Milton Friedman: The Last Conservative

>> John Taylor: We are very honored today to have Jennifer Burns talk about this beautiful book in front of me. Milton Friedman, The Last Conservative, not the Last Conservative.

>> John Taylor: Title, I like it very much, but-

>> Speaker 2: Nobody at this table.

>> John Taylor: Jennifer is at the Hoover Institution, the history department of Stanford.

We can't think of a better topic. Milton was here for a number of years. I have memories of having dinner with him at North Beach restaurant up at San Francisco. And I have to say one thing.

>> Jennifer Burns: You dropped the license plates.

>> John Taylor: Plates are there, it's secretaries Cindy, anyway.

So thank you so much for doing the book and for telling us about it. We're all very anxious to hear, thank you, Jennifer.

>> Jennifer Burns: Thank you. Thanks, John. Thanks everyone first who is here in the room and on Zoom. Besides thanking John Taylor, I also wanna do a shout out to Michael Bordeaux, who's been just a really wonderful interlocutor to me throughout this whole project.

Likewise George Tavlis, who's come through Hoover on the regular and really helped me understand some of the origins of Chicago monetary economics. Also John Cochran, who helped me know what it was like to be in a Chicago workshop when he read the manuscript.

>> Jennifer Burns: And Neil Ferguson has also been a great supporter.

And then also a thank you to Ed Nelson, who's done prodigious research on Friedman that really helped inform my own. So it's really special for me to be here as a presenter because I have been coming to this seminar for years and just watching and listening and learning.

And so it's been a really important venue for me to learn about monetary policy and monetary theory. Now, technically, the book is not published until next week, Tuesday. So those of you who are here are getting an advanced copy. Those of you who were signed up online will get an advanced copy and a sneak peek.

 

>> John Taylor: There's plenty of copies right around the corner, so pick up one cheap.

>> Jennifer Burns: That's right, there's very cheap. There is such thing as a free book if you come to the seminar. And what I'm gonna do is the historian method of talking for 30 to 40 minutes.

And I'd be happy to take questions after, but I would ask you to hold them for the remainder. So this is not the first biography of Friedman, as you well know. It is the first to really extensively rely upon as its major source the archives at the Hoover Institution.

And so this enables me to tell the story of Milton Friedman's life from his days as a boy scout in Rahway, New Jersey, he's there on the left. To his growing renown as an economist across the 1970s. Here he is, the all knowing seer on the COVID of Time Magazine, back when being on the COVID of Time Magazine really meant something to his Nobel Prize in economics and beyond.

So I realized that this audience already knows a lot about Milton Friedman. In some ways, he was a local because he ended his career here at the Hoover Institution. You no doubt know him as a Nobel Prize winning economist. You know about his famous attack on the Phillips curve, his theory of permanent income, his work as the founder of monetarism.

His famous dictum, inflation is always and everywhere a monetary phenomenon. You may know him as a great champion of free markets, the author of books like capitalism and freedom, the star of the TV series, Free to Choose. You also likely know him as a policy innovator. And whenever I tick down the list of policies that were once, wild ideas in Milton Friedman's mind that are now sort of characteristics of our social world, I'm always amazed anew.

So, income taxes withheld from your paycheck? Darn, an armed force that relies on paid volunteers rather than draftees. States applied educational vouchers to cover the cost of education. The negative income tax, the forerunner of today's debates about universal basic income and also the long origin of the earned income tax credit.

Tax rebates as policy more generally, a world where international currencies float one against another. All these and more are the achievements of Milton Friedman. And you probably have a few others in mind, but I'm guessing that at least some of you may not have known until today he was also a boy scout.

So this is a biographer's task, how do I bring to life this monumental intellect? Show that he was shaped by his times and in turn, how he shaped them. And so today I wanna highlight a few episodes I cover in the book and spotlight some of the arguments that I make.

And I want to focus on three in particular. One is the consistency in Friedman's thought over time that I see through my research. The second is the role of women in his life and his work. And the third is Friedman's impact beyond economics. So let me start with this theme of consistency in Friedman's thought over time.

And I started my research actually at the University of Chicago, not at the Hoover Institution. I went there while I could, weather permitting, and scooped up as much archival material as I could find. And what I really did with this was immerse myself in his intellectual world, his foundational intellectual world, as a young man, as a graduate student coming to the University of Chicago in 1932.

Which is basically the worst time of the Great Depression, maybe we could debate if spring of 33 was even worse. But bad, things were bad. And he came to Chicago, as I mentioned, from Rahway, New Jersey, and from a somewhat unusual background for an American Jewish family of his day.

He was raised in a small town, he was not raised in an urban center. He was acutely aware of himself and his family as being in a minority within this small town. He sort of blazed his way through the public education system onto Rutgers University and then the University of Chicago.

And the great depression was more than the backdrop of his studies. It was really the reason he ended up choosing economics as a field of study. And so he arrives at this moment of economic crisis that is also a moment of political crisis. You have fascism on the rise, communism on the rise, all sorts of radical political movements proliferating.

And Friedman was immediately immersed in these questions. And the question basically of, could capitalism survive? Could liberal democracy survive? What was its future? What, if anything, needed to change in order to make these ideas basically viable in a very changing world? And so Friedman's most influential teachers were those who consider themselves classical liberals.

Men like Henry Simons and Frank Knight, pictured here. Both of these men valued individual freedom, limited government, and what they called the price system's role in allocation. They wanted to preserve these things, but they felt that classical liberalism was on the defensive. Simply put, voters weren't buying what they were selling.

How could it be reformulated or readjusted? Both of these men also believed strongly that the federal government had a role to play in the economic crisis of the times. And so, I was initially surprised to find this out. It had maybe a caricature of the Chicago school in mind.

But Friedman's professors felt there was an immediate place for relief spending in these early years of the Great Depression. So they were all thinking about this basic question. How do we safeguard free markets and ensure broad prosperity? How do we hold tight to some of our political ideals?

Yet, how do we modify laissez-faire capitalism in ways that make it viable in an age of an expanded state and an age of economic crisis? Though there were basically two Chicago responses to the Great Depression. One, a very formal response, was what became known as the Chicago Plan.

And I found in the archives just version after version of the Chicago Plan, which was a memo crafted by all of Friedman's professors and sent by them to the Roosevelt administration, calling for two things. First, emergency relief spending and there were a couple different telegrams, first, on emergency relief.

And then the Chicago Plan was actually a radical redesign of the American banking system that really would have changed it root and branch. And I would say about 80% of the Chicago Plan went into the Banking Act of 1935. So they were calling for the very architecture of banking reform that, in fact, happened in the United States.

There was also a Chicago response to the Great Depression, which was less formalized and more inchoate, which was a worry about inequality generated in capitalist systems. And a worry that this inequality was sort of, as Henry Simons put it, quote, unlovely unto itself, but that it was also bad for social stability.

That if you had an economic system that was continually generating a large gap across society, or large gaps, that this would ultimately lead to its endangerment. And this, in fact, was maybe what was happening at that current moment. So both of these became really important themes for Milton Friedman.

The focus on banking and money and financial institutions really comes right out of the Chicago response to the Great Depression. And the Chicago understanding of the Great Depression as deeply linked to the monetary situation. And there was also this effort, you see throughout Friedman's career, to think about how do we balance the dynamism of capitalism against the social inequalities it may generate?

How do we find this balance? How do we reconcile these tensions? So I've talked about his teachers, but arguably more important than his teachers were what I call the Room 7 gang.

>> Jennifer Burns: Yes, you missed the point when I said this was a history talk, not an economics talk.

So I will ask you to hold your comment. Do you mind?

>> Speaker 2: Well, it's about Simons in particular?

>> Jennifer Burns: Okay, brief interlude about Simons.

>> Speaker 2: Okay, so part of his plan was general revenue sharing of the federal government of states. So in his thinking, that heavily influenced Milton, decentralization was really important.

Federal spending and summer lease spending, but also aid to the states with few strings attached.

>> Jennifer Burns: So Simons, I would say, was really one of the major inspirations to the Room 7 gang. I went to Chicago, I poked around, I could not find Room 7. So I have a photograph of what it may have looked like.

This is actually room four, but it might have been Room 7 because the door number is quite bright. But so what was Room 7? It was in the basement of the social sciences building. And it was a place that was commandeered by Milton Friedman, George Stigler, Aaron Director, Henry Simons, and even, believe it or not, Paul Samuelson was there for a while.

And this became really a second curriculum for Friedman, a really tight knit student group, a sort of thick student culture. And these bonds lasted their whole life. Here is at least a segment of Room 7 attending the first meeting of the Mont Pelerin Society in 1947. So Friedman came out of Chicago with some skepticism of the New Deal as it evolved and a strong interest in the monetary dimensions of the Great Depression.

And this was both something he learned from his teachers and things that became very influential in his student culture. That really was not just a student culture, it was the beginning of his sort of lifelong peer group. So how do I know this? Well, I feel the best guide to understanding Friedman's thought, especially in this early years, is archival resources found here in the Hoover archives.

And I'm talking about things like letters and notes that show his thinking, his private thoughts and ideas. Not what he's publishing, but they augur important themes in what he does publish. So here's a phrase I found in a letter that Aaron Director actually wrote in 1941. This was a memo that Aaron Director wrote.

Quote, inflation is basically a monetary phenomenon. Hmm, that sounds familiar. Friedman went on to call this memo the quote, only halfway decent analysis I have seen of what is happening in the wartime economy. Here's his teaching notes from 1940 and 1941, when he briefly taught at Wisconsin. And these were recorded by a student.

And they're in fragmentary phrasing, but then there's some notes in Friedman's hand on the side. So we know the student recorded these. He showed them to Friedman, they made their way into the archive. And here's some statements that were recorded. Quote, public works had adverse effects on price structure, hence no private investment.

To the 1937 recession, quote, we could argue that government intervention made for lack of recovery, end quote. With regard to the 1937 recession being caused by a withdrawal of government spending, quote, government spending argument not convincing. In a letter to Arthur Burns around the same time, he done his first trip out to the West Coast.

Quote, the whole west, particularly California, and more particularly Southern California, gives you the feeling that the frontier is not yet gone. And makes you feel like telling the stagnationites to come out and take a look. Now, this is a pretty unambiguous reference to Alvin Hansen. The idea that we had reached the ending of the frontier, which, of course, goes back to Frederick Jackson Turner's famous 1892 paper.

And it's taken up again by Hanson and others who argue, we the frontier is closed. We are now entering a state of secular stagnation, and we need the federal government to go beyond this, right? And so you see here Friedman, in his private correspondence, writing to his closest friends and colleagues, saying, I don't buy this idea.

I don't think it's true. So, I don't want to say there aren't changes in Friedman's thought, because there are, and I do track them in the book. But there's not a revolution in his basic intellectual or political orientation. What I really show in the book is that these are set very early.

And here he is at Milton and Rose in 1935. Here we go. I wanna talk now about my second theme, which is the role of women in his life and work. And as my research progressed, I just became more and more convinced that this is a secret of his success.

This is not just boosterism. It actually comes from the fact that all of his major works, a monetary history of the United States, capitalism and freedom, a theory of the consumption function, all of these either had a co-author or major collaborators who were women. So one of these was Rose, who was listed as a contributor to capitalism and freedom, and later a co-author on Free to Choose.

Another was Anna Schwartz. Now, as I've been describing, we know that in the 1940s, Friedman had the basic idea. He didn't say inflation is always an everywhere a monetary phenomenon, but he was certainly sympathetic to this idea, which would really become this sort of founding idea of monetarism.

So he didn't yet, though, have the evidence to really carry this argument forward. And he would make testing this hunch the sort of major goal of his career. And the person who did most of this testing was Anna Schwartz. So Schwartz was a brilliant woman who was sidelined by the sexism of her fellow economists.

And Friedman was really one of the few who recognized her capacity and was thus able to benefit from it. So I described their partnership in some detail. Schwartz came to Friedman, it was sort of an arrangement brokered by Arthur Burns, the head of the National Bureau of Economic Research.

And Schwartz was already an expert on British monetary history and the British economy. So she really had strong historical background that Freeman did not, and together they started piecing together a story. And this story was sort of the story of money in the United States. And they were inspired by the quantity theory of money.

They wanted to pay attention to the actual quantity of money in the US economy at various historical points. So this was deeply empirical work. Here's just one example of many that I found in the archive here. If you see at the top of this document, it says vault cash, this is in Schwartz's hand.

And his sub columns are different types of banks or financial institutions. And she's adding up the figures, she's literally adding up the figures, and so this was just a prodigious amount of work. The type of data that economists today get in a few keystrokes literally had to be put together basically by Anna Schwartz.

She did the day-to-day work, Friedman was busy as a tenured professor. They had letters back and forth, and they did this work together for more than a decade. And it's very important to note this happens at a time when very few economists are doing this type of work.

This is deeply empirical work. We could even say old-fashioned, where most economists' action is in econometrics, general equilibrium models, ever more sophisticated mathematical analyses. And Friedman and Schwartz are basically digging away here in what looks like a backwater.

>> John Taylor: What years are you speaking of here?

>> Jennifer Burns: Their partnership started in 1948, and the book is published in 1963.

So that is a pretty long time. It comes out in 1963. And I'll just briefly summarize the fundamental argument really at the centerpiece of this book is the Great Depression. Friedman has gone back to that foundational moment of economic crisis and when he started his studies. And Friedman and Schwartz are able to document a 30% drop in the stock of money at a critical moment in the Great Depression, which they call the Great Contraction.

So we go from those columns of vault cash, eventually those come out into a graph like this. And so the argument is really that the Great Depression is a monetary phenomenon. Now, at the same time, though Friedman and Schwartz clearly understood this was also an intellectual and political and institutional phenomenon.

After all, they argued, the Federal Reserve could and should have prevented this deflation. The Federal Reserve was the lender of last resort. That should have helped all those failing banks and would have kept money in the system, as they argue, sort of kept things from getting so bad.

And the reason why it didn't has something to do with economics, but it has a lot more to do with personality and institutions and how the federal system is set up. Federal reserve system is set up at that moment. So historical research helps us see how this breakthrough was made, both in terms of the columns of vault cash.

And biography also gives us insight into why Freedman was such a great economist. And it was in large part because he took people like Anna Schwartz seriously. He simply didn't have a large blind spot that many other economists of his day did. And Rose Friedman and Anna Schwartz are only the most obvious cases in my book.

I talk about others, and I was not able to find a picture of Dorothy Brady, who was a close friend of both Rose and Milton. Here she is writing to Friedman in 1948, quote, fundamentally, the only real test of a theory is in reasonably accurate prediction, and this experiment did not lead to a formula that could be used for prediction.

So this is in 1948. This same argument would be made by Friedman in his 1953 essay on a prediction in economics. So this correspondence not only contains the germ of that idea, but this correspondence became essential to the theory of the consumption function. And the work of Dorothy Brady, Margaret Reid, and Rose Friedman were essential to it.

Now, the story is hinted at in Friedman's introduction to A Theory of the Consumption Function, when Friedman says, we had these great summer conversations with these different economists, and eventually the ideas came out. And he's as generous as he really can be at the time by saying, this is a, quote, joint product.

My hand just held the pen. What he doesn't say, and what I discovered in my research, is that he was trying to get Dorothy Brady and Margaret Reid hired at the University of Chicago. And this was part of his long running battle with the Cowles Commission, which I also discuss at some length.

So Cowles Commission economists were focused on econometrics. They were pioneers in designing large-scale general equilibrium models. They were all politically to the left, and Friedman couldn't stand them, and he wanted them out of Chicago. And so he basically hazed them for many years on end until they left.

And as part of this process, he tried to get Reed and Brady hired cuz they were doing the type of economic work that he wanted to see done. And so he wrote up these ideas that had been discussed into a memo. That went to his department to say, you should hire these women.

And then this sort of ball got rolling and it would eventually result in this manuscript and the book. So these are the stories that you don't know if you haven't dug around in the archives and found this memo and been like, why is this memo here? What is this memo doing?

And sort of pieced together the broader context in which this makes sense for Friedman to advocate. And incidentally, Margaret Reid was hired at the University of Chicago. She worked there for many years and sort of a legend among students there. She continued to be active as an emeritus well into her 90s.

Dorothy Brady came briefly to Chicago and then took a position at the University of Pennsylvania, where she moved into economic history and was also very beloved by her students in that field. So, okay, when we do this type of historical research, we know a little bit more about where these ideas came from.

The other thing that generally isn't said or noticed is that Freedman's immersion in consumption economics was extremely rare, even singular, for an economist of his day. Simply put, consumption economics was women's work. This adding up, this figuring out what families did, what they bought, when and why, he paid attention to this type of work, and he reaped the benefits of it.

When I try to step back and think, what is the reason for Friedman being able to have this comparative advantage? We might say that his peers did not. One thing I think is really important is that the University of Chicago had a tradition of keeping a woman on the economics faculty, and especially at mid century, it was pretty much the only major university.

So Berkeley had women in the 20s, and it had them again in the late 60s, but it had none in mid century. And Harvard didn't have any until, I think Claudia Goldin maybe was the first to attain tenure there. So I would say Friedman was, pretty much, aside from his peers in the University of Chicago program, one of the few economists who had actually seen a woman as a professor.

And that may simply have opened his mind to have a perspective on them as potential intellectual equals or partners or collaborators. So more in the book, but that's just the kind of overall on that. And then I wanna talk a little bit about his impact beyond economics. And I do spend a lot of time in this book on the economics profession, which was not necessarily what I had planned or thought I would do, but I got really, really interested in it.

And there's lots of nuggets about the history of economics that I uncovered. I have a letter from Wesley Mitchell kind of laying out his very profound doubts about Friedman. I have the details on the battle against the Cowles Commission, which is depicted in a very lighthearted manner in Friedman's memoir.

I'll just say at least one person in this episode had a mental breakdown during it. And I give voice to the frustration and anger many other economists felt with Friedman. And in some ways, particularly in the 1960s, it was because there was a great desire for unanimity in the field of economics and a great belief that if we all agreed on everything we'd be unstoppable, right?

We'd roll up to DC and tell them what they should do. And pretty much everyone did agree upon everything, except there was this one guy, Friedman, poking his head up and saying, no, they've got it all wrong. Don't listen to them. And so people became very frustrated with him.

So here's Paul Samuelson in Congress testifying on the same day as Friedman. And here's what he has to say about the quantity theory, quote, almost completely fallacious, quote, mystical view, quote, sophomore fallacy, quote, fabricated concept. Okay, Paul, tell us how you really feel. And so Friedman did not have the respect or the affection of his peers, I would say, eventually he got their respect.

It was still kind of a losing battle for their affection, I would say. But Friedman had an impact beyond economics, on policymakers, on politicians. Barry Goldwater was among the first that Friedman knew, Friedman actually courted him. He saw in Goldwater potentially kindred spirit. And Goldwater's campaign increased Friedman's fame because Friedman had a sort of informal role.

But he was largely, the two were linked In the Media, and that became one of Friedman's first steps into a broader public world. Richard Nixon courted Friedman's blessing, he really cared what Friedman thought about him and what Friedman said. That didn't mean he listened to him at all but he nonetheless wanted to be on his good side.

The real vector of influence in the Nixon administration was George Shultz and here's a picture of all of them together. And I talk about this in some detail, particularly how closely they work together during the ending of Bretton woods. And in Schulz's account, he was sort of laundering ideas that Friedman presented up into the treasury and kind of hiding Friedman's influence.

And it's interesting if you compare Paul Volcker's account of what happened and George Schultz's account of what happened and try to figure out who was really kind of driving the bus here. It's a little bit unclear, but Schultz certainly portrayed him and Friedman as having kind of a master plan to move towards floating exchange rates.

And so all of these made Friedman immensely important. This is another New York Times magazine where you see Friedman has sort of taken over the globe, right? So testimony to his wide ranging influence. And I also discovered that really, Schultz and Friedman grew particularly close during Friedman's conflict with Arthur Burns, shown here in a down moment.

Now, Friedman's differences with Burns are well known. What's interesting, though, is they first emerged not really over the money supply or over the technical details of the inflation fight, but over what was called incomes policy. So Friedman had met Burns in Rutgers, just to back up a little bit, he called him his father figure.

He really venerated Burns like no one else, Friedman had lost his father at a young age. And when he came to Rutgers, he really identified with Burns, in part because Burns was a very accomplished and admirable figure. In part because Burns, like him, was from a Jewish immigrant family and had achieved the type of success that Friedman could only hope for at that point.

So Burns was appointed to the chair of the Federal Reserve in January 1970, and it was widely interpreted as a victory for Friedman. This is why you have that Time Magazine cover, the weird head globe thing, and everybody said, the Fed is now gonna say that money matters.

And that's not what happened. Now, at first, everything seemed great. Burns seemed to be kind of shaking things up and making the Fed more professional and more academic and Friedman's really happy about all that. And then comes the bombshell, Arthur Burns comes out in support of incomes policy.

Incomes policy is wage and price guidelines to fight inflation and incomes policy is a Democratic party idea. It's not associated with Republicans at all and it is a complete shock for Friedman that Burns would support this policy. And so I found these incredible letters in the archive. So basically, Friedman reads this in the newspaper.

He's really upset, he tries to go to sleep, he can't sleep. He wakes up in the middle of the night and he scrawls out this anguished letter to Arthur Burns, including the memorable line, quote, never in my wildest dreams did I believe this Central Bank virus was so potent that it could corrupt even you in so short a time.

 

>> John Taylor: Are we talking about August 15th here, or-

>> Jennifer Burns: I'm sorry, I did not record the exact date of that letter, there are many.

>> John Taylor: I mean, the August 15th, 1971 speech.

>> Jennifer Burns: It's in West Virginia. No, this is the speech because the speech is widely reported in the newspaper.

Yeah, so basically Freeman opens, I don't know, the Chicago Tribune. He didn't read the New York Times. And it's a headline everywhere, and he's like, what?

>> Speaker 4: I watched this, anyway.

>> Jennifer Burns: You were there. That's great.

>> Speaker 4: On television.

>> Jennifer Burns: Okay, I didn't know it was televised. So and anyway, it's a big moment.

And I delve into kind of how that relationship unfolds and unravels. Friedman predicted in that first letter, rightly, that Burns would go from incomes policy to wage and price controls. And then he was just profoundly disappointed by Burns' erratic monetary policy. He would send him letters saying things like, what in God's name is happening?

And then Friedman was also running his own number. So he'd be, well, here's my m1 and m2 figures. I don't care what you guys say, here's what I see, right? He's still got that capacity to do that research. So it goes on and on. And Burns' monetary policy is part of and perhaps one of the major factors in the Great Inflation.

It tells us something really important, though, both about Friedman the person and Friedman's place in economics and in the broader policy world at that time. First of all, that this is such a profound break in the relationship. And Friedman's very clear from the beginning that he's not going to give Burns any type of special favoritism.

That the things Burns is doing, he would have criticized him were he anyone else, and he's not gonna be able to hold back either. And he sort of warns Burns, he says, look, I'm gonna have to hammer you. There's no other way. So his integrity is more important to him than this lifelong relationship.

And then it also reminds us how out of the mainstream Friedman's ideas were at that moment in the early 1970s and how in the mainstream they are now. So around this time, Burns can credibly claim, as he's explaining his advocacy of wage and price controls, quote, monetary policy, I feel has done its job fully.

A chairman of the Fed simply passes a buck and said, I can't do anything more about inflation. Someone else has to do it. So that incomes policy, wage and price controls were broadly accepted really tells us something about the moment. Now, I don't wanna say that Friedman was the only dissenter.

It was pretty unanimous among economists that this was just sort of kicking the can down the road and wasn't going to really work in the long term. But the experience of the 1970s really shifted many people towards his perspective. They saw that price controls didn't work as he had predicted.

They saw inflation had something to do with the Federal Reserve, and they opened their minds to his ideas and became more receptive to his larger theoretical analysis. So in my book, I talk about other political leaders Friedman met with and show how his ideas spread more globally. I have a chapter on Margaret Thatcher.

I have a chapter on his connections to Chile. And in an epilogue I try to take it up as best I can to our present moment and try to point out Friedman's continued relevancy for policy. So this is obviously a hot topic and one that's really not too settled at the moment.

I'll just say that this last epilogue is called helicopter drop and it includes this graph. So I know you're all wondering about the title. Let me close out with the question I know you wanna ask, which is, why am I calling him the last conservative? And I myself have mixed feelings about the title.

In some ways, I actually think it cuts against the grain of one of the major arguments I'm making, which is that Friedman is not just important to conservatives and he's not just a conservative economist. In some ways, Friedman's ideas about the importance of markets, about the centrality of monetary policy, really came to define the political center for a time in the United States.

The Democratic Party became more market-friendly in ways that I think reflect this broader intellectual shift of which Friedman was part. And a lot of people have noted these comments that Joe Biden made more recently about Friedman and his influence. And these really have to do with inter-Democratic Party dynamics in that they bespeak a shift from a more market-friendly Democratic Party to the rising progressive wing.

So I think that really says a lot that Friedman is perhaps subject to more debate in the Democratic Party and on the left and on the right. So beyond that, though, beyond the feeling that, okay, maybe I'm selling Friedman short with this title, I do think there are two reasons that it fits.

And one is what I've tried to convey in this talk, which is that, if a conservative is one who seeks to conserve, that really fits Friedman, the economist. He went to more traditional ideas, like the quantity theory of money that his peers thought were fallacious and sophomoric. He, with Anna Schwartz, preserved this empirical tradition of building theories out of very fine-grained observations of the real world.

And so he conserved economic traditions and economic approaches that really otherwise would have been cast aside. And the second reason I call him conservative is because of his political alliances. He was consistently connected to politicians and to political movements that called themselves conservative. And American conservatism contains multitudes.

Friedman is not synonymous with all of its dimensions, but he also didn't associate himself from it. So in terms of the last, this is really a gesture to shifts in the contemporary conservative movement, which has an influential trend towards a new suspicion of markets, a new embrace of nationalism, a new reluctance to engage in the world.

Like all of you, I don't really know where all of this goes, but I do know that one way to see ahead is to look back. And I hope that this portrait of Friedman provides a way to do that. I'd be happy to take your questions, whether in person or on the zoom.

Thanks so much.

>> Speaker 5: I wanted to ask what he thought about Hoover and what role that played for him? What he thought about Hoover, and I sorry to throw two in. I think of him as a consensus builder because having written about the all volunteer force that he championed, that committee, the commission that he, I think led, was split really harshly.

And by the end, they made a unanimous recommendation to have an all volunteer force because of his abilities to foster that. So insights on those two.

>> Jennifer Burns: Yeah, for sure. So the first question was Friedman's time at Hoover, and I touched on this a little bit, although I would say I'm really interested more in the historical Friedman, the kind of early parts of his career.

I think it was a wonderful landing spot. Who was telling me it was basically a bargain between he and Rose. She said, at a certain point, we have to move to California. When it's time for you to retire, we have to move to California, I'm not gonna grow old in Chicago.

She was sick of Chicago. So that's maybe a bit flippant. But also, his brother in law, Aaron director, who was very important to both he and Rose, had come out earlier. Aaron Director was one of Glenn Campbell's first hires. And I have to think, although I have no documentation for this, that Campbell was probably thinking ten years ahead and thinking, if I hire Aaron director, I'm gonna be in a pretty good position to hire Milton Friedman down the road.

And so I know he just tremendously enjoyed his time here, although he lived in San Francisco and came down for events. Your second question was Friedman as consensus builder, and I think you're absolutely right. So you talk about the volunteer army. I also talk about what's called sometimes the Coase conversion evening, which was when Ronald Coase, a preeminent scholar of law and economics, came to Chicago.

And he was invited because they decided he was all wrong, and he'd written this wrong headed paper. And he arrived, 20 economists at dinner. The first person he convinced was Friedman. And then Friedman just went down the row by the end of the evening, had convinced all the other 20 economists that Coase was right, and it kind of took off from there.

So yeah, he incredibly persuasive arguer. I do think the other thing that really struck me in my research, and partly this was because my last book was on Ayn Rand, who could not compromise at all. Was that Friedman was both, like a purist and really knew what he believed and thought that was right and also able to compromise and say, a half loaf is better than none at all.

And so he had a kind of persuasive power, a genial personality, and a temperament that was willing to be incremental. And that all made him very effective.

>> John Cochrane: Let me make a couple comments, I'll try to be short. First, you mentioned the Chicago plan as 80% of what actually passed.

My impression was the Chicago plan was the radical alternative that no one's ever looked at cuz the centerpiece was narrow banking as opposed to deposit insurance. And that I always regarded that as the original sin that led us to where we are. You have mentioned who first said inflation is always in every way money.

I think of the founding influence here as being Irving Fisher. And I recommend a 1914 American Economic Review, which has the most beautiful graph any economics paper ever published on the quantity theory. And that seems like a central place to start consumption. I think you're selling Friedman a little short.

He did not find from the household economists, consumption's important, and write a paper about consumption. Why that book was important is because the consumption function was the beating heart of Keynesian economics ISOM. And the point of his consumption theory was to drive a stake through that heart, which I don't think the household economists knew.

So I think they may have had the answer, but he had the question and that's really why that was so important.

>> Jennifer Burns: Okay, do I get to get a word in or we have one more.

>> John Cochrane: I got very short ones cuz I wanna advertise your book to our colleagues.

I read this whole book and love it. And one thing you will get at is how very different personal and professional lives of economists were back then. Friedman went to graduate school, nobody in his class got a job. One, Stigler got a job at the University of Iowa.

And everyone thought he's the big star. Friedman ethical work in the government for 15 years. Then when he finally got a job, it was an adjunct lecturer at Wisconsin. Every thought this was the most wonderful job in the world. And he didn't really have to publish a lot of papers.

It was all this verbal tradition. So read the book and appreciate how much are things. And the last thing I'm gonna say is, I do have to object to the title, even though you apologize a little bit. He's not the last, and he was not a conservative, and particularly last.

That was all wrong. He did not call himself a conservative. He called himself a classical liberal. And he said, people ask, why aren't you part of the libertarian party? Well, they're not gonna get anywhere.

>> John Cochrane: I think my best home is with the Republicans right now. But he's not a social conservative.

And his economics was really radical in its new thing. So he wasn't the last, he wasn't a conservative. I told you this before. I'm sorry you didn't get a chance or inspiration to change the title.

>> Jennifer Burns: Yeah, thanks, John. I'm not gonna take all those, but I'll just push back on the consumption piece.

So the real early origin of that is, sorry, Rose Friedman and Dorothy Brady's paper, which is on the consumption function and which is recognized as the kind of first alternative theory to the consumption function. And it comes out just before James Duesenberry publishes. James Tobin's aware of it, people know it's out there.

And so from the beginning, it has that germ of pushing against this Keynesian centrality. And so yes, that's there from the beginning.

>> John Cochrane: So they knew.

>> Jennifer Burns: Yeah, yeah, they knew, yeah. Yes, they knew these were very high stakes indeed. And so I kind of dig into that in the book.

And then the Chicago plan, you're right. I mean, they would have done away with fractional reserve banking, and that didn't happen. But it basically said, go off the gold standard, insure deposits, a lot of the big structural things that were done. There are books on the Chicago plan, it's unclear.

I think a lot of people had the same set of ideas. So it's hard to say Chicago carried the day. But it was very interesting to me that Chicago's ideas, again, were very much in the mainstream and in the policy mix at that moment.

>> Robert Hall: So I'd like to defend Paul Samuelson.

It's true that there was a major disagreement that's reflected in that testimony. But I was trained at MIT in 1964 to 1967, and Paul Samuelson was a member of my thesis committee. And much of the paper dealt with consumption, and therefore, necessarily with Friedman's predominant position. Nobody at MIT told me that I was hostile to Friedman's work.

It was deeply respected at MIT. In the mid 60s, I got a job offer. Back in the days when job offers were plentiful from Chicago, I did not accept it, maybe made a mistake, but nobody at MIT said, no, MIT person doesn't go to Chicago. That's alien territory.

It was, well, there are plenty of good people that we respect at Chicago. So this idea that there was sort of MIT and Yale and Harvard on one side and Chicago on another side, to the exterior, it seemed that way, but it was certainly not the exposure that I had.

So I disagree with this.

>> Jennifer Burns: Yeah, thank you for that. I'll just say that 64 to 67 is quite different than, say, 54 to 57. And things do change after the 57 book and after the 63 book. But there is really no love lost between Samuelson and Friedman.

They make nice, but there's still friction there. But yes, the change over time aspect is very important, and we tend to come to Friedman And in our moment, or in the moment, he's on YouTube, and there is things, things do shift over time. But thank you for sharing that.

Did we have another question here? Yes.

>> John Taylor: I wanna go back to your remarks about Friedman's openness to the insights and contributions of women which distinguished him from many of his male colleagues in the day. I agree that's a really important issue or observation, and it's really important to ask why.

I found your explanation unconvincing, at least incomplete. So if that were really the case, that it's because Chicago had a tradition of having a woman on the faculty, and I would have expected to see you present some evidence that Chicago male economists in general were more open to the contributions of women.

If there is such evidence, it'd be good to put that on the table. So I don't know what the explanation is. I'd like to know, but it seems to me that at least an equally plausible hypothesis is he was married to Rose, who by all accounts was an extraordinary intellect who had a profound influence on him.

So how could he escape in his daily life that women could be quite insightful in his chosen professional domain? Again, beyond the kinda casual observations, I don't have more evidence for that hypothesis. But it seems to me, on the surface at least, to be more plausible than the one you advanced.

 

>> Jennifer Burns: Well, it's not the only explanation. But going back to Rose, she was also an economic student in the 1930s, which, again, was very rare and distinctive of Chicago and other places. There are other economists married to other female economists. I would say, though, again, Margaret Reid is his professional colleague who could be hired, right?

Which provides the impetus to take this from an idea we talk about in the summer home to an actual publication, right? Because he's trying to advance her career and create the world that he wants, which is not an option, if you would. Harvard, it's not gonna work to try to get Margaret Reid hired, right?

Incidentally, she had half appointment in home economics and half in economics. So I do think there's an institutional explanation. There's also a personal explanation. I don't know if it has to do so much with Rose as with Friedman's just kind of living a life powered fully by ideas, in which sometimes the ideas could rise to the fore and the other stuff could fall away, whereas, I mean, I talk about it in some detail.

The treatment of Anna Schwartz is just truly scandalous. And the Columbia faculty will not give her a doctorate, basically, until a monetary history is published. And Friedman has to sort of force them to give her a doctorate. But they have this sort of evidence in front of them of what she's done, and they cannot recognize it.

And so I think there is a way in which it didn't seem so scandalous for him to recognize Schwartz. So we'll never really know. But those are some of the reasons I saw. Yeah, Mike.

>> Speaker 8: Yeah, thank you. Thanks very much for this presentation. I look forward to seeing the book.

I just wondered if you could say a little bit more about his involvement in Bretton woods. And I also just wanted to mention, I'm sure you're aware, but he wrote a piece called why Europe Can't Afford the Euro in 1998 about why they shouldn't go ahead. That was extremely prescient.

I'm in the foreign exchange market, so. But, yeah.

>> Jennifer Burns: Yeah, sure. So when Bretton woods is kind of in its last days, Friedman has a pipeline into the Nixon administration through Schultz. And one of the first memos he sends to Nixon is, you need to basically move off a gold parity.

You need to just do this right away. Let's move to floating exchange rates. He basically, it's the balance of payments. He calls the balance of payments a running sore that's going to erupt, and you ought to lance the boil now and get it over with. And so Nixon kinda doesn't, ignores him.

And then we have Connelly and the move to closing the gold window. And then Friedman comes in again. And so his role is really memos and updates to George Shultz, who then kind of maneuvers them into Nixon's view or brings them into the treasury. And then when Schultz is in charge of the treasury, there's much more open line.

And so I think his paper on floating exchange rates, I mean, someone here will know, I think it's 56. It's a very, very long time ago. And what I basically say in the book, it's much before Bretton woods unfolds. It's not that he's the only person who sees this system can't last.

Many people see it can't last. He's one of the few to say it's great that it can't last. So we're gonna break on through to the other side, and it's gonna be a better world. And here's what that world should look like. A lot of the other responses are sort of, how can we patch this together?

How can we Jerry rig it. How can we build something that will do pretty much the same thing but be different? And so I think Friedman has that kind of radical vision that's very much in line also with his thinking in general. I didn't emphasize it too much here, but what I try to really convey to maybe a non-economics audience is his focus on prices as both allocators and as sort of structuring policy is really innovative.

Exchange rates should be, currency should be priced in a free market. Basically, it's the global extension of his basic visitor autumn for prices to structure markets without too much intervention. So yeah, I kind of follow that off and on, and I am aware of some of his comments on the euro, but I don't think that's really a major theme in the book.

But thank you for your question.

>> Michael Boskin: Can I quickly follow up on that one, John? I was kinda interrupted last time, so let me just make a few comments and observations, some of which complement yours and Bob's. But I have a lot of personal remembrances of Milton. I'm sure many of you do.

I've had many interactions with him, starting with him writing a seven page handwritten note to me, congratulating me, in my undergraduate honors thesis, which I foolishly never kept. But I sent it from Vermont, which was very generous, was on the negative income tax, and that was obviously an idea of his and Jim Tobin's separately.

I do wanna say that there are some things you didn't mention. I'll ask you to if you wanna comment on. You didn't mention Ronald Reagan and the influence that Friedman had on at least some people in the Reagan administration in general, free market ideas. You didn't mention his column with Paul Samuelson, the dueling columns in Newsweek, which was very important as a public intellectual in spreading these debates and ideas.

Maybe you have mentioned in your book, but maybe you didn't have time. I just wanna mention a few. Arthur Burns was not my favorite Fed chairman, but he did at least rail against deficit spending in the middle of a raging inflation, which has not always been his predecessor successors of modus operandi.

I wanna second what John said about Irving Fisher, who, picking up on something Bob said, was a really revered figure at Yale. So if you're talking about this access of Keynesian stuff, Irving was. And actually his work in this area was what led him to generate superlative index numbers.

He actually said that in 1920 that if people would start using geometric averages rather than arithmetic averages, it would make his entire life's work worthwhile, but it grew out of the work that John is mentioning. Then there are a few other observations about his methodological work. You didn't have time to mention his essays on essay on positive economics, which was extremely influential, at least to my generation.

Pardon.

>> John Taylor: Excessively, well, maybe, maybe.

>> Michael Boskin: But one of the things that he always seemed to me was somebody who did empirical work informed by theory. Now you can argue what the balance is, which the chicken came with the egg. You derive predictions, they didn't work, you change your theory.

Einstein did saw the mistaken the place of mercury by a quarter of a degree or something. But it seems to me that that is something that has always been kind of a to and fro in the economics profession. And while perhaps Coles was kind of weighted to one side, stayed that way.

A lot of Nobel prizes came out of that by the way, that's something that I think has kind of gotten a renewed emphasis in economics in the last 20 years or so. Also, picking up on what Bob had to say at MIT before the theory of the consumption function, which is basically long run averages, permanent income and all this sort of stuff.

Franco Manliani had a paper with Brumberg on basically lifecycle, which was kind of related conceptually. So it's not like these ideas were totally independent, not intertwined, not bouncing off of each other. And then I had one other thing. Yeah, I also personally, I found Milton an extremely generous person and also an extremely personally egalitarian person.

 

>> Robert Hall: Yes.

>> Michael Boskin: He would just as soon argue about the minimum wage with a janitor as with a CEO or with his fellow economists.

>> Robert Hall: And at any conference, he would always put his tag on. He insisted on being anonymous, as if he was just a stranger. It was very, very remarkable.

Women, just egalitarianism, but they're people.

>> Michael Boskin: Struck me, actually, just real quickly. My final observation is, one of my first administrative assignments when I came to Stanford as a young assistant professor. Was to organized what was called the all department seminar, which existed for a while, fell into abeyance.

Unfortunately, it's been kind of reestablished in recent years. We're having it soon. And Bob actually been heavily involved in picking the speakers, etc. And so I invited Friedman and Samuelson out. And as somebody who was very impressionable, 24, 25-year-old. Their personal interactions were quite different than the public notion of liberals in favor of the little guy and conservatives, or these harsh, tough, loved people, etc.

They're both obviously immensely impressive people. But just FYI, I don't know if you saw that strain in the book, if you have that in there. But it just seems to me, to something that was maybe if I think of my homepage for Milton, when I think about him, it's one of the first things I think about.

 

>> Jennifer Burns: Yeah, thank you. I'll just say I think John is right and goes back to your question, that this ability to just kind of take people in front of him for who they were without the status trappings. I think is probably a large part of why he was able to work with Schwartz and the others.

And I will say that Modigliani actually does talk about Margaret Reid's paper and is aware of that work. To Fisher, Fisher actually works with Simons, Henry Simons and Fisher kind of working hand in glove on some of these reforms. And Friedman will mention him and say the Irving Fisher.

I think he actually, when queried who is the greatest economist, I think he says Irving Fisher, but he's not sort of presence in his biography in a great deal. But yes, I do talk about Reagan and Newsweek and all of those, the kind of greatest hits are definitely in there.

So for sure.

>> Michael Boskin: I look forward to reading it.

>> Kenneth Judd: Yeah, first comment you make, it sounded like he was competing against economists doing, as you say, large scale general models at the same time. But 50s, there was none of that going on. The first large scale general model that I, anything anybody knows of was by Leif Johansson in his 1960 book and PhD thesis, which of course, no American certainly was aware of at the time.

It was in Norway. So that wasn't the nature of most economics at that time. Now, I don't know how much you talk, I took a look at your index. I know how much you talked about this, but he did. He was the lead man in terms of arguing for tax withholding, income tax withholding.

Now, I always wondered, okay, was he just like a lawyer? His boss told him to advocate for this, go to Congress, testify for this, what, income tax withhold him. 1942.

>> John Taylor: He's working for treasury.

>> Kenneth Judd: Yeah, because basically we realized that after accepting the German and Japanese invasion to Japanese invitations to World War II, we didn't have a tax system that would finance it.

And so he had to raise taxes. And then they're just worried about, well, you think people are gonna save money to pay taxes next year for taxes on income this year? So then we had to have income tax withholding. I always wondered, now when he advocated that, and you talk about how he did some research behind it.

Was he just doing a good job as an advocate or did he believe it that if you actually don't take it out of their pockets today, they aren't gonna save up for it and have the cash on hand next year now. So I did a little reading about this and afterwards.

So he believed the argument. Now, I don't know if you talk about this at all but in the 50s, he says tax withholding was awful because it meant that you could raise a lot more revenues. So I regard him as one of the first behavioral economists because the whole business about how people don't properly plan for the future, etc, which is a theme in behavioral economics.

This is an argument he made to Congress and that he believed.

>> Robert Hall: Permanent income.

>> Kenneth Judd: Which contradicts permanent income hypothesis.

>> Jennifer Burns: Yeah, so-

>> Kenneth Judd: So the thing is, what I regard about Milton is that he was a pragmatic kind of guy. He was a common sense kind of guy.

He knew, he had some feeling about how far you could push theory, and he moderated his view. So he believed that tax withholding did, was necessary and did have an impact on total revenue. The other thing we talk about him being a conservative, he was an advocate for getting rid of the drug war.

Now that certainly isn't anything that anybody calls himself conservative would be for.

>> Jennifer Burns: Except for William F Buckley.

>> Kenneth Judd: Well, yeah.

>> Jennifer Burns: So can I answer some of the-

>> Kenneth Judd: Legalized drugs.

>> Jennifer Burns: So, and part of-

>> Kenneth Judd: But that's not what we call conservative today.

>> Jennifer Burns: Part of your question just dragged my memory on Michael's point and on the methodology, on the theory versus empirics.

That was at the nub of his dispute with the institutional economists and Wesley Mitchell's assessment. So you're right. It's a long running theme, and I do cover that in some detail. Okay, so the question about taxation is great, and it's kind of both. So on the one hand, he was just a technician doing his job and figuring out the most efficient way to do this.

And he played an important role in figuring out how it could be done, although it wasn't implemented till he left. On the other hand, he was a supporter of taxation in the wartime context to prevent inflation, which leads to this whole, he must have been a Keynesian. Well, what I argue is that the alternative to taxing was rationing and price controls.

And he said, right, but a more developed apparatus in the service of stopping wartime inflation. He said, actually, what would be better is to pull this money out of the economy by taxing, because that will prove that will be sort of monetary policy via fiscal means. So, yes, and also, the other thing is World War II for him is completely different emergency time.

It's like the first years of the Great Depression. So I don't think his thinking or decision making in the fight against the Nazis is a good proxy for, here's how we should run the economy in ordinary time. And he also did not see coming that taxes, once implemented on a mass scale, could just continually ratchet up.

And so at the end of his career, he's very interested in tax limitation. So yes, although I'm telling you how the major themes in Friedman's thought are set early, they definitely evolve in response to circumstance.

>> Robert Hall: He wrote a very influential paper while at the Treasury in 43 on taxing expenditure rather than income.

 

>> Jennifer Burns: Yeah, and I would just one more thing about the competition with Cowles, and Cowles was in the trend of a different type of approach to economics. And he literally stole their Rockefeller Grant. So it was about as pure a competition as competition could be.

>> John Taylor: Mickey has a question, Mickey?

 

>> Mickey Levy: Yes, Jennifer, at least the way you described it today, Friedman all of a sudden lashed out at Arthur Burns about income policies. But in fact, Burns in the late 1950s started indicating his preference for income policies. And then he certainly, when he was counselor to Nixon in 69 and 70, and then when he became chair, he just made it absolutely clear.

So I think Friedman I think their relationship was simmering and heading south. And then he lashed out at him more so from a political purpose that he was just so upset of Burns. But the difference in their economic philosophies, there was a wedge between for over a decade.

 

>> Jennifer Burns: Yeah, it's interesting. I definitely see that. I don't know that Friedman saw that. There's an interesting moment where he tells all his, I think Stigler's visiting in Columbia, or maybe he worked at Columbia, and he's, you gotta go see Arthur Burns talk. And so Stigler takes a bunch of people and they go and they write back, and they're kind of, it wasn't really that great of a talk.

They're trying to be polite. And then Burns won't review a monetary history. He won't read the manuscript, he won't comment on it. And he says, it's conflict of interest. And so I think Friedman doesn't see what everyone else sees because he worships Burns so much, and he thinks that they must agree because he admires Burns so much.

So as I read the relationship and the correspondence, this is a significant break that maybe a lot of other people see coming. And Burns, I don't think has the same depth of feeling for Friedman as Friedman has for Burns. And so it's a really interesting dynamic.

>> John Taylor: Go ahead.

 

>> John Cochrane: If I can have seconds. That's such a good line. I think you're exactly right on compromising views, which I think is an advantage, even monetarism itself. The anti-Keynesian view was sort of, it's a general equilibrium system. Don't worry, it'll work itself out, which had its real business cycles, took that on again.

But Friedman couldn't have done real business cycles. Technically, he couldn't, and it wouldn't have caught on. So what he came up with was really 90% of Keynesianism. We use monetary policy instead of fiscal policy. But still, the framework is basically all aggregate demand and just a slightly different set of levers.

Well, that was going to work at the time. And which is that's not really criticism, that's just a fact of how you'd be influential. The Cowles Commission fight, it's interesting. I don't think anyone at this table can say what the Cowles Commission was or what it did, which may be why the fight didn't resonate so much.

Let me ask you two questions. How did Friedman react? These are honest questions for once. How did Friedman react to the things where he turned out to be wrong? And what I have in mind there, exchange rates, he thought floating exchange rates. Did he have any idea how much exchange rates would vary once they become floating?

It seems like a great idea once they're pegged, and, they'll maybe up and down. The idea that exchange rates would change 10% a year. Did he have any comment? Wow, that's more than I thought. And the most obvious one is he argued for the money supply. The Fed tried it and it didn't work and went right back to interest rate targeting and the fall of the central tenet of monetarism.

Friedman was still around in the 1990s, and yet every central bank was pegging interest rates, and the idea of controlling the money supply just seemed to vanish. How did we react to that?

>> Jennifer Burns: So I don't actually know or cover in the book his kind of mea culpa on exchange rates.

He continued to think, as George Schultz said, that IMF and the World Bank should be folded up and go away, that these weren't-

>> John Cochrane: They've anticipated that it would be so volatile.

>> Jennifer Burns: Yeah, I don't recall a lot of commentary on that, although it may be out there, someone may correct me on that.

The money supply, for sure, he wrestled with that, and a couple things he said, I wouldn't push aggregates so much. I wouldn't push the money supply so much. In the beginning, when Volcker kind of tried to say it didn't work because of financial reform. Friedman said, that's balderdash.

And then later he does say in money mischief, I've come to appreciate the institutional structure really matters a lot for how aggregates play out. But then he does eventually figure out, you can reanalyze M2 and this relationship between M2 and inflation. He says it sort of goes away like the early 80s, and then it comes back.

So in some ways he decides that this central insight on M2 has been vindicated, although he definitely is humble in public. And I think he comes to see that. I mean, this is what I really talk about in the book. It's this tremendous irony. Monetarism is built for a certain type of world, a regulated world.

Inflation comes along, there's all types of deregulation. And suddenly it doesn't work anymore because you have money moving from checking to savings and interest rates go up and down. And so there are these big shifts in economic regimes. And Friedman doesn't appreciate that at the time. Even though he's done all this deep historical work, he still has this kind of timeless principles, orientation of sort of theory that always works.

But honestly, I had a narrative in my head when I began this book based on some other accounts I had read, that he became old and crotchety and fixed. And I think that's really not true. I think there was a moment of fame when he maybe was not as subtle in his discussions, as he could have been.

But I was really struck at the end of his life, he really said I was wrong about the process of globalization. He said, when the wall came down, I said, privatize, privatize, privatize. And he said, now I realize that's not enough. The rule of law is more fundamental.

And so these interviews from the last year of his life, he's like, well, I was wrong about this, wrong about that. So I really appreciated that. I was like, this is really great. He could be doing a victory lap and he's pretty reflective. And he's also, in the last years of his life, he's very concerned about globalization as he sees it happen.

He's like, wait a second. What's gonna happen to low skilled workers? And he's basically, low skilled workers in America are really going to suffer. This is why leads back to education and vouchers and we have to improve the US education system. Which I see is that sort of continuing worry from the 1930s of how do we make sure this incredible engine of economic growth doesn't really leave people out in a way that's really dangerous to the fabric of society?

 

>> John Taylor: Abe has a question. Abe.

>> Abe: I wanted to add an instance where I personally experienced this kind of interesting humility that he had when he talked about ideas. He just cared about the ideas so much that status just didn't matter. It was at a Hoover event, and it was just before 2001, the collapse of the markets.

And he speaking to a group of Hoover supporters and he said, I don't understand it. The market was still flying high. And he said, I can't understand the market. I don't understand how they could reach these prices. It makes absolutely no sense, it should have collapsed. But I don't know how you can take me seriously.

I've been saying that for the last few years, every year, and of course, the next year, boom, everything happened just the way he said, but it just showed how he was ready to re-examine his own thoughts. But he stuck by his idea. And anyone who bet on the bet on him that year did really well.

 

>> Jennifer Burns: Thank you.

>> Michael Boskin: I wanna reinforce your comments about women, especially Rose, cuz in all the times I was with him, including debating Ken Arrow, etc. The only persons, the only two people he ever stopped cold and let them go ahead were Rose and George Schultz, period, including several people in the room who have witnessed, have, weren't given that grace.

 

>> Jennifer Burns: Yeah, smart man. Smart man, do we have any other Zoom?

>> John Taylor: Go ahead, Bob.

>> Robert Hall: So on monetary policy, Friedman clearly was left behind and this place has been taken by John Taylor and the Taylor rule. And I had a private chat with him about this as it was happening.

And I asked him, aren't you going to fight this or whatever? He said, no, but I'm not gonna say anything. I'm not gonna take a stand on it. And he basically did that. He didn't make any, as far as I know, made no public utterance defending any concern of the quantity of money after sometime in 1995.

 

>> Jennifer Burns: So I mean, maybe John's gonna disagree with me on this, but I do think, from the historians high level perspective, there's a kind of tradition of rules over discretion that Friedman really saw himself as part of. Simons was kind of the first evocator of this. I think FA Hayek is an example of it.

And I sort of feel like John is in that tradition. So I think they are updated for the time. But the basic idea that economies prosper when you have clear, transparent expectations and rules and there shouldn't be too much policymakers discretion can lead to really bad outcomes. I think that's like a through line line and I think that continues.

I think that's like one of the sort of fundamental lessons. I even feel like inflation targeting all these, these are all the sort of move to frameworks I see, as in the general gist of Friedman's thought, even if the specific details really are different. And I don't think Friedman always saw that himself.

So it's sort of like a bit of a tragedy cuz I'm like, you lost the battle, but you won the war. So that's how I see it, at least.

>> Robert Hall: So speaking of the war, you refer to many books, do you have a favorite?

>> Jennifer Burns: Do I have a favorite book?

In general, of Friedman's.

>> John Taylor: is it capitalism? You have capitalism, freedom in your picture?

>> Jennifer Burns: I mean, it's really a monetary history, no doubt. I read that book, I was just blown away. I was, wow, the history of the United States where money is the protagonist, marching along and here's the Civil War and here's the gold stuff.

And it's like, whoa. It just because you read, you get familiar with this history as a historian and there's all these different actors and then to see the kind of economic forces and monetary institutions and that really just really blew me away. And then I think that analysis of the Great Depression is also so it's really like history at its finest.

 

>> Robert Hall: Longest book, too.

>> Jennifer Burns: What's that?

>> Robert Hall: It's the longest.

>> Jennifer Burns: It's a long book. Yeah believe me, I read that cover to cover, that was one of the first things I did when starting, right? Cuz I was, who is this guy who thinks he's a historian, but is actually an economist, and I read it.

I was, okay, I get a little bit of a gist here.

>> Robert Hall: Did you say anything about the second volume? You didn't even mention the second volume.

>> Jennifer Burns: The 1982 volume. I really just kind of let it go. I talk about it a little bit. There's a small literature on it.

I feel like it was not the finest work, and I'm really trying to focus on the big contributions. So I talk about it, but I don't dig into it. And I know, I mean, there's a whole mini literature in England. There's a bunch of British economists who are, this book is so bad.

And I'm sort of, this is not the main contribution. So I touch on it, but lightly.

>> Robert Hall: I wrote the JEL book review.

>> Jennifer Burns: I might quote it. I'm not sure if I do. Were you kind of gentle about it?

>> Robert Hall: Kind of gentle?

>> Jennifer Burns: Yes.

>> Robert Hall: I went off on certain extravagances that could have been in the book, but weren't.

 

>> Jennifer Burns: Sequels are rarely as good as the original.

>> John Taylor: What didn't you like about it, Bob quickly? Having not read it, where you review.

>> Robert Hall: I know I should have prepared for that question. It's a while ago. All the crazy ideas that I've promoted since then are mentioned there.

 

>> John Taylor: That's a long review.

>> Robert Hall: The ones that you know well.

>> John Taylor: Yes, okay. The wooden dollar and some others. One thing I really like about your book is you go into certain areas, and you do the areas that you think are most relevant. And one of the things, I have a few questions maybe Mike and Abe asked about this stuff at Hoover is somehow interspersed.

I mean, I have so many memories of his stuff on the third floor, going to his house in San Francisco and being our house. Just so many good memories.

>> Jennifer Burns: Yeah, yeah.

>> John Taylor: I wish they were there.

>> Jennifer Burns: I know, I use your interview with him. I think it's like a very valuable document for his kind of thinking later in his career.

I mean, I will admit to a bit of fatigue by the time I get to the point in his life when he's at Hoover. I've been going since 1912, and so I cover it, I touch upon it. I think what's really important is Hoover's part of how he gets connected to the Reagan administration.

He meets Martin Anderson and they become friendly and then that's like his renaissance, again, he's brought back into a very important advisory role for the Reagan administration. I think, I'm trying to remember the exact date, I don't think he's at Hoover yet when he meets Margaret Thatcher. I could be wrong about that.

But he certainly has a connection to her as well. So I think what his time here does is keeps him from kind of going out to pasture, right? And it changes his perspective from just narrowly economic to these broader ideas. And there's a moment when he really steps back from economic dispute and debate, even as his ideas are being taken up and sort of taken more seriously.

The field is getting more quantitative and more mathematical. And I cover his reaction to Lucas and the Lucas critique, and he's just quiet about it. I think the conclusion is one he would reach, but the method is not one he would have approved of, but he just is kind of quiet about it.

So I think everything, if we think about a fourth Chicago school, that's real business cycle, and the Lucas critique, he's not really on board with that, but he just decides to not take it on. And instead, he's gonna focus on, I'll just talk to Ronald Reagan, so I understand why.

 

>> Michael Boskin: Yeah, a big part of his influence on Reagan came from a dinner George Shultz had in 1979 that I was at, a couple other economists, and Milton. I was given the assignment of pushing Reagan hard on supply side economics, what was real and exaggerated about it, and Milton on inflation.

And by the end of that, Reagan had made it very clear he would support disinflation. He did that in the early 80s at great political cost. And I think a lot of people say that the original big chunk of disinflation was because Reagan gave him some cover, even though he knew it was gonna cost him a lot.

 

>> Jennifer Burns: Yeah, that does seem to be that Friedman provided a really solid explanation of why he should do that, why he should let Volcker do what he needed to do. And so, yeah, that was significant.

>> Michael Boskin: There were others, Tom Sargent at the time was very influential academically about credibility could reduce the cost and all that sort of stuff.

 

>> Robert Hall: Yeah.

>> Jennifer Burns: I should say, I haven't touched on it here, but there's really a theme of following the history of the Federal Reserve through the book. And there's Friedman's critique of the Fed, and then there's the Fed in the 1950s, which is sort of not all that important.

And then there's Friedman's role as chief Fed critic. And he used to show up, and in the beginning, he would do a Ron Paul, like, let's abolish the Fed. And over time he was, well, no, no one's taking me seriously when I say that. So let's have a k-percent growth rule, now I get somewhere.

And the other thing is, is the Fed responds to Friedman, and the modern Fed that is transparent and open. Of course, there's the expectations revolution. But even before that, there is Friedman knocking at his door and Schwartz knocking at his door and saying, I really do believe they start keeping track of M1 and M2 and publicizing it.

Cuz if they don't do it, Friedman and Schwartz are gonna do it, and they want some control of the information. So he really moves the Fed, and you can see there'll be like these puff pieces, like the Fed is so great. And you can tell this is three months after Monetary History is published, right?

He's a pebble in their shoe for a long time. And so I trace that institutional history. And what's so interesting to me is that, I've grown up in a world where it's like the Fed chairman is the most important person. And when you study the history, it's like the Fed is not really where anybody thinks the action is.

And they're highly secretive, they don't say anything. They released their notes like five years, there's meeting minutes come out five years after the meeting. So it's just a completely different world than we're in today. And I think that that, for me, was very interesting to see how that changed over time.

 

>> John Taylor: And powerless, people didn't think the Fed had any power to do much of anything.

>> Jennifer Burns: Yeah, well, Arthur Burns, I'm done here.

>> John Cochrane: Inflation is wage price spirals and unions and so forth. Now, we may have gone in the opposite direction of thinking the Fed runs everything a little bit too much, but it's really remarkable how different the world was.

 

>> Jennifer Burns: Yeah, for sure.

>> John Taylor: Thank you so much. There's copies of the book, so pick up a couple or three.

>> Jennifer Burns: And I believe for those in person, I will be signing copies. So I can meet you over there in the corner.