We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Happy Birthday to Milton Friedman

For all the arguments between the Chicago and Austrian schools of economics, the fact remains that Milton Friedman is one of the good guys. Milton Friedman has struggled for freedom all his life and has brought the basic ideas of private property rights and free markets to more people (via, for example, his weekly article in Newsweek magazine and in his best selling books such as ‘Capitalism and Freedom’ and ‘Free to Choose’) than any other person alive.

Like millions of other people I express my good wishes to Dr Friedman, to Rose Friedman and to their children and whole family.

13 comments to Happy Birthday to Milton Friedman

  • Johnathan Pearce

    Seconded. He is one of the great men. I met his son David a few times and he is a nice fellow.

  • fiona

    Friedman helped the US government implement the withholding tax.
    “Only the Friedmanite withholding tax has permitted the government to use every employer as an unpaid tax collector, extracting the tax quietly and silently from each paycheck. In many ways, we have Milton Friedman to thank for the present monster Leviathan State in America.”
    -Murray Rothbard

    Yes, what a great man Friedman is.

  • Johnathan Pearce

    fiona: is that true? I did not know the US had a new-fangled “with-holding tax” in addition to the long-standing income and other taxes on earnings.

  • Paul Marks

    Now, now Mr Pearce – you know that what is meant is the method by which the income tax is collected.

    According to Milton Friedman, Rose Friedman has been rather harsh with him for developing the the American version of the withholding tax.

    The idea was to collect a lot of money during World War II (the old system of income tax collection – sending out a bill at the end of the year would cause more resistance) – and the new system worked.

    It worked too well – and it was kept after the war.

    Of course if Milton Friedman had done nothing either the German or the British witholding tax system would have been used by the U.S. government (so not much difference really).

    As for Milton Friedman: I would rather have his article every couple of weeks in “Newsweek” than the absence of free market thought there is now in the main stream media.

    Of course even the Friedman article was a decline. Before the article by Friedman from 1966 (every two or three weeks) there was a weekly aricle by Henry Hazlitt.

    So we went from a weekly article to one every two or three weeks.

    And from 1984 (when Newsweek terminated the Friedman articles) there was no free market voice at all.

  • Gabriel

    Well, fiona, but what did Rothbard do? Oh, I remember… he bitched a lot, we wrote a few “economics” books at the 19th century level (at best), talked a lot of sh*t about a lot of people, anyone who didn’t share his views, e.g. Adam Smith, Frank Knight, the entire economics profession, and created a honest-to-God cult of people whose economic knowledge is stuck in the 19th century + laughable historic revisionism. No thanks.

    An efficient tax system actually support freedom because it improves collection rates, making the system more uniform and eliminating the excuse for tax hikes because of low collection rates. I’d rather have 2% on Friedman’s system than 5% on a system easier avoided by some than by others.

    Happy birthday, prof. Friedman!

    P.S. Friedman, single-handedly change the course of macroeconomics, by introducting new monetary ideas, to the detriment of majoritarian keynesian dirigisme sentiment of the day… among other things, such as considerably extending our knowledge of consumer behaviour and many more.

  • Paul Marks

    Calling something “19th century” is not an argument. Most economic ideas (good and bad) can be found in most recent centuries – if one chooses to look for them.

    As for the differences between the Austrian and Chicago schools this is not the thread to debate them.

    Other than to say that Rothbard is the wrong writer to pick as a the key representative of the Austrian school (to be fair, he normally admitted that).

  • fiona

    Gabriel, interesting that you think “An efficient tax system actually supports freedom.”
    In what way are you “free” when the government is capable of stealing half your income, and in what way is this freedom enhanced when it steals efficiently?

    Re Paul Marks’ point that a similar system would have been adopted otherwise, I don’t think it is so clearcut in terms of inevitibility. And I find it ironic that this professor who talks big about freedom is one of the people who has been instrumental in helping the government taking it away from us.

  • Paul Marks

    Fiona I have been critical of Milton Friedman myself (not over the matter you raise, but over other matters – I am an Austrian school person), but a birthday thread is not the place for an attack.

    Of course you have a perfect right to attack the ideas of the deeds of Milton Friedman.

    Perhaps a posting on the Ludwig Von Mises blog in a few days?

    I have never posted an article there myself (although I have often commented on posts), but if your article is polite and well written they should accept it.

  • Johnathan Pearce

    Paul, I did not know that withholding tax refers to the method by which a tax is collected. I am still waiting for someone to define what a withholding tax is. If we are going to accuse Milton Friedman of being a worse statist than Keynes, as ffiona rather bizarrely tries to do, I’d like to have some clarity of what exactly M.Friedman is guilty of.

    In the broadest sense, Friedman, by championing markets and small government while 99 pct of public intellectuals did the opposite, has been an immense contributor to the cause of liberty, and I guess it is a mark of how successful he has been that the likes of ffiona can nitpick from the sidelines

  • Joshua

    Paul, I did not know that withholding tax refers to the method by which a tax is collected. I am still waiting for someone to define what a withholding tax is.

    Yes, it is a method for collecting income taxes rather than a tax itself. When you get your paycheck, there are itemized deductions that went to the government – x to Payroll Taxes, y to Federal Income Taxes, z to State Income Taxes. Come tax time, you get a statement of how much was withheld. If you’re lazy, you can just sign this and be done with it. If you’re not, you can go through and claim some of it back, which is returned to you in the mail. Plus there are about 5,467 pages for anyone who owns property or stocks. It’s all a giant complicated mess.

    Friedman’s contribution was intended to be a wartime thing. Income taxes had been around for some time, but they rose sharply in the Depression years. Tax evasion, not surprisingly, was rampant. As a scheme to raise money for the war effort, Friedman suggested that employers simply withhold taxes from their employees – in effect turning every employer into a tax collector, as another commenter mentioned. So it really was a horrible thing he did. But of course, Friedman was a Keynesian in those days. Only later did he embrace classical liberalism.

  • Joshua

    I should add…

    The reason you sometimes hear “witholding tax” in grammatical contexts that suggests it refers to an actual tax as opposed to a method for tax collection is because not all taxes are covered by this. For example, when you fill out your tax return you are independently responsible for telling the government how much you made in capital gains, business profits, gambling, and tips, etc. Since these taxes are not withheld by your employer, they have to be declared. “Withholding tax” as a nominal refers mostly to payroll taxes and taxes that cover income on wages/salary.

  • Paul Marks

    Sorry J.P. – I thought you were being sarcastic (and you were not).

    Federal income tax came in 1913 it went up during the W.W.I. and then down in the 1920′s (although even in 1929 it was much higher than it had been before the war).

    In the 1930′s it went up again – but most people still did not pay income tax.

    Basically (if you were a rich person) you had to send money to the government (no Pay As You Earn – i.e. deduction at source). Most ordinary people are not going do that – and they will not have large amounts of money just sitting about by the time the government asks them to send the money.

    Milton Friedman set up the American withholding system – if had done nothing the government would have either opted for the German system or the British system (or got someone else to set up an American system).

    As for Friedman and Keynes and “classical liberalism”.

    Well if by “classical liberalism” we mean stictly limited government, Friedman’s views in the 1930′s were complicated.

    He supported some of the New Deal programs (basically the make work ones) but opposed others (such as the price controls).

    I do not even know which way he voted in 1936. Logically he should have voted for Alfred Landon (a moderate Republican who did not want to roll back all the 1930′s programs, but did have doubts about some of the ones that Friedman doubted). However, Friedman was employed by the government by then – and he may have felt some personal loyality to the President.

    As for Friedman and Keynes.

    Well I suppose we are talking about Keynes the economist (not Keynes in his role of writing statist articles in the New York Times like some sort of 1930′s version of Paul Krugman).

    Again the matter is complicated.

    Friedman was never some sort of star struck fan of the Cambridge people (indeed his first published article was attacking a bit of technical economics of Pigou – by the way a lot of historians of economic thought have been misled by Keynes’ little joke in the “General Theory” where he makes out that Pigou was free market man, he was anything but).

    Even decades later Friedman had a habit of saying things like “in a sense we are all Keynesians and in a sense none of us are”.

    Basically the dividing line between Friedman and Keynes is as follows.

    Keynes argued (at least in the General Theory 1936 English language edition – Keynes tended to change his opinions a lot “as the facts change, I change my mind” and all that) that if there was large scale unemployment the government should boost “demand” (i.e. the money supply).

    This could either mean tax cuts without spending cuts (with the government borrowing being indirectly financed by expanding the money supply) or boosting government spending without tax increases (the deficit to be financed the same way).

    For various reasons Keynes favoured the latter. And then we have a lot of writing (repeated from other people like Major D. and the other “monetary cranks”) about the “multiplyer effect”. For example 100 Pounds spend on employing someone to did a hole and fill it in again – he then spends 90 Pounds and saves ten – and the people who get the money spend 90 pounds …… – all assuming that the marginal propensity to consume is nine tenths of income.

    So we can play with numbers and say if the “multiplyer” is 9 introducing 100 new Pounds will increase national inome by 900 Pounds. And if people (on average) spend only two tenths of the new money national income will only go up two hundred pounds (and so on).

    Endless books and papers have been filled with writings and mathematical manipultions based on all this shit (I do not know whether Keynes believed it, but his followers in academia have been treating it very seriously for many decades).

    To Friedman (like to other orthodox economists going back centuries) if there was widespread unemployment it meant that people had to accept lower wages (or stay unemployed).

    In short to Milton Friedman there is no basic difference between a labour market and a market for anything else – it is a matter of price dealing with supply and demand. I short that he only way for real wages to improve in the long term is by economic development (productivity) – there being no short cuts to higher wages (via unions, minimum wage laws or whatever).

    If mass unemployment stays around for years that means that there is some instutional barrier to the market clearing – for example a minimum wage law or pro trade union laws. And so one should find those blockages and unblock them.

    To the Keynesians any effort to deal with mass unemployment by lower wages reduces “demand” and makes things worse.

    I say to the “Keynesians” as there is some evidence that Keynes himself did not hold that view.

    It is sometimes claimed that Keynes accepted that lower wages could clear unemployment -but held that in the modern world “wages are sticky downwards” (due to the barriers mentioned above).

    So one had to con people by raising prices (via a big boost to the money supply) thus cutting real wages while keeping money wages were they were. So all the “public works” and other such is just smoke and mirrors for the real work of cutting real wages (by raising prices) whilst not picking a fight by trying to free up the labour market.

    And what stops people asking for their real wages be kept in line with prices (or higher)?

    Well that is a problem for Keynes – but in the introduction to the German edition of the General Theory he implies he supports wage controls (the policy of the National Socialist government of Germany).

    There – and not a word on the Austrian School V Chicago School conflict.

    This is not the thread for that.

  • Paul Marks

    Of course all the talk (and equations) about “multipylers” and “marginal propensities to consume”, “leakages” to the flow (via savings or imports) and other such, is great stuff – if one is trying to distract attention from the work of cutting real wages by raising prices.

    However, even if this “money illusion” works (which it will not for long – working men are not morons) there is also the problem that it the classic “blunt instrument” (for a better blunt instrument see later).

    Long term mass unemployment is caused by particular wages in particular lines of work being too high.

    Trying to solve the problem by cutting all wages (by increasing prices) is a bad way of going about things (the price system gets messed up and the structure of the economy distorted).

    Even if wages have been pushed up by a credit bubble (such as that of the late 1920′s in the United States) one should not try and cure the bust by another credit bubble (ouch I am getting into the Austrian V Chicago dispute – get out of this quick Paul).

    Of course Dr Friedman did not support trying to solve a bust with another bubble – he supported maintaining the level of the money supply (i.e. try and prevent the bust).

    Where Chicago (Milton Friedman) and Vienna (Von Mises) would agree is that in any industry (really even “industry” is too broad – every company is different) the only way to long term better wages is by real development.

    Which leads to the “paradox” that the left point to. We (free market types) say that we want higher incomes – but sometimes we say businessmen are right to CUT wages.

    How can this make sense?

    The idea that in some conditions a company (or even most companies) may have to cut wages is something that the left will never agree with.

    And explinations that is the only way (in the circumstances of time and place) to ensure prosperity in the future will not impress.

    In the end it just comes down to saying “if they want more money than can go find someone else to pay it to them or they can set up their own business”.

    That will get some people angry – no way round it.

    Then comes the strike and the picket line – and the test to see whether the owner or manager of an enterprise can defend that enterprise.

    Clue – M.B.A. types are no good in these situations. An owner or manager who has worked his way up from the bottom and knows how to use a pickaxe handle (or these days a baseball bat) is of more use.

    In the end either the entrance to the place of business is clear (in which case you win) or it is closed (in which case you lose).

    In the old days it was gun play.

    Frick wrote a long financial letter to his parter the Scot A.C. – and did not even mention he was in hospital with a bullet in him, taken fighting pickets (that was just a hazard of running a business, not worth wasting ink on).