Updated: November 27, 2009 12:59 IST

Doctrine of Friedman

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Milton Friedman was, and remains after his death, one of the godfathers of neo-liberal capitalism

When I agreed to review this collection of articles edited by K. Puttaswamiah, I had hoped to learn something about the analytic vision of Milton Friedman, who died in 1996, but, whose thoughts, starting six decades back, continues to exercise a malign influence on the profession of economics and policy-makers. But I was chagrined to find that it was the product of a peculiar kind of academic entrepreneurship that infests the academia of the subcontinent. The outside cover of the book displays endorsements by three economists, and all of them have contributed to the volume.


In the ‘Preface’ we are told that “Milton Friedman was a member of the International Journal of Applied Economics and Econometrics.” As it turns out, he was a member of the advisory board of that journal, which has Puttaswamaiah as the editor-in-chief. I was appalled by the standard of English (sharply in evidence in the editor’s introduction) and proof-reading — the book is littered with typographical howlers. Readers who look for nuggets of wisdom in this publication must be incurable optimists.

Milton Friedman was, and remains after his death, one of the intellectual godfathers of neo-liberal capitalism and imperialism. In one of the few interesting papers in the book, Robert Leeson shows that he was a very active godfather. He was adviser to Barry Goldwater, a conservative candidate for presidency in the United States, which had been battling the spectres of nationalism and communism all over the developing world with bombings, covert assassinations, and plots to install murderous puppet dictators. Goldwater lost, but Friedman persevered in giving advice, wanted and unwanted, to successive U.S. Presidents.

His tome arrived in the 1970s, when stagflation at home and threat of the developing countries using their new-found voice to demand a more just international order induced the ruling classes of the U.S. and the United Kingdom to adopt the doctrine of monetarism and the associated policies of flexible exchange rates and structural adjustment. This they did by deregulating interest rates and balancing the budget at enormous cost to the working classes and farmers of the developing world. In a devastating review of Friedman and Schwartz’s A Monetary History of the United States, 1867-1960, James Tobin had demonstrated that the book was guilty of the fallacy of post hoc, ergo propter hoc, and the causality ran more often from national income to the quantity of money, rather than the other way round. This was also demonstrated in all cases of monetary targeting because financiers found ways of getting round constraints on the money flows imposed by the authorities.

Awarded Nobel

Despite this, Friedman received the Nobel Prize in economics in 1976, and the Friedman-Schwartz book figured in the citation. This was primarily because Friedman’s doctrine was very useful to the major capitalist power and its associates. Some evidence for this is provided in a paper by Alex Millmow, ‘Chicago versus Cambridge in Australia, 1975.’ In that year Friedman and Joan Robinson visited Australia. “While they never met, they both appeared on the same talk show programme on national television two weeks apart. Friedman’s stockbroker-funded visit was more evangelical yet high-level meeting with selected business and political elites, while Robinson’s visit, mostly hosted by Monash University, giving lectures and seminars there and at several universities.”

Australia soon followed the U.K. and the U.S. in pursuing monetarist policies. In the 1960s, soon after Joan Robinson, along with Piero Sraffa and Luigi Pasinetti, had demonstrated that there was a fundamental fallacy in the foundations of the (neoclassical) marginal productivity theory of income distribution, I had a conversation with her. On that occasion, she had hoped that the neoclassical theory of distribution would disappear from the curricula, but I had expressed the fear that it would be taught so long as it was useful to the ruling classes in capitalist countries. Unfortunately, the Chicago School doctrines have proved ruinous not only for the developing countries but also for the people of the advanced capitalist counties as the financial and economic crisis since 2007 has starkly demonstrated. But Friedmanite doctrines have not been eclipsed by saner Keynesian and neo-Marxian theories in the curricula or mainstream media. There is a paper by Samuelson in this volume, but it is badly composed and consists mainly of reminiscences.

MILTON FRIEDMAN — Nobel Monetary Economist: Edited by K. Puttaswamaiah; Oxford & IBH Publishing Co. Pvt. Ltd., 113-B, Shahpur Jat, 2nd Floor, Asian Games Village Side, New Delhi-110049. Rs. 875.

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