, but it’s fun to speculate.
The Great Man
To understand Milton Friedman is to know John Maynard Keynes intimately and understand just how large he loomed over politics and economics for nearly half a century. Though he came from some means, he wasn’t part of the British aristocracy. He was always considered a towering intellectual and he worked hard to curry favor with classmates, colleagues, and artists and later politicians and world leaders. He was a people pleaser with a voracious appetite for sex, even tabulating his conquests throughout his Bloomsbury years.
He mended his promiscuous ways after falling in love with a young woman named Lydia Lopokova, a dancer and performer who became Keynes’ obsession for the entirety of his adult life.
Keynes’ romance with Lydia came as a shock to the Bloomsbury Set, all too familiar with his proclivity for young men and often the lovers of his dearest friends. He was a scoundrel, but a loving one no one could stay angry with for very long. But something about Lydia fascinated the man, and he would devote himself to her as much as his work.
On the business side of things, Keynes would make a living as a young man primarily because of his capacity of intellect. He was an imposing figure who stood at 6’7” and commanded a room with his presence alone, though as soon as he opened his mouth he had the words to back it up.
He was entirely optimistic about the future of society, so long as it could wrestle with the fundamental issues of the post-Industrial landscape. His early works were regarded as thoughtful and meaningful, but it wasn’t until he was recruited by the British government during World War One that he began to ascend in his career. The Brits pressed Keynes into service to determine how best to finance their war efforts, which threatened to bankrupt the island nation. It was Keynes who led the charge to convince the Americans to intercede with funds long before it was conceivable that the young nation would commit its military to the dispute.
In 1916, Keynes led a delegation of diplomats from England and France to the United States to try and convince the New World to financially support the war abroad. Financier J.P. Morgan was on the hook for loans to the British—under pretty favorable terms for him—but the delegation was coming hat in hand.
They needed more. A lot more.
Keynes and company were seeking $1.5 billion, a staggering sum. They left without a commitment or inclination as to how the Americans would respond, but as Keynes’ biographer Zachary Carter notes:
“The Treasury had only weeks before its gold reserves would be completely exhausted. London’s prowess as a financial center was on the brink of annihilation. Without access to American money, the British war machine would collapse.”
At the same moment, President Woodrow Wilson—who was in a tight spot having won the election by campaigning on isolationism—helped convince a wary Congress to enter the war. This allowed the financial coffers from Wall Street to open up and for British debt to be financed approximately one week before Keynes calculated the British Treasury would be empty.
Keynes’ reputation as a pragmatist and diplomat who inspired confidence among the business and political class was firmly crafted during this period. Most of his prognostications about financing the war effort and subsequent impact on the British economy was spot on. He was trusted and respected, though still somewhat of a sideline player. But his clout was enough to secure a spot in the landmark negotiations that ended the war in 1919.
Diplomats from around the world gathered at this time in 1919 to determine what the fuck had just happened and how exactly to exact revenge upon the Germans for completely screwing up the balance in the world. Lloyd George of Britain, Clemenceau of France and Wilson from the New World took center stage, but it was Wilson who carried the initial stages of the negotiations and was received as a hero. Keynes was incredibly impressed by Wilson and almost exuberant that he would be rubbing elbows with him, much to the chagrin and mockery of the Bloomsbury Set.
It wouldn’t take long for Keynes, and nearly the entire delegation, to lose whatever respect they had for Wilson as negotiations were badly blundered and Clemenceau especially was able to force an incredibly punitive agenda upon Germany, which Keynes viewed as a huge mistake that would most certainly result in catastrophic failure for Germany and perhaps even cause another war. Yes, this lanky ass motherfucker was prescient.
Now, stop me if this next part sounds eerily familiar. While the world leaders cut a formidable presence in Paris, there was another uninvited guest who had an even bigger effect on the proceedings: the flu pandemic.
Keynes, among countless others, would get violently ill during this period. And it’s now widely understood that Wilson was also suffering from the virus and, according to many historians, might have been extremely delusional at several points during the negotiations. Imagine that? Having a fucking delusional president with a virus trying to run the world? Weird.
Back to our story. What transpired in Paris in 1919 is perhaps one of my favorite times to study. For Keynes, he would leave the negotiations frail, disappointed and disillusioned. As he recovered and reconnected with his old Bloomsbury pals, he began work on paper that would put him on the map and invited acclaim, rebuke, criticism and admiration the world over.
The Economic Consequences of the Peace pulled no punches. Though Keynes could be rambling and even biting at times, his take on the management of the peace process was regarded as a breakthrough work. In it, he critiqued everything from Burke to Lenin and excoriated the diplomatic process and failings of world leaders by name, which didn’t exactly garner him much support in the halls of power. But Economic Consequences was bigger than that. It was at times radical, attacking capitalism and inequality. At others it was extremely practical, especially when addressing the onerous terms of German reparations and what it portended for financial markets globally. He emerged as someone bigger than the sum of the parts that created the doomed Treaty of Versailles and an uncompromising intellectual that challenged conventional political and economic thought. And the distribution of this work made him a very rich man.
Coming out of the war and into the Roaring ’20s, Keynes had somehow managed to retain the admiration of Bloomsbury, that of his peers, accumulate enough wealth to never again bend to power and a reputation for speaking truth to such power. The Keynes era had officially begun.
The study of economics would intensify in the years after World War One. Keynes would continue to earn a good deal of money and be sought after for his opinion both in Britain and the United States, particularly as his predictions began to ring true. The ‘20s were, of course, unhinged in the New World with America fully taking the reins as the financial center of the world, much to the annoyance of the banking class in London. But they were unremarkable in terms of new burgeoning theories until, of course, they came to an unceremonious end beginning with the stock market collapse.
The Great Depression spared no one. Germany was already reeling from an inability to manage reparation payments, and the other European countries were still trying to regain their footing and were ill prepared for the financial calamity that ensued. What surprised everyone was the inability of the United States to weather the market collapse as it spiraled out of control and into the economic abyss.
The Depression would mark the true ascendance of John Maynard Keynes, as even the Brits would put aside their petty differences stemming from his critique of the peace process. Keynes was once again pressed into service and, once again, his focus was on the United States. As the new center of the economic universe, any recovery globally would have to be led by the U.S. And so Keynes penned an open letter to the new President, Franklin Roosevelt, pleading for massive fiscal intervention into the U.S. economy to, above all else, get Americans back to work. America was the key production engine the world needed to restart.
This open letter was met with a shrug across the pond, but elsewhere in the world people were taking note. Much to his dismay, the British government was not inclined to gamble on his theory that governments could run extraordinary deficits with public works programs and stimulus that would fill the pockets of citizens and consumers. This wasn’t the only intervention he prescribed, but it was the most controversial, as deficits were seen as death to the political and economic futures of governments and the men who ran them.
But the letter was also important because it contained the basic framework of a larger theory that would ultimately become the most important and oft-quoted economic book of all time.
Much of the language associated with macroeconomic theory is derived from the seminal work of John Maynard Keynes titled, The General Theory of Employment, Interest and Money. Published in 1936, Keynes’ General Theory upended conventional wisdom in economics and quite literally changed the entire field of study forever. It’s no exaggeration to say that it was, and probably still remains, the most influential economic theory book since The Wealth of Nations.
In The Price of Peace, author Zachary Carter describes The General Theory as:
“A dangerous book because it reframed the central problem at the heart of modern economics as the alleviation of inequality, pivoting away from the demands of production and the incentives facing the rich and powerful that had occupied economists for centuries.”
The General Theory is a difficult book to read, and many scholars believe this to be purposeful. It contained elaborate equations and charts. It was written in grand, sweeping prose that could be both inaccessible and hauntingly beautiful. It was conceived with the scars of the first great war still fresh in everyone’s mind and the pain of The Great Depression evident all around. It called upon government to intervene in ways that were never considered possible. It gave us new tools and principles that are still used today. And it created a human approach to a cold and opaque field that honored markets above people.
Not everyone was as enthralled with The General Theory, however. President Roosevelt, perhaps still smarting from Keynes’ audacity to publish an open letter to him, took the prescriptions lightly. Ultimately, he would give Keynes an audience and warm to many of his ideas, but he stopped short of fully implementing them because of the prevailing sentiment that a government could not and should never run a budget deficit.
There was another detractor who plays prominently into our story and serves as our human bridge to Milton Friedman.
Hayek: The Bridge to Milton
Friedrich Hayek is regarded today in libertarian circles as an equally important figure to Friedman. Born in Vienna, Austria in 1899, Hayek believed strongly in Smith’s concept of the invisible hand and would move it to the front of his philosophy in order of magnitude. Hayek immediately savaged The General Theory, though at the time, no one really gave a shit. For the time being.
Hayek is an interesting figure in that he represents the first real counterpoint to Keynes, even as he toiled in relative obscurity to the great man. Gradually, throughout the course of the Depression, governments began to awaken to the concepts in The General Theory, though not fast enough to jumpstart a meaningful recovery until the onset of the second great war.
Keynes believed that unemployment was the key ingredient behind fascism. He argued over and over that employment and production above all else would spur productivity during a decline and rebalance the economic equation. His concept of the paradox of thrift essentially said that during periods of recession or decline, a government could stimulate growth by driving toward full employment no matter how it was achieved. Through a mix of monetary policy to encourage borrowing and investment and fiscal infrastructure programs and government incentives, the only thing that mattered was that consumers felt secure and could pay their bills.
Ultimately, he would be proven correct on this account where the Depression was concerned. Only it wasn’t the construction of bridges and roads that ultimately solved the employment piece, it was bullets and tanks. Of course, Keynes knew all too well that this would serve as a viable economic substitute for government infrastructure spending. But to understand him as a man is to also know that this was a heartbreaking revelation he spent a lifetime trying not to revisit.
In 1944, our story takes a sharp turn. It was the twilight of World War Two and nations were just beginning to look forward and attempt to perceive what the next chapter of the world would look like. In this year, Friedrich Hayek would publish the seminal work of his career titled The Road to Serfdom, dedicated to “the socialists of all parties.” In it he claimed that, “the rise of Fascism and Nazism was not a reaction against the socialists trends of the preceding period, but a necessary outcome of these tendencies.”
Keynes’ contended that a form of socialism was the natural outcropping of capitalism in a positive manner. Here, Hayek was arguing the opposite. His economic theories were strictly monetary, as he believed the government had no place in the affairs of individuals, nor of the economy. Unlike Friedman, Hayek did have the opportunity to know Keynes, and the two actually maintained a fairly cordial professional relationship. In fact, Keynes did not dismiss Hayek’s assertions out of hand. In fact, he quite agreed with his views of monetary policy. But in broad strokes, he simply disagreed with Hayek’s conclusions.
A note of historical irony, our protagonist Milton Friedman was recruited by the Treasury during World War Two to work on issues of taxation. During his tenure, he was a crucial part of the team that created the withholding tax, a revolutionary method of collecting taxes in advance at the time and something that we’ve been stuck with ever since. While it was an effective way to ensure that our war efforts would be financed, Friedman would have a tough time living this down. In fact, the one person who never forgave him for coming up with this idea was his wife Rose, daughter of Aaron Director, one of the most prominent figures of the Chicago school of economics.
Back to ‘44
I digress. The other seminal event of 1944 was the conference in Bretton Woods. Here, the world would once again descend upon a conference to determine the path forward out of conflict. Bretton Woods would conclude with somewhat of a victory for Keynes, who argued for a central bank that could stabilize currencies and interest rates and intercede on behalf of debtor nations to facilitate the forgiveness of debt. On this last point he lost, but in most ways he was successful with the establishment of the International Monetary Fund and the World Bank.
He also argued successfully that participating nations make their currencies convertible into dollars at a fixed exchange rate. In turn, the dollar could be converted to gold. This enabled the world to finally be free of the physical gold standard without throwing the balance of financial power into complete disarray.
But the negotiations at Bretton Woods would break Keynes once and for all. The towering man made it through two world wars and the Great Depression occupying the spotlight on center stage for most of this time and it had taken a toll on him. His health declined rapidly, and though he would linger and be somewhat productive after a brief respite with the love of his life, he would never be the same. Keynes died in 1946 right before the birth of a new society that would ultimately come to define the next generation of economic thought.
Friedrich Hayek founded the Mont Pelerin Society in 1947, along with Friedman, Aaron Director, Frank Knight and George Stigler, to discuss the future of what was then called liberalism, but in strictly economic terms—very different from what we would consider the term to mean today.
Liberalism in their view was an adherence to free market values above all else. It was a way for Hayek to promote the ideas found in his publication, The Road to Serfdom, which was met with moderate acclaim at first. Eventually, Hayek gained a cult following among libertarians and Reagan era economists who viewed big government as an existential crisis that threatened capitalism.
They called themselves “neoliberals.” And thus a new philosophy was born.
During his tenure, Hayek had trouble overcoming the long shadow of Keynes, and by 1962, he retreated to the University of Freiburg in Germany, which opened the door for new leadership at the society. Milton Friedman was the clear successor and heir apparent.
The Mont Pelerin Society remains active even today, advocating for the rule of law, the rights of the individual and the preeminence of free markets.
Now, before Friedman took over the society, the members were coalescing around counterarguments to Keynes’ General Theory. Even supporters of Keynes such as the great Jacob Viner, a close Chicago school associate of Knight, Friedman and Stigler, agreed almost wholly with Keynes and his recommendations to handle the Depression. But he was the first to break with the norm and hero worship to suggest that Keynes was only correct to the extent that the Depression was an existential social and political crisis. For him, Keynes was the axe behind the glass to be broken in case of emergency.
This view was polite compared to how it would evolve among Mont Pelerin society members throughout the ’50s and ’60s. Friedman, in particular, could best nearly anyone in tearing apart any argument that contained the hint of government intervention. Over time, his positions would solidify and take on an almost manic fanaticism, though delivered with his cool, wry, fuck you sort of sensibility.
Goldwater and the Economics of Racism and Colonialism
The thing with these economic libertarians is that they were theorists without a policy home. Academics who were shouting at the rain as they continued to live in the shadow of the great man. What they really required was a host body to put their ideas to the test. In 1964, shortly after taking over the society, Milton found his man.
Friedman surged out of academia in ‘64 for his association with the most uncompromising conservative political movement in America: the presidential campaign of Arizona senator Barry Goldwater. While Friedman would always bristle at being called a conservative, the conservative movement of Goldwater was a convenient marriage of ideas for Friedman’s neoliberals.
In pure policy terms, Friedman believed the government should provide families with vouchers to buy their children slots at either public or private schools. The resulting competitive market for education would surely liberate Black people in America more thoroughly and efficiently than any government mandate. Friedman actually had a lot to say about the plight of Black people in the United States, blaming government’s attempts to help improve their standing in American society rather than centuries of institutional racism.
One of his principle beliefs and a point he would repeatedly hammer home:
It was the fault of government that Black schools were worse than white schools.
Therefore, Black people were less educated.
And thus, minimum wage put wages above what they were worth in the world.
For reference, the clip we played of him claiming this in the audio essay was part of a lecture series he gave in 1977 when the minimum wage was $2.30. So, essentially, he was arguing that Black schools in America produced students that weren’t worthy of earning $2.30 an hour and that the free market would allow businesses to pay them what they were really worth.
These were the ideas that were tremendously appealing to Goldwater, but the big hairy concept behind it all that galvanized him most was was the concept that the only legitimate role of government was to establish the institutions necessary to uphold free market capitalism: a military to defend the nation, a police force to protect businesses and citizens and a central bank to ensure there is enough money supply to facilitate exchange.
Anything out of the realm of these areas would serve to slow the wheels of commerce and create chaos in the markets, and therefore society. While Goldwater wound up getting trounced, and these ideas weren’t ready for primetime, a new class of young politicians took note of Friedman.
The Times They Were a-Changin’
Change was in the air in the 1960s. Music. Attitudes. Baby Boomers coming of age. Liberalism and conservatism were moving further and further apart. I don’t want to undercut what was happening in the ‘60s, because there was actually a growing battle between economists during this time that’s quite fascinating, but I think it’s overkill to get too far in the weeds.
To sum it up, Kennedy brought in a slew of ivory tower Keynesians and Johnson followed suit by sequestering his economic advisers on his ranch to think big. They emerged with Medicare and Medicaid. So, a lot was happening at the time, but you can imagine how tweaked the neoliberal crew over in Mont Pelerin were with the expansion of big government.
I do, however, want to highlight one specific policy that was developed on the eve of the ‘60s because it plays an important role in what we’re about to cover as we head into the ‘70s. Something called the Phillips curve.
The Phillips curve was a theory developed by William ‘A.W.’ Phillips, a New Zealand economist who spent the majority of his career at the London School of Economics. Phillips studied the patterns of wages and inflation over long periods of time, research that had been done in other quarters at the time. But, in 1958, he was the first to commit it to the theory we now know as the Phillips curve.
Based on the observation that high unemployment usually created a stable or even declining level of wages, he went on to theorize that there was an inverse relationship between inflation and unemployment. When unemployment was low, it pressured prices and helped create inflation. Conversely, when unemployment was high, inflation tended to cool. What makes the Phillips curve so vital to our discussion of Friedman and Keynes is that it was immediately accepted and understood to be inherently true. This lent credence to Keynes’ belief that full employment was one of the primary ways to achieve stability in pricing and the economy as a whole.
Then along came the 1970s. Suddenly, in the United States especially, inflation was on the rise, but so was unemployment. Worse, GDP went into decline for six consecutive quarters, confounding economists and politicians. This scenario was dubbed stagflation, and it caused a complete crisis in the field of economics. The Phillips curve had failed, and policy makers were at a loss for how to mitigate the situation. Nearly every policy maker, that is, except Milton Friedman who was ready for his close up.
Bow Chicka Wow Wow. Free Love. Free Sex. Free markets.
The ‘70s did for Friedman’s career what the Depression did for Keynes.
Stagflation caused a crisis among economists, especially those who considered themselves devout Keynesians. Neoliberals with a kind interpretation of Keynes suggest that even he would have grown to reject the strict doctrine ascribed to him by academics, and that he would have eventually adopted the monetarism and price theory stances of the neoliberals. His more aggressive detractors simply used this period to dismiss Keynes altogether as a relic, as though this brief period could undermine the whole of economic thinking for the better part of the 20th Century.
The oil shock, Middle East crisis, an overheated economy, inflation, post-Vietnam War debts, Nixon’s financial shock of obliterating the Bretton Woods Agreement, the application of punitive tariffs—so much contributed to this period of stagflation. But as usual, whoever possesses the simpler message unusually controls the narrative in a crisis.
And so there it was. The final tipping point. The man with the plan and the simple cure-all answer was prepared to solve the world’s problems with two simple words: free markets.
Friedman applied free markets to everything. Racism? Colonialism? Inequality? Pollution? Housing? Birth rates? Civil rights? Everything could be cured by the mighty free market. If only government would get out of fucking the way and just set it free.
There’s plenty to tell about what constitutes a free market. Before we get there and head into the Reagan era, which saw a full embrace of Friedman, the little fucker took to the road to sell his ideas to the world.
(This is where you’re going to start hating this little prick.)
In the 1970s, Friedman traveled to Cape Town, where he gave a speech arguing against universal suffrage for Black South Africans. The “political market” of voting, he insisted, would unfairly weight South African politicians toward “special interests.”
He would express utter disdain for anyone who even suggested that America and Europe took advantage of poor societies through colonialism. That, he insisted, was the free market at work.
Perhaps most famously, Friedman led a group of economists from the Chicago school to consult with Augusto Pinochet in Chile shortly after the U.S. helped assassinate the socialist leader, Salvador Allende and clear the way for the dictator to take over. This story would haunt Friedman for years, but his take on it was entirely different and actually more accurate.
Friedman did indeed advise Pinochet, and there was coordination between our government and that of Pinochet to try and establish trade with Chile and stabilize their currency, which was raging out of control with inflation and volatility. But some made it seem like Friedman opened an office in Pinochet’s palace and drafted the Chilean Constitution together over cigars. In reality, he simply espoused the same theory he had been pushing since his earliest days in Chicago. Monetarism created free markets.
Friedman did, however, consider his advice to Pinochet a success in that inflation was ultimately brought under control and the economy recovered. Did Pinochet murder dissidents and allow American business interests to take root and subjugate the working class in Chile? You bet. But such trivial measures were beside the fact. On planet Friedman, only the markets and free trade mattered because he believed they would help overcome inequality and injustice.
Friedman didn’t have to dither long in foreign nations. In the ‘70s, he was just warming up. Pretty soon, as we covered in a prior essay, a happy go lucky shill for corporate America, and former actor, moved into D.C. and invited the neoliberal crew from the Chicago school to take a seat at the adult’s table.
Reagan and his advisors were interested in only one economic policy. Monetary policy as espoused by Milton Friedman and the Chicago school of economics. Monetarism had come to be viewed as the antidote to Keynesian economics, a reductive examination of the great man’s work, but easy to package, easy to understand and easy to sell.
Political interpretations of Milton Friedman’s impact on public policy largely depend upon one’s personal beliefs. His advocacy of free markets and deregulation is easy to digest when viewed strictly through an ideological lens. His ability to speak plainly about economic theory allowed him to reach an audience of everyday consumers and citizens. His intellect, quick wit and penchant for debate made him a formidable opponent in any venue.
But these factors also reduce the importance of his research, which upended a half-century of economic theory and earned him the grudging respect of even his detractors. His central contribution to the discipline of economics is what is referred to as monetarism. Put simply, it’s the belief that adjustments in money supply are a greater determinant of economic growth than any other policy, especially fiscal policies of government spending that had become synonymous with Keynesianism.
Critically, monetarism states that employment, inflation and production are all primarily impacted by growth and velocity of money supply—how much there is and how fast it moves through the economy—and interest rates that can either spur or stifle investment. What’s important to understand is that monetarism was already a tool in Keynes’ arsenal, but to be used alternately with fiscal policy depending upon current circumstances.
Where Friedman veers from Keynes is in the belief that monetarism was the only tool that mattered and that fiscal policy created more harm than good. This key differentiator relied on other factors to be present, or rather, eliminated. Most notably, regulations.
The Reagan team would go all in on monetarism and add another twist, though this too was blessed by his majesty Milton. Reagan was looking for a way to sell tax cuts to the rich to a skeptical public that while rooting for a comeback led by The Gipper, wasn’t entirely ready to give things away to the rich.
But Reagan courted a supply side economist named Arthur Laffer, who illustrated the relationship between tax rates and tax revenue in what became known as the Laffer curve. On his curve, he argued that if taxes are too high it will then discourage production and activity. Therefore, in order to stimulate economic growth, it was imperative to cut taxes.
To understand where Laffer exists in the pantheon of great economists, all you have to do is visit The National Museum of American History. There you will find the fucking cocktail napkin that Arthur Laffer drew his theory on compete with a dedication to one of the two men who pocketed the napkin: Donald Rumsfeld and Dick Cheney. True motherfucking story. Says everything you need to know about the depth of knowledge or perhaps depravity of the modern Republican Party that they would save a fucking cocktail napkin from a party when Ford was president, whip it out six years later and show it to the president like, “Oh, we almost forgot. Here’s your entire tax theory sir!”
Friedman was no Republican. And, as he said, he was hardly a conservative. He was a true libertarian who believed in the divinity of the markets. He would mostly favor the Reagan years for its accomplishments in cutting taxes and deregulating industries, but he was actually critical of other things that aren’t as obvious. For example, he was appalled by the war on drugs. Drugs were a choice, and chasing them was a waste of time and money. He criticized Reagan’s foreign intervention and massive increase in government spending on the military. It was unnecessary in Friedman’s view because it was on foreign entanglements that had nothing to do with protecting free trade and commerce.
This is where it gets murky with Friedman. As soon as you want to punch this motherfucker square in the face, he says something like, “We should legalize drugs and stop spending money on building up the military to fuck with Latin America.” He was also standing on pretty solid ground when he criticized urban renewal and how the government ran public housing.
Where you’re justified in punching him in the fucking face is his rationale. He didn’t give two fucks about killing people. Didn’t think racism was a problem so long as the minimum wage was eliminated, because that was the root of the problem. He thought drugs should be legalized, but only because it was a waste of resources to chase drug dealers. If people got high, fuck them. Just don’t spend my tax money trying to stop them. And in terms of public housing, he might have been right about the outcome but he also disagreed with the intent. Housing isn’t a right or something to strive for.
It’s what makes him such an appealing figure to libertarians who think he’s some sort of god. And the temple that housed his religion was in the second city.
We’re on a Mission from god
The Chicago school would produce a number of concepts that built upon the idea that anything that restricted the freedom of the markets was inherently evil. They were the ones who pioneered the war on unions, referring to them as monopolies in that they fostered a concentration of power within a functional class.
An Englishman named Ronald Coase traveled to the Mecca of economic theory in Chicago to put forward a theory that stated, “When transactions costs are zero and rights are fully specified, parties to a dispute will bargain to an efficient outcome, regardless of the initial assignment of rights.” Essentially, he was arguing that irrespective of rights or authority, absent regulations and in a free market, the right and just outcome will always emerge.
Coase was met with almost universal derision for his theory at first. But in one evening, at this same gathering, uncle fuckbreath soaked up the oxygen and in a matter of two hours converted every one of the 21 opponents to Coase to his way of thinking. Every single one. The translation of his idea, which has since become known as the Coase theorem, was that neither the government’s intervention nor the free market guarantee a just and proper outcome to a dispute. But between the two, in every case, the government’s solution will be inferior. Therefore, regardless of the outcome, the free market will always know better than human interventions.
Chicago school economists Gary Becker and Richard Posner would double down on the Enlightenment theories of Le Mercier, an Enlightenment theorist we’ve covered before, and create new concepts around the notion that government exists only in the area of national defense and domestic law enforcement. Future theorists such as John Lott in the Chicago Law School would build on Becker’s theories in particular to conclude that the only way to reduce crime was to legalize concealed hand-guns and that, “women and [B]lacks obtain the largest benefits from discretionary concealed handgun laws.”
- Cutting taxes on the rich.
- Destroying unions.
- Legalizing concealed weapons.
- Eliminating government from all but war and domestic policing.
- Pillaging and colonizing foreign nations in the spirit of free trade.
- Deregulating industries and allowing them to self police regardless of their impact on the environment or working poor.
- Eliminating social programs like Medicare, Medicaid, Social Security and Food Stamps.
This is the Chicago way.
These ideas that Unf*ckers recognize as the most dangerous, cynical and damaging influences on modern public policy from Nixon forward, they belong to the Chicago school of economics and its high priest Milton Friedman. That’s how we got here, Unf*ckers. That’s the whole story.
Before I offer our conclusion, I want to dip back into history for a moment to talk about what could have been.
For a brief spell from 1938 to 1944, the most popular professor on campus was a man named Oskar Lange. Lange was a Polish economist and dedicated socialist who won the hearts of the students and colleagues through his brilliance and congenial nature. He put Hayek in his place and prevented the likes of Friedman from gaining too much attention. Lange would move back to communist Poland and be professionally neutered by the regime never again to hold the level of respect in academia. And in this vacuum emerged a fiery Friedman who attacked Lange’s work with a vengeance and asserted himself as the alpha in Chi-town.
I bring this up prior to our conclusion to demonstrate how the slightest changes, happenstance in history can alter the course of human affairs. I bring it up because the big “what if” here is what if Oskar Lange stayed? What if there was no natural opening for Friedman? Why even ask the question?
Because anything that has been done can be undone if we understand how it happened. Anything can be reverse engineered and every little step in the journey, each brick in the wall matters. Even a podcast.
And in conclusion…
John Maynard Keynes believed that, left to our own devices, we would be guided by our lesser instincts. He saw firsthand the ravages of war and the indiscriminate punishment of the Great Depression. He studied the frequent boom and bust cycles of the Industrial Revolution and understood that markets would be manipulated by those in power seeking to retain it. And that history would repeat itself if the greed of man wasn’t somehow reined in.
Friedman, on the other hand, would romanticize this period.
He called it the “closest approach that the United States has had to true free enterprise capitalism. Anybody was free to put up an enterprise.”
Like so many who have followed in his footsteps, Friedman looked wistfully upon the past when America was supposedly great. Recall from our Reagan essay that Make America Great Again was Reagan’s campaign slogan before it was revived by professor orange von fucknugget.
The land was free to take. Or was it stolen from Native peoples?
Anyone was free to put up an enterprise during this period, except banks wouldn’t lend money to Black people and women couldn’t even vote.
It was the true invention of the American spirit, even if manufacturing plants belched and spewed toxins in the air, children were forced to work in mines and on production lines, and the absence of regulations made everything from our food supply to our places of work more dangerous than a virus.
What kind of fucking monster would romanticize this period?
One who believed that progress at any cost in a market where one was free to push the human condition to extremes is the definition of morality.
Keynes saw firsthand the devastation of the so-called free markets when men were free to do as they pleased and succumbed to depravity. And he dedicated the whole of his being, to the detriment of his health, to determining new ways of running the world to prevent such occurrences in the future.
Friedman did everything in his power, guided by ego and dogma, to undo this work and return to one of the worst periods in American history for human health and equality.
But this is also a tale about the dangers of orthodoxy and groupthink. Friedman assembled a cult of intellectuals bound and determined to explain away everything they saw, touched and felt by claiming an impossible cure: A free market. A free market of all things. As though externalities, to borrow a Chicago economist term, didn’t exist or matter. As though greed, corruption and pollution weren’t factors. Everything was boiled down to a simple equation, which made their arguments pure because they could never be settled.
I liken his dedication to anyone who explains away reality and consequences through a prism of religious belief. Why do children die? God’s plan. Why do bad things happen? God’s plan.
If your theory on life is impossible to prove, then all you have to stand on is faith. The market, in Friedman’s world, is a deity that requires such faith. Omnipotent, omniscient and omnipresent. And should anything run afoul to it, like a clergy member, he can simply suggest that a system or a person or institution somehow failed to adhere to the impossible standard of perfect markets. Something that cannot and has not ever existed.
Then there is the groupthink aspect of this orthodoxy. In many ways, the Chicago school came to resemble a religious enclave where no one dared question the high priest of free markets. His disciples would argue on the margins and take issue with certain mathematical aspects of equations and possible outcomes, but on the whole they bought into the doctrine. In this way, he stands in stark contrast to the likes of Keynes whose circle of influence was entirely secular.
The Bloomsbury Group grounded Maynard. At the slightest hint of imperialist or colonialist tendencies, they would attack him with vigor and remind him that his place in history was to improve the lot of humans and contribute to a collective understanding of welfare, intellectualism, love, art and romance. These were the ultimate goals he was to aspire to.
The markets were a means to an end for Keynes. To Friedman, markets were both the means and the end.
As the architect of agreements and policies that settled two world wars and the Great Depression, whether they were fully adopted or not, Keynes was influenced by what he knew to be true: that absent guardrails in the form of regulations and government intervention, the worst of us would inevitably overwhelm the best of us.
His was an economics of human nature. His was an economics of welfare, of kindness. And his seminal work was aptly titled in that it allowed for change. It was a “General” Theory, not a specific remedy or gospel that would work in all cases.
Friedman believed the government was built on a tyrannical bureaucracy. That the tyranny of big government would stifle the free expression of the pure markets. In this, he was less an economist and more of a theologist who interpreted the device of an invisible hand as some sort of deity that would produce a just result.
But his dogma ignores the true tyranny that underlies the reality of the world we live in, not the world he hoped could exist. The real tyrannical force that must be subdued and controlled is the tyranny of man that, left to its own devices, will endeavor to control the mechanisms of the market by virtue of greed.
Today we live with the tyranny of information, controlled by a precious few who would manipulate the masses into believing that somehow, an invisible force of a phantom market could somehow hold the best interests of humankind in its heart. It’s not possible.
The markets, to the extent they exist in freedom, are exactly heartless. Blind to the externalities the purists discarded as abnormalities and aberrations. The pollution, the carnage of war, climate change, racism, all of it.
Blind, above all, to the one driving force intrinsic to our nature as a species: Greed.
Fuck. Milton. Friedman.
Here endeth the lesson.