DEATH OF AN ECONOMIC GIANT

Milton Friedman's Groundbreaking Theories Had a Powerful Influence on
the World of Finance, Write Louis Uchitelle and Edmund Andrews.

TRIBUTES flowed yesterday for Milton Friedman, the grandmaster of
conservative economic theory and a prime force in the movement of
nations towards lesser government and greater reliance on free markets
and individual responsibility.

One of the most influential economists of the past century and winner
of a 1976 Nobel Prize, Friedman died on Thursday of heart failure at a
San Francisco hospital. He was 94.

Conservative and liberal colleagues alike viewed him as one of the
20th century's leading economic scholars, on a par with giants like
John Maynard Keynes, Joseph Schumpeter and Paul Samuelson.

Flying the flag of economic conservatism, Friedman led the postwar
challenge to the hallowed theories of Keynes, the British economist
who maintained that governments had a duty to help capitalistic
economies through periods of recession and to prevent boom times from
exploding into high inflation.

In Friedman's view, government had the opposite obligation: to keep
its hands off the economy, to let the free market do its work. He was
a spiritual heir to Adam Smith, the 18th-century founder of the
science of economics and proponent of laissez faire - that government
is best which governs least.

The only economic lever that Friedman would allow government to use
was the one that controlled the supply of money - a monetarist view
that had gone out of favour when he embraced it in the 1950s. He went
on to record a signal achievement, predicting the unprecedented
combination of rising unemployment and rising inflation that came to
be called stagflation. His work earned him the Nobel Prize in Economic
Science.

Rarely, his colleagues said, did anyone have such impact on both his
profession and on government. Though he never served officially in the
halls of power, he was always around them, as an adviser and theorist.
In time, his influence was felt around the world.

"His thinking has so permeated modern macroeconomics that the worst
pitfall in reading him today is to fail to appreciate the originality
and even revolutionary character of his ideas," said Ben Bernanke, now
the chairman of the US Federal Reserve, in a speech honouring Friedman
in 2003.

Friedman was also a leading force in the rise of the "Chicago School"
of economics, a conservative group within the department of economics
at the University of Chicago. He and his colleagues became a
counterforce to their liberal counterparts at the Massachusetts
Institute of Technology and Harvard, influencing close to a dozen US
winners of the Nobel Prize in economics.

It was not only Friedman's anti-statist and free-market views that
held sway over his colleagues. There was also his willingness to
create a place where independent thinkers could be encouraged to take
unconventional stands as long as they were prepared to do battle to
support them.

Alan Greenspan, the former Federal Reserve chairman, speaking of
Friedman early this week, said: "From a longer-term point of view,
it's his academic achievements which will have lasting import. But I
would not dismiss the profound impact he has already had on the
American public's view."

Greenspan said that Friedman came along at an opportune time. The
Keynesian consensus among economists, which had worked well from the
1930s, could not explain the stagflation of the 1970s, he said. But
he also said Friedman had made a broader political argument, which is
at the heart of his classic book Capitalism and Freedom: that you
have to have economic freedom in order to have political freedom.

As a libertarian, Friedman advocated legalising drugs and generally
opposed public education and the state's power to license doctors, car
drivers and others. He was criticised for those views, but he stood by
them, arguing that prohibiting, regulating or licensing human
behaviour either does not work or creates inefficient
bureaucracies.

Friedman insisted that unimpeded private competition produced better
results than government systems. "Try talking French with someone who
studied it in public school," he argued, "then with a Berlitz graduate."

Once, when he was accused of going overboard in his anti-statism, he
said: "In every generation, there's got to be somebody who goes the
whole way, and that's why I believe as I do."

In 1962 Friedman took on President John Kennedy's popular inaugural
exhortation: "Ask not what your country can do for you. Ask what you
can do for your country." In an introduction to Capitalism and
Freedom, he said Kennedy had got it wrong: You should ask neither.

"What your country can do for you," Friedman said, implies that the
government is the patron, the citizen the ward; and "what you can do
for your country" assumes that the government is the master, the
citizen the servant. Rather, he said, you should ask "what I and my
compatriots can do through government to help discharge our individual
responsibilities, to achieve our several goals and purposes, and above
all protect our freedom".

It was not that Friedman believed in no government. He is credited
with devising the negative income tax, which in a modern variant - the
earned income tax credit - increases the incomes of the working poor.
He also argued that government should give the poor vouchers to attend
the private schools he thought superior to public ones.

In forums he would spar over the role of government with his more
liberal adversaries, including John Kenneth Galbraith, who was also a
longtime friend (and who died in May). The two would often share a
stage, presenting a study in contrasts as much visual as intellectual:
Friedman stood 160 centimetres, Galbraith, 203 centimetres.

With his wife, Rose Director Friedman, in 1978 he brought out a
best-selling general interest book, Free to Choose, and went on an
18-month tour, from Hong Kong to Ottumwa, Iowa, preaching that
government regulation and interference in the free market was the
stifling bane of modern society. The tour became the subject and
Friedman the star of a 10-part series on public television in 1980.

In 1983, having retired from teaching, he became a senior fellow at
the Hoover Institution at Stanford University.

Friedman remained the guiding light to US conservatives. He provided
the economic theory behind the landslide Republican victory in the
congressional elections of 1994.

By then the diminutive Friedman had grown into a giant of economics
abroad as well. He was sharply criticised for his role in providing
intellectual guidance on economic matters to the military regime in
Chile that engineered a coup in 1973 against that nation's
democratically elected president, Salvador Allende. But, for Friedman,
that was just a bump in the road.

In Vietnam, whose constitution was amended in 1986 to guarantee the
rights of private property, the writings of Friedman were circulated
at the highest levels of government.

"Privatise," he told Chinese scholars at a meeting in Shanghai's
Fudan University, as he told those in Moscow and elsewhere in Eastern
Europe: "Speed the conversion of state-run enterprises to private
ownership." They did.

Friedman had long since ceased to be called a flat-earther by anyone.
"What was really so important about him," said Allen Wallis, a former
classmate and later faculty colleague at the University of Chicago,
"was his tremendous basic intelligence, his ingenuity, perseverance,
his way of getting to the bottom of things - of looking at them in a
new way that turned out to be right". l