Milton Friedman: An economic grandmaster dies

Legendary Milton Friedman, a champion of free-market economics and individual freedom died yesterday in San Francisco. He was 94.

Mr. Friedman was considered a leading economic thinker of the 20th century. His many prescriptions for policy, notably on managing the nation's money supply and curbing the welfare state, influenced US presidents and presidential candidates starting in the 1960s.

Mr. Friedman promoted laissez-faire capitalism. Friedman, an economic giant himself and a Nobel Prize winner, had opposing views to another illustreous economic giant of the 20th century: John Maynard Keynes, the famous British economist who died in 1946.

Keynes advocated an interventionist government policy to smooth out the business cycle by stimulating and managing demand for goods and services through such mechanisms as public-works programs, deposit insurance and deficit spending.

Friedman felt the more efficient approach is for government to cut taxes, curb regulation and focus on the supply of money in circulation. Keynes's prescription was that global finance can be stabilized through fixed exchange rates while Friedman's formula is to use floating exchange rates.

Milton Friedman is not simply the most influential economist since Keynes, but a worthy successor, building on Keynes's insights even as he discredited key aspects of Keynesian economic management.

Larry Summers, the former Treasury secretary and Harvard president has said that Keynesian theory was not so much wrong as incomplete.

With his focus on the overall demand for goods and services in the economy, Keynes overlooked the importance of the supply of money in circulation. Friedman argued that controlling that supply was a better tool for managing the economy than taxation and spending policies.

Friedman's belief in free markets sometimes bordered on the fanatic — he has called for drugs and prostitution to be decriminalised. And while he never formally advised Chilean dictator Augusto Pinochet, he did visit Chile and helped lay the foundations for that country's economic revival.

Friedman's critics argue the fact that Pinochet applied free-market policies while running a military dictatorship is evidence that free markets don't necessarily result in freedom.

An adage frequently associated with Milton Friedman is "There is no such thing as a free lunch." This view has certainly influenced his approach to public policy.