Milton Friedman, Cultural Entrepreneur

To better understand his impact, compare him to the familiar figure he supplanted.

It has been obvious for decades that there were two sides to Milton Friedman.  Unlike Dr. Jekyll and Mr. Hyde, whose separate lives depended on secrecy, Friedman’s personality was not dual but fused, and this somehow reinforced his influence.  How to characterize his twin aspects? In A Culture of Growth: The Origins of the Modern Economy, Joel Mokyr coined the term “cultural entrepreneur.”

Nothing about Mokyr is trivial. Professor at Northwestern University for fifty years, a master economic historian, he’s won major honors in both fields. An interest in economic theory has kept him active well into his seventies at the cutting edge of things, as teacher, general editor, and mentor to a generation of young economists who are suddenly interested in the relationship between institutions and culture, in common with anthropologists, sociologist, evolutionary psychologists.

Culture changes, as we all know, but how does change occur? Mokyr says that outsize influence of ideas generated by echelons of extraordinary individuals are a prime factor.  He cites a dictum of George Bernard Shaw that sums it up: “The reasonable man adapts himself to the world:  the unreasonable man persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”  Putting aside (for now) Shaw’s blithe faith in “progress,” what do cultural entrepreneurs achieve? Mokyr writes:

[S]uccessful cultural entrepreneurs [are] the individuals who successfully contested and overthrew existing authorities in a specific area of culture and created a competitive variant: this is one way of thinking about Mohammad, Martin Luther, Adam Smith, Karl Marx, and Charles Darwin.

In other words, cultural entrepreneurs are essentially hybrids, Mokyr says. They function as much as coordinators as they do innovators. They combine disparate beliefs to produce more coherent sets of cultural traits. These ideas serve in turn as focal points for future generations.

There were economists before Smith, socialists before Marx, evolutionary biologists before Darwin, but even far less powerful figures such as Ayn Rand, Joseph Schumpeter, Michel Foucault, and Herbert Marcuse have roles to play.  Books are written about what they, too, “really meant.”

In Mokyr’s foreshortened hierarchy, where does Friedman fit in? Right next to the long shelf of books about John Maynard Keynes. The great economist of the first half of the last century is the cultural entrepreneur against whom Friedman's influence should be gauged.

That long shelf on Keynes is intimidating. For purposes of comparison, the book I took down this week is The Years of High Theory: Invention and Tradition in Economic Thought 1926-1939, by G.L.S. Shackle (Cambridge, 1967). I chose it not because it depicts Keynes whole – for that there is Robert Skidelsky’s three-volume biography and a host of other works. I turned to Shackle’s exceedingly careful account for the opposite reason: because it seeks to identify Keynes’s breakthrough achievement and place it in the context in which it occurred.

Keynes the man whole is the figure we love to read about. The privileged Cambridge aesthete and Bloomsbury dilettante who came late to economics via government service in World War I. He is a brilliant writer, author of the prescient Economic Consequences of the Peace (1919); the overshadowed Treatise on Probability (1921); the portentous “End of Laissez Faire” (1926); the visionary “Economic Possibilities for our Grandchildren” (1928); the abandoned two-volume Treatise on Money (1930); the tranquil Essays in Biography (1932); the dazzling General Theory of Employment, Interest, and Money (1936).

Between the wars, he is a successful investor; a collector of Newton manuscripts; beneficiary of a celebrated marriage. He returns to the Treasury in 1939 and writes How to Pay for the War. He leads the British team at Bretton Woods in 1944 but is defeated by American architects of a monetary system to replace the classical gold standard. Exhausted, he dies in 1946, too soon to see the Marshall Plan – the Americans’ implementation a year later of his 1921 recipe for post-war reconstruction.

Keynes’s contribution to theory – his “discovery,” we would say – is more difficult to identify. It is important to do so, though, because his success as a cultural entrepreneur depends on it.  This “second side” – the great economist – is crucial for his success. It is clear enough that climax to his career was General Theory. 

What exactly did the book convey?  Shackle says its ultimate meaning is to be found in Chapter Twelve, “The State of Long-term Expectation.” In fact, the argument of Chapter Twelve is not nearly as clear as its final paragraph:  skeptical of “merely monetary policy” to induce a turnaround, Keynes writes that he expects the State “to take ever-greater responsibility for directly organizing investment…” So in 1937 Keynes turned  to the  Quarterly Journal of Economics  with an essay, “Economics of Disorder,” designed to sum up his message. Shackle writes, “he brushed aside the painstaking detail of his critics’ incomprehension and attempted a final penetration of their minds.”

A practical theory of the future… is subject to sudden and violent changes. The practice of calmness and immobility, of certainty and security, suddenly breaks down. New fears and hopes will, without warning, take charge of human conduct. The forces of disillusion may suddenly impose a new conventional basis of valuation.

To put it still more simply, the economy can become trapped in an underemployment equilibrium. Massive government spending may be required to get it to grow again. Sustained fiscal policies will be required to maintain steady expansion. A formerly mostly laissez faire enterprise economy must become mixed.

It took time to decipher Keynes’s argument. He had opened “a gold mine” for macroeconomists, according to Robert Solow, but much clarification was required before the inherently conservative profession would be convinced. Articles by John Hicks and Oscar Lange were especially important, he added.  David Colander and Harry Landreth produced a book of interviews with various principals, The Coming of Keynesian Economics to America, made clear how The General Theory’s influence spread in textbook economics. Broader cultural implications were acquired later.

Keynes’s success as a cultural entrepreneur depended critically on his reputation as a scientist. He had been a brilliant essayist. But without The General Theory, he would have fared no better than his rivals – Schumpeter, Hayek, Irving Fisher – in the history of the Great Depression, and probably worse.  

So, what exactly was Friedman’s contribution to economic theory? Happily, another history of Friedman’s views, penetrating and exhaustive, is designed to answer that question, at least for now. (Nothing in the history of ideas is forever.) It is to a three-volume study, Milton Friedman & Economic Debate in the United States (Chicago, 2020), by Edward Nelson, that we will turn next week.