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Friedman & Keynes Samuel Brittan: Friedman Panel, IEA 13/12/06 I have already written an extensive obituary of Milton Friedman (Financial Times December 1, based on the appreciation in my last book, Against the Flow Atlantic Books, 2006). So I will begin by asking if there is anything I found jarring in other people's published appreciations. What stands out like a sore thumb is the way that so many journalists treated Keynes as a socialist whom Friedman had debunked. This was not the attitude of Friedman himself who always spoke of Keynes with respect. Indeed he remarked that whenever he reread The General Theory his opinion of the author rose. Friedman's attitude to The General Theory was that it was a plausible hypothesis which did not happen to fit the facts. At this distance of time the similarities between the two men are beginning to outweigh the differences. Both believed that capitalism needed to be saved rather than subverted. Both believed that there were financial policies that could support a reasonable rate of growth without inflation and that physical controls were either harmful or at best a diversion from this effort. Of course the followers of Keynes in the UK put the emphasis on fiscal policy, while Friedman approached the task on the monetary side. But this is not fundamental. In fact American Keynesians have always emphasised monetary policy and seen fiscal deficits as at most adjuncts or boosters in major recessions. Of course there were more deep-seated differences in political philosophy. Friedman was attached to rules, while Keynes believed in discretionary policy carried out by a superior elite. Towards the end of his career Keynes came to believe that underemployment was a chronic condition of capitalism while Friedman saw it as a cyclical aberration made worse by institutional practices such as minimum wages. But these differences fall into the shade by comparison with both the control freak tendencies of governments of the centre-left and the dreams of anarcho-capitalists who would abolish governments, official money, the army, the police and who knows what else. Friedman is best known for his money supply rule. It is not however well known that he modified his views late in his career in the light of Greenspan's success in stabilising the US economy. Indeed he wrote that once inflation was low and stable, the money supply would have to fluctuate to offset short term changes in velocity. If you do not believe me look at his contribution to the Cato Journal issue of winter 2004, part of which was devoted to retrospect on Friedman's Monetary History. In many ways a more interesting contrast is between Friedman and Hayek which both men played down during their lifetimes. Friedman had little use for Hayek's technical economics. Indeed he remarked that the Pure Theory of Capital was almost impossible to read. Hayek on the other hand regarded Friedman's essay on "positive economics" as more harmful than anything that Keynes had written. I would add my own caution on this last subject. It is of course desirable that economists should state their theories in as objective a way as possible before inserting their own beliefs into policy recommendations. But this is more easily said than done. For most of the terms used in economic policy discussion contain both an implicit value judgement and a factual assertion. One has only to think of terms such as "welfare" which occur even in the most forbiddingly mathematical of economic dispositions. Finally, I do hope, without much optimism, that future economic writers will not spend their time arguing about what Friedman really meant, as they do now about Marx, Keynes and even Darwin. Friedman will have been amply repaid if his work is treated as a stimulus for thought and research and not a matter for - excuse that horrible word - hermeneutics. Of course Friedman being human would hope that future research would bear out some of his ideas, but in principle he was completely opposed to the scholastic reverence for past writers, himself included.
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