I Am John Galt (36 page)

Then came Friedman. Again.

In 1968 he published a paper arguing that the fixed relationship implied by the Phillips curve did not exist.
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Friedman suggested that sustained Keynesian policies of easy money could lead to both unemployment and inflation rising at once. That was his prediction—and the proof of it came just a few years later in the 1970s, when the world saw the phenomenon that soon became known as stagflation, when double-digit unemployment accompanied skyrocketing inflation. If predictive ability is the hallmark of sound science, then Friedman transcended and demolished the theoretical philosophizing of his Keynesian colleagues in one fell swoop.

The Keynesians were stunned by the apparent contradiction. The Phillips curve told them that stagflation was impossible. Yet there it was. Hugh Akston could have told them what to do: “By the essence and nature of existence, contradictions cannot exist. . . . [C]heck your premises. You will find that one of them is wrong.” In this case, Akston's axiom was too modest.
All
of the Keynesians' premises were wrong.

Then Friedman delivered the coup de grâce. If monetary policy couldn't be used proactively to artificially create prosperity—in other words, if the best it could do was avoid catastrophes like the Great Depression—then who needs a Federal Reserve with policies controlled by political appointees? Instead, Friedman said that “central banks could profitably be replaced by computers geared to provide a steady rate of growth in the quantity of money.”
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No, Friedman never got all the way to the radical libertarianism of Congressman Ron Paul, who has called for outright abolition of the Fed. But this was a classic Friedman finesse, and it shows why he was so effective: accept the reality that there is a Federal Reserve, and find an elegant way to deprive it of its powers to interfere with economic liberty.

From Academia to Main Street

When Ayn Rand was once asked to very briefly describe Objectivism, she reduced her philosophy of politics to a single word: capitalism. Friedman was making the same philosophical journey at the same time—understanding that a society's economics was inexorably linked to the political structure it chose. It was only a short step from trumpeting economic freedom to championing individual liberty as an integrated cornerstone of a successful socioeconomic system.

Friedman put it all together in his 1962 book
Capitalism and Freedom
. In just 200 pages of succinct and engaging prose, he covered a vast range of topics on the role of government in a free society—international trade, social welfare, fiscal policy, distribution of income, education, and discrimination. He laid out the case for free-market capitalism as both a means to achieve economic freedom and a fundamental requirement of political freedom.

Throughout the book, Friedman dove deep into a raging sea of complex social and economic questions and recovered from them exactly how free-market solutions are superior to the force of government. But he was no extremist, no anarchist. Government, he believed, was a valuable instrument with a critical role to play. That role, however, was that of an umpire, not a dictator or even a paternalistic provider. The umpire enforces the rules, mediates disputes, and maintains a free field of play; the umpire doesn't dictate outcomes or advantage one team over another.

“The need for government in these respects arises because absolute freedom is impossible. However attractive anarchy may be as a philosophy, it is impossible in a world of imperfect men,” Friedman wrote. “Men's freedoms can conflict, and when they do, one man's freedom must be limited to preserve another's—as a Supreme Court Justice once put it, ‘My freedom to move my fist must be limited by the proximity of your chin.'”
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When
Capitalism and Freedom
was first published at the dawn of the 1960s, not a single mainstream U.S. newspaper or magazine would review it; not the
New York Times
, the
Chicago Tribune
,
Newsweek
, or
Time
. Since then,
Capitalism and Freedom
has sold over half a million copies in English and has been translated into 18 languages.
Atlas Shrugged
had received the same treatment—or worse—when it had debuted five years before. It, too, enjoyed a brilliant future despite having been ignored or maligned by the mainstream media.

Starting in the 1960s, Friedman became more active in public affairs. He served as an informal economic adviser to Barry Goldwater in his unsuccessful campaign for the presidency in 1964, to Richard Nixon in his successful 1968 campaign, and to Ronald Reagan in his 1980 campaign (Ayn Rand supported the first two, opposed the third). Friedman recalls his friend Stigler as fond of saying later, “Milton wants to change the world; I only want to understand it.”
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In 1969, Friedman was appointed as a member of the Gates Commission, a presidentially appointed panel assigned to consider replacing the draft with an all-volunteer military. This was a challenge worthy of Friedman's great mind—putting the burden to show that voluntary market forces could take the place of involuntary government coercion that virtually everyone had come to think of automatically as utterly necessary to wage war.

General William Westmoreland, the U.S. commander in Vietnam, strongly supported involuntary conscription, and told the commission that he didn't want to command an army of mercenaries. “General,” Friedman interrupted, “would you rather command an army of slaves?”

Replied Westmoreland indignantly, “I don't like to hear our patriotic draftees referred to as slaves.” Friedman shot back: “I don't like to hear our patriotic volunteers referred to as mercenaries.” Friedman moved in for the kill. “If they are mercenaries,” he told Westmoreland, “then I, sir, am a mercenary professor, and you, sir, are a mercenary general; we are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher.”
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With this kind of persuasion from Friedman—and similar efforts from his fellow Gates Commission member and Ayn Rand acolyte Alan Greenspan, whom we met in Chapter 8, “The Sellout”—the Gates Commission ended up recommending the abolition of the draft, and President Nixon ultimately signed it into law. Libertarians like Friedman and Greenspan—and Rand—were able to claim at least one spectacular victory for liberty under the otherwise dismal reign of Richard Nixon. Nowadays we falsely remember the antidraft movement coming from the political left, but conservatives/libertarians like Friedman and Greenspan—and Rand—are the ones who made abolition of the draft happen.

At the close of the 1970s, fresh on the heels of his Nobel award, Friedman began to gain a wider audience. He wrote a regular column for
Newsweek
(remember, the magazine that 15 years earlier hadn't deigned to review
Capitalism and Freedom
), dueling alternately with Paul Samuelson using opposing philosophical swords: Friedman's light rapier honed by the Chicago school's brand of free-market monetarism versus Samuelson's blunt claymore of Keynesian government intervention. The columns were extremely popular. Friedman's message, it seemed, resonated somewhere deep within the American psyche well outside the hallowed halls of academia and banquet rooms of Stockholm.

It was clear that Friedman had arrived right in the middle of Main Street when he was invited to appear in 1979 on the popular daytime talk show hosted by Phil Donohue. The show's limousine-liberal host whined to Friedman about “mal-distribution of wealth” and “the desperate plight of millions of people in underdeveloped countries.” He then asked Friedman, with arms flailing, “When you see the greed and the concentration of power, did you ever have a moment of doubt about capitalism?” Friedman's response was calm and masterful, literally stunning the unflappable Donohue into dumbfounded silence.

“Is there some society you know that doesn't run on greed?” Friedman challenged. “Do you think Russia doesn't run on greed? Do you think China doesn't run on greed? What is greed? Of course none of us are greedy—it's only the other fellow who is greedy. The world runs on individuals pursuing their separate interests. The greatest achievements in civilization have not come from government bureaus. Einstein didn't construct his theory under order from a bureaucrat. Henry Ford didn't revolutionize the automobile industry that way. In the only cases in which the masses have escaped the grinding poverty that you're talking about—the only cases in recorded history—are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it's in exactly the kinds of systems that depart from that. So that the record of history is absolutely crystal clear: that there is no alternative way, so far discovered, of improving the lot of ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system. Is it really true that political self-interest is nobler somehow than economic self-interest? Just tell me where in the world you find these angels who are going to organize society for us. I don't even trust
you
to do that.”
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This was not Gordon Gekko proclaiming that “greed is good.” It was classic Friedman. He made his point with supreme effectiveness, but there was not a hint of rancor in it, nor a trace of self-aggrandizement. It was all delivered with good cheer and an impish smile. Here was Rand's Hugh Akston come to life, delivering not a deathblow in a debate, but more of a prayer—what Akston described as “a full, confident, affirming self-dedication to my love of the right, to the certainty that the right would win.”

Helping People Learn (Because Governments Don't)

While Friedman's 1962 classic
Capitalism and Freedom
got Friedman's ideas to Main Street, they were soon to go further, potentially to every television set in the United States. With his wife Rose he created
Free to Choose
, a 10-part PBS miniseries and accompanying book. Here Milton and Rose, in homespun style and sparkly-eyed humor, led the viewer on a journey around the world, seen through the prism of their free-market philosophy. Using you-are-there real-world examples and personal interviews, the Friedmans made abstract ideas such as equality, freedom, and the power of the markets intensely accessible to the general public—even those with no formal training in economics or philosophy.

Using popular vernacular, they translated complicated principles into understandable examples. “The strongest argument for free enterprise is that it prevents anybody from having too much power, whether that person is a government official, a trade union official, or a business executive. It forces them to put up or shut up. They either have to deliver the goods [and] produce something that people are willing to pay for [and] are willing to buy, or else they have to go into a different business,”
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he said in episode 2, “The Tyranny of Control.” It was perhaps the first time in history that a Noble laureate publicly uttered the phrase “put up or shut up.” He also provided pithy maxims that were easy to recall in response to the collectivist claptrap of the day, including: “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”
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“The most important single central fact about a free market is that no exchange takes place unless both parties benefit,” and “Governments never learn. Only people learn.”

The Prophet of Profit

In
Atlas Shrugged
, John Galt stopped the engine of the world by persuading its most brilliant minds to go on strike. His first recruit was the philosopher of reason, Hugh Akston. In
Atlas
, we read the question: “Isn't it odd? When a politician or a movie star retires, we read front page stories about it. When a philosopher retires, people do not even notice it.” Rand's answer, in the voice of Francisco d'Anconia: “They do, eventually.”

That's because ideas move the world—they can save it, or they can destroy it. The
absence
of ideas can enable the world to destroy itself. So it was when Hugh Akston went on strike—and so it was when Milton Friedman died, in November 2006. The timing was almost too perfect. The financial crisis that swept the globe and became the Great Recession started within months of his death, with the first wave of defaults on subprime mortgages. The Obama administration and a radical leftist Congress used the turmoil—under the doctrine of White House Chief of Staff Rahm Emanuel, who said, “You never want a serious crisis to go to waste”
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—to implement a new New Deal.

Up to his last breath, Friedman had been a stunningly effective agent in dismantling the New Deal leviathan that he had once served. He always saw the unintended consequences of government meddling in the economy and in our lives, and warned us of the dangers we were inadvertently creating for ourselves. Often we listened, and often we didn't.

In the case of the mortgage credit crisis that erupted shortly after his death, he had been on the case a full 16 years before. Anticipating the government's role in the debacle through expanding Fannie Mae and Freddie Mac, he described in a 1992 pamphlet entitled
Why Government Is the Problem
exactly why the differences in private versus public ownership yield dramatically different results to society. “If a private enterprise is a failure, it closes down—unless it can get a government subsidy to keep it going; if a government enterprise fails, it is expanded. I challenge you to find exceptions. . . . If the initial reason for undertaking an activity disappears, they have a strong incentive to find another justification for its continued existence.”
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