The Giants of the Economists’ Century

The 20^th century was the great age of the economist, the period when the academic discipline of economics gained far more influence over public policy, particularly in the Anglo-American world, than any other field of scholarly inquiry. In that era, governments assumed responsibility for the economic well-being of their citizens and became convinced that the body of thought economists compiled through their research was indispensable for carrying out that responsibility. The economics profession thus became an adjunct to government, first in the West and then throughout the world.

The era of the economists divides into two distinct periods, each inaugurated by a major economic trauma and each dominated by the ideas of one particular economic thinker. The first began with the Great Depression of the 1930s, the steepest economic slump the world had ever experienced, which brought painfully high levels of unemployment. The economist whose ideas governments adopted that, when applied, helped their countries escape the Depression was the Englishman John Maynard Keynes. In his seminal 1936 treatise, The General Theory of Employment, Interest, and Money, he argued that economic downturns such as the Great Depression might not, as had previously been widely assumed, be self-correcting. In order to recover, economies required active intervention in the form of government spending. 

In the United States, Franklin Roosevelt’s New Deal, beginning in 1933, did increase federal expenditures and the American economy did eventually revive—most vigorously as a result of the event that occasioned the highest government spending in American history, World War II. After the war, the countries of the West enjoyed three decades of unparalleled economic growth. As a result, economists who accepted Keynes’ teachings as they understood them, who became known as Keynesians, dominated the public discourse about economic matters on both sides of the Atlantic. President Richard Nixon, whose Republican Party had a skeptical attitude toward the government spending identified with Keynes, was reported to have said, “We are all Keynesians now.”

The second economists' era began in the 1970s, with the shock, in the United States, Great Britain, and elsewhere, of very high inflation. This time the body of work of an American economist, Milton Friedman—particularly his 1963 book A Monetary History of the United States, 1867–1960, written with Anna Schwartz—offered a way out of the crisis. Friedman emphasized that the quantity of money determines the overall level of prices in any economy, and using monetary tools the American Federal Reserve, led by its chairman, Paul Volcker, managed to squeeze inflation out of the economy. As had happened after World War II and the Great Depression, several decades of robust growth with low inflation ensued. As a result, adherents of Friedman’s economic ideas, known as monetarists, achieved a degree of influence comparable to what the Keynesians had previously acquired. John Kenneth Galbraith, a loyal and sometimes combative Keynesian, wrote at the end of the 1970s that, “The age of John Maynard Keynes gave way to the age of Milton Friedman.” 

Since Keynes’ death in 1946, an impressive body of literature recording and analyzing his life and work has accumulated, notably the three volumes of Robert Skidelsky’s magisterial biography, published in 1983, 1992, and 2000, respectively. Now, a worthy biography of Friedman has appeared. Milton Friedman: The Last Conservative, by the Stanford historian Jennifer Burns, is comprehensive, stimulating, and readable. It covers its subject’s life, career, and writing, as well as the evolution of economic ideas and economic policies in the United States from the 1930s through the first decades of the 21^st century. It is particularly useful in recounting what Burns calls the “ideas and policies [Friedman] seeded.” These include 

the U.S. armed forces staffed by volunteers instead of conscripts, educational vouchers, floating exchange rates, the monetary interpretation of the Great Depression, the consumption function, universal basic income, [and] monetarism. 

The Burns book shows the considerable differences between the two masters of economic thought, but also reveals some fundamental similarities.

The two men came from dissimilar backgrounds. Keynes came from the British establishment. He attended Eton, the country’s most prestigious preparatory school, and went on to King’s College, Cambridge, with which he retained an affiliation for the rest of his life. He was part of a circle of artistic and intellectual friends known as the Bloomsbury Group, which included the novelist Virginia Woolf. Although its members saw themselves as rebels against conventional custom and morality, they belonged to the country’s cultural and educational elite. Friedman, by contrast, began life as an outsider. The son of Jewish immigrants who settled in Rahway, New Jersey, he owed his career to the American meritocracy, earning renown and influence by dint of his formidable intellect.

Keynes held important positions in the British government during the two world wars and served as the chief British representative at the international conference in Bretton Woods, New Hampshire, in 1944 that designed the postwar international monetary order, of which he thus counts as one of the architects. By contrast, after holding minor government positions in the late 1930s and early 1940s, Friedman never joined the American government. He did have some access to Presidents Nixon and Ronald Reagan, and had close relations with Nixon’s Federal Reserve chairman, Arthur Burns, with whom Friedman had studied at Rutgers University, as well as with Nixon’s secretary of the treasury George Shultz. Shultz was a colleague of Friedman’s at the University of Chicago, where Friedman spent most of his career on the faculty. He also had cordial relations with the longest-serving Fed chairman, Alan Greenspan.

On the politics of economic policy, Friedman and those who embraced Keynes’ economic ideas found themselves on opposite sides. Following Keynes’ prescription for fighting the Great Depression, the Keynesians favored an expansive economic role for the government. Friedman and the monetarists opposed big government, believing that much of what the government did could be better left to the free market and the private sector: educational vouchers—grants that parents can use to send their children to the school of their choice, almost always private institutions—are a good example.

Still, John Maynard Keynes and Milton Friedman did have two important things in common. Both were what came to be known as public intellectuals, reaching wide audiences that extended far beyond the confines of the economics profession. Both wrote for popular journals. For many years, Friedman contributed a regular column to the weekly newsmagazine Newsweek, alternating with a prominent Keynesian, Paul Samuelson. With his wife Rose, also a trained economist, Friedman wrote two bestselling books: Capitalism and Freedom and Free to Choose, the second of which emerged from a television series devoted to his ideas. Both Keynes and Friedman were able publicists and articulate debaters both in print and in person. Both stated forcefully the conclusions to which their analyses had led them, even when to do so courted unpopularity. Skidelsky wrote of Keynes, “Ruthless truth-telling first, the compromise between truth and politics later: this was Keynes’ credo, and on the whole he lived by it.” The same could be said of Friedman.

Finally, although on technical economic issues and on the question of the proper economic role of the government Keynesians and monetarists usually disagreed, on fundamental political values Keynes and Friedman were in accord. Each saw himself as a champion of individual freedom. Burns writes that Friedman “set his economic ideas within a broader philosophy of individual freedom that served as the moral grounding for his work.” That philosophy is evident in the titles of his two bestselling books.

Keynes had the same commitment. His political loyalty lay with the Liberal Party, which carried the banner of individual liberty in British politics in the 19^th century and in the early part of the 20^th, before being supplanted by the more collectivist Labour Party. He regarded the Great Depression as especially dangerous because it jeopardized the kind of political system in which freedom could flourish, as the drift to fascism and communism in Europe in the 1930s all too clearly demonstrated. In 1933, he wrote to President Roosevelt that if Roosevelt’s program of economic recovery should fail, “rational change will be gravely prejudiced throughout the world, leaving orthodoxy and revolution to fight it out.”

Active in different historical, political, and economic eras, the two identified different threats to the liberty each prized: for Keynes it was political extremism that economic hard times bred, for Friedman the potentially suffocating grip of big government. Resisting the threat, however, was what each of the 20^thcentury’s two most influential economists considered his most important goal.

Michael Mandelbaum is the Christian A. Herter professor emeritus of American Foreign Policy at the Johns Hopkins School of Advanced International Studies, a member of the editorial board of American Purpose, and author of the forthcoming book The Titans of the Twentieth Century: How They Made History and the History They Made, about Woodrow Wilson, Lenin, Hitler, Churchill, FDR, Gandhi, Ben-Gurion, and Mao.

Image: Composite image featuring J. M. Keynes (L) and Milton Friedman (R). Friedman source: Friedman Foundation for Educational Choice. Keynes source: "John Maynard Keynes, 1st Baron Keynes of Tilton; Lydia Lopokova" by Walter Benington, for Elliott & Fry, bromide print, 1920s, via the National Portrait Gallery, UK. (NPG x90117, used with permission and under CC BY-NC-ND 3.0 DEED)