An Interview With Milton Friedman
His views have had as much, if not more, impact onthe way we think about monetary policy and many otherimportant economic issues as those of any person in the lasthalf of the twentieth century. These words in praise ofMilton Friedman are from economist and Federal Reserve ChairAlan Greenspan. They are spoken from a vantage point ofexperience and knowledge of what really matters for policydecisions in the real world. And they are no exaggeration.Many would say they do not go far enough.It is arare monetary policy conference today in which MiltonFriedman s ideas do not come up. It is a rare paper inmacroeconomics in which some economic, mathematical, orstatistical idea cannot be traced to Milton Friedman s earlywork. It is a rare student of macroeconomics who has notbeen impressed by reading Milton Friedman s crystal-clearexpositions. It is a rare democrat from a formerly communistcountry who was not inspired by Milton Friedman s defense ofa market economy written in the heydays of central planning.And it is a rare day that some popular newspaper or magazinearound the world does not mention Milton Friedman as theoriginator of a seminal idea or point of view. Anyone of his many contributions to macroeconomics (or ratherto monetary theory, for he detests the term macroeconomics)would be an extraordinary achievement. Taken together theyare daunting: permanent income theory; natural rate theory; the case forfloating exchange rates; money growth rules; the optimal quantity of money; the monetary history of the United States,especially the Fed in the Great Depression, not to mentioncontributions to mathematical statistics on rank-ordertests, sequential sampling, and risk aversion, and a host ofnovel government reform proposals from the negative incometax, to school vouchers, to the flat-rate tax, to thelegalization of drugs.Milton Friedman is aneconomist s economist who laid out a specific methodology ofpositive economic research. Economic experts know that manycurrent ideas and policies from monetary policy rulesto the earned-income tax credit can be traced to hisoriginal proposals. He won the Nobel Prize in economics in1976 for his achievements in the field of consumptionanalysis, monetary history and theory and for hisdemonstration of the complexity of stabilization policy. Preferring to stay away from formal policy-making jobs, hehas been asked for his advice by presidents, primeministers, and top economic officials for many years. It isin the nature of Milton Friedman s unequivocally statedviews that many disagree with at least some of them, and hehas engaged in heated debates since graduate school days atthe University of Chicago. He is an awesome debater. He isalso gracious and friendly.Born in 1912, he grew upin Rahway, New Jersey, where he attended local publicschools. He graduated from Rutgers University in the midstof the Great Depression in 1932. He then went to studyeconomics at the University of Chicago, where he met fellowgraduate student Rose Director whom he later married. Fornearly 10 years after he left Chicago, he worked atgovernment agencies and research institutes (with one yearvisiting at the University of Wisconsin and one year at theUniversity of Minnesota) before taking a faculty position atthe University of Chicago in 1946. He remained at Chicagountil he retired in 1977 at the age of 65, and he then movedto the Hoover Institution at Stanford University.Ihave always found Milton and Rose to be gregarious,energetic people, who genuinely enjoy interacting withothers, and who enjoy life in all its dimensions, from walksnear the Pacific Ocean to surfs on the World Wide Web. Theday of this interview was no exception. It took place on May2, 2000, in Milton s office in their San Franciscoapartment. The interview lasted for two-and-a-half hours. Atape recorder and some economic charts were on the deskbetween us. Behind Milton was a floor-to-ceiling picturewindow with beautiful panoramic views of the San Franciscohills and skyline. Behind me were his bookcases stuffed withhis books, papers, and mementos.The interview beganin a rather unplanned way. When we walked into his officeMilton started talking enthusiastically about the chartsthat were on his desk. The charts which he hadrecently prepared from data he had downloaded from theInternet raised questions about some remarks that Ihad given at a conference several weeks before whichhe had read about on the Internet.As we begantalking about the charts, I asked if I could turn on thetape recorder, since one of the topics for the interview wasto be about how he formulated his ideas and aconversation about the ideas he was formulating right thenand there seemed like an excellent way to begin theinterview. So I turned on the tape recorder, and theinterview began. Soon we segued into the series of questionsthat I had planned in advance (but had not shown Milton inadvance). We took one break for a very pleasant lunch and(unrecorded) conversation with his wife Rose before goingback to work. After the interview, the tapes weretranscribed and the transcript was edited by me and Milton.The questions and answers were rearranged slightly to fitinto the following broad topic areas: moneygrowth, thermostats, and Alan Greenspan; causes of the great inflation and its end; early interest in economics; graduate schooland early on-the-job training; permanent income theory; return of monetary economics; fiscal and monetary policy rules; use of models in monetary economics; use of time-series methods; real business-cycle models, calibration, anddetrending; natural rate hypothesis; role of debates in monetary economics; capitalism and freedom today; monetary unions and flexible exchange rates.
Volume (Year): 5 (2001)
Issue (Month): 01 (February)
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