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Economist changed the world

Times Staff Writer

MILTON FRIEDMAN, a brilliant champion of free-market economics and individual freedom who almost single-handedly altered the boundaries of public debate on an array of national issues, died Thursday in San Francisco. He was 94.

The cause was heart failure, said Robert Fanger, a spokesman for the Milton and Rose D. Friedman Foundation in Indianapolis.

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 presidents and presidential candidates dating to the 1960s. President Reagan and Margaret Thatcher, the former British prime minister, were among his fans. Friedman’s sweeping, pro-capitalist ideas earned him legions of followers both domestically and overseas, while also sparking dissent and controversy.

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He was awarded the Nobel Prize in economics in 1976 for a body of “original and weighty work,” including his money supply research, which jurors said had influenced fellow scholars as well as the U.S. Federal Reserve and the central banks of other nations.

“He was a great man,” said Allan H. Meltzer, an economics scholar at Carnegie Mellon University and the American Enterprise Institute. “It’s hard to think of anybody who never held a government position of any importance who influenced our country -- and the whole world -- as much as he did.”

The longtime San Francisco resident had been a senior research fellow at Stanford University’s Hoover Institution since 1977.

Yet Friedman’s influence extended far beyond the ivory tower. He became an economist-celebrity, promoting his passionate beliefs in books, magazines and television appearances. With confidence and a professor’s logic, he sought to demolish the conventional belief after World War II that government should play a sweeping role in people’s lives.

Taxes should be cut and simplified, he said, and society would benefit when personal choice reigned supreme.

Though some of his teachings about money lost influence over time, he ultimately attained the status of a capitalist icon through the purity and force of his broader world view.

“He had been a fixture in my life both professionally and personally for half a century,” former Federal Reserve Chairman Alan Greenspan said in a statement Thursday. “My world will not be the same.”

The current Fed chairman, Ben S. Bernanke, said in a statement that “Friedman had no peer” among economic scholars. “Just as important, in his humane and engaging way, Milton conveyed to millions an understanding of the economic benefits of free, competitive markets, as well as the close connection that economic freedoms bear to other types of liberty. He will be sorely missed.”

Freedom to choose

In the 1960s, Friedman argued that personal retirement accounts made more sense than a mandatory system of Social Security, helping set the stage for the recent national debate about the issue. Similarly, he contended that parents should be allowed to choose which schools their children attend, laying the foundation for ongoing arguments about school choice.

This latter belief animated Friedman’s final years, and promoting choice in schools became the mission of his foundation. “Why do America’s universities have a greater reputation around the world than its public schools?” he once asked. “You have choice. That makes all the difference in the world.”

His views did not break down into a right-left framework. He emerged as a leading voice in the Vietnam-era movement to end the draft, a position ultimately endorsed by President Nixon.

Friedman offered blunt advice on subjects as personal as laws against prostitution -- he saw them as incursions into individual choice -- and as sweeping as the international system of relatively fixed exchange rates, which he sought to overturn and which indeed collapsed in the early 1970s.

He became the human face of the influential “Chicago school” of economics, emphasizing the role of monetary policy, which affects interest rates, and the benefits of laissez-faire or free-market approaches to the economy.

Political leaders listened, granting almost unparalleled influence to a scholar whose free-market religion once seemed out of step with the times.

At one point, Stanford University tried to lure the influential professor from the University of Chicago to a “free enterprise” chair. But Friedman did not wish to be pigeon-holed, and he turned down the offer. “He felt it would have restricted him or branded him, and he didn’t want to be branded,” Meltzer said Thursday.

Not all of his ideas found lasting acceptance. The U.S. Federal Reserve, the Bank of England and other central banks eventually abandoned much of his monetary prescription.

After a series of corporate and financial scandals, the Friedman-style mantra for deregulation lost its allure for much of the public. Some of Friedman’s social priorities, notably the legalization of drugs, never caught on.

Friedman himself acknowledged that in hindsight he might not have pushed the technical aspects of his money supply theories so aggressively. Yet he never wavered from the essence of his world view.

“You form a philosophy at a certain stage, and for the rest of your life it dominates,” he told the Financial Times in June 2003. “On the big issues of policy, I don’t think there is anything I’ve changed my mind about.”

Growing up Friedman

Friedman was born in Brooklyn on July 31, 1912, the fourth child in a family of struggling Jewish immigrants from a region that is now part of Ukraine. When he was 13 months old, the family moved to the New Jersey town of Rahway.

The household was warm and supportive, and his childhood was generally happy, Friedman would later recall. But money was tight. Friedman’s parents engaged in various enterprises with limited success, including a small store and an ill-fated ice cream parlor.

“Among my most vivid memories are heated discussions between my parents at night about where the money was to come from to pay incoming bills,” Friedman recalled in his 1998 memoir, “Two Lucky People,” written with wife, Rose.

Friedman made heavy use of Rahway’s small library -- “almost exhausting the contents” -- and was an enthusiastic Boy Scout. Slight of stature -- Friedman was about 5 foot 2 as an adult -- he played on the school’s chess team.

After graduating, he entered Rutgers University on a scholarship. Always enterprising, he supplemented the aid by waiting on tables, hustling fireworks, tutoring high-school students and clerking in a retail store. Friedman also began fruitful intellectual relationships with two professors: Arthur F. Burns, later to become chairman of the Federal Reserve, and Homer Jones, who lectured students on the importance of individual freedom.

He planned to become an actuary, but explained in an October 2000 PBS interview why he changed his mind during the Great Depression: “If you’re a 19-year-old college senior, which is going to be more important to you: figuring out what the right prices ought to be for life insurance, or trying to understand how the world got into that kind of a mess?”

Friedman chose to pursue the latter question as a University of Chicago graduate student in 1932.

He went on to study economics at Columbia University, did a stint on a New Deal economics project in Washington, the National Resources Committee, and worked for the nonprofit National Bureau of Economic Research in New York.

He discovered firsthand that scholarly conclusions can lead to controversy. Friedman wrote in his doctoral thesis that physicians gained extra income through the powers of the American Medical Assn. to restrict entry into the profession. Those same powers, Friedman wrote, reduced the availability of medical care for the public.

Columbia University held up accepting Friedman’s thesis for five years. “I was young and innocent at the time, and did not realize that a storm of protest would develop,” Friedman said in his memoir. “I soon learned better.”

Shaping monetary views

Friedman had not yet arrived at a vehement rejection of tax-and-spending policies as a way to steer the national economy. During World War II, he even worked for the federal government, advising the Treasury Department on wartime tax policy and other matters.

There followed a brief stint at the University of Minnesota. Then in 1946 Friedman joined the faculty of the University of Chicago, which would serve as his home base for the next 30 years.

“Being a student of Milton’s was magic indeed,” Gary S. Becker, a 1951 graduate student of Friedman who would win his own Nobel Prize, recalled years later. “People would always ask me, ‘Why are you so excited? Are you going out on a date with a beautiful woman?’ I said, ‘No, I’m going to a class in economics.’ ”

Early on, Friedman arrived at one of his famous findings: The Federal Reserve had blundered terribly in the late 1920s and early 1930s, triggering the 1929 stock market crash and deepening the Great Depression through excessive tightness in the money supply. That knowledge, he believed, should protect America from a recurrence.

Friedman’s lifelong views on freedom and personal choice also emerged in the 1940s and 1950s. In particular, he was moved by an economics professor named Friedrich Hayek, whose intellectual attacks on socialism galvanized a small group of true-believers.

At the time, mainstream Democrats and Republicans assumed that the federal government would retain a huge, ambitious role throughout society, serving as an equalizer for the disadvantaged. John Maynard Keynes, an eminent British economist, was the intellectual leader of the prevailing view.

Friedman set out to provide an alternative. In 1962, he published “Capitalism and Freedom,” a widely read primer on his anti-government convictions, containing thoughts on monetary policy, public education, welfare and poverty. He blasted Social Security for restricting people’s options in saving for retirement, pushed for a single-rate “flat” tax to replace the more complex system of multiple brackets, and called for an end to licensing boards.

The following year he published what many consider his masterpiece, an 800-page “Monetary History of the United States,” written with economist Anna Jacobson Schwartz. It provided detailed evidence for his monetarist view that careful growth of the money supply was the paramount factor in sustaining economic growth.

His monetary views also enabled Friedman to predict the inflation of the 1960s and 1970s, relying on an analysis that was outside the mainstream of his profession.

In the 1964 presidential campaign, Friedman stepped directly onto the political battlefield.

Lyndon Johnson, the Democratic incumbent, advocated a Keynes-style Great Society of ambitious federal programs. Sen. Barry Goldwater, the conservative Republican nominee, was drawn to Friedman’s policies and picked the economist as an advisor.

Johnson won in a landslide. But Friedman stayed at the forefront of the policy struggle, soon beginning a Newsweek column that provided him a forum for his ideas on taxes, red tape, import restrictions, the Federal Reserve and matters unrelated to economic policy.

Opposition to the draft

When Nixon appointed Friedman to a panel examining whether to abolish the draft, Friedman found that his anti-draft views put him at odds with Gen. William Westmoreland, the Army chief of staff and former Vietnam War commander.

At one point, Westmoreland said he did not want to command an army of “mercenaries.”

“I stopped him and said, ‘General, would you rather command an army of slaves?’ ” Friedman later recalled. “He drew himself up and said, ‘I don’t like to hear our patriotic draftees referred to as slaves.’ I replied, ‘I don’t like to hear our patriotic volunteers referred to as mercenaries.’ ”

U.S. officials ended the draft in 1973. Friedman also offered a range of economic advice to the Nixon White House, including a plan for a negative income tax providing new aid to the poor.

But the economist was horrified when Nixon imposed wage and price controls, and Friedman blasted the plan as “pure window dressing which will do harm rather than good.” He also was disappointed at Nixon’s willingness to accept a batch of new regulatory agencies, including the Environmental Protection Agency, the Occupational Safety and Health Administration, and the Consumer Product Safety Commission.

An economics celebrity

Despite frustrations, his star was rising. On Oct. 14, 1976, reporters swarmed Friedman as he entered a Detroit news conference about a proposed state spending limit. To Friedman’s surprise, they informed him that he had won the Nobel Prize in economics.

The Swedish academy credited Friedman with insights into managing the nation’s money supply -- it should grow gradually and steadily, he believed -- and how households decide what they can afford to spend, based on expected lifetime earnings. They also cited Friedman for exploding the old fallacy that inflation could reduce unemployment.

“It is very rare for an economist to wield such influence, directly and indirectly, not only on the direction of scientific research but also on actual policies,” the judges said.

But the prize also brought controversy.

Friedman had enraged human rights activists the previous year by giving a series of lectures in Chile, which was controlled by the military dictatorship of Augusto Pinochet. Critics accused the economist of bolstering Pinochet, whose government included Friedman disciples.

When the Friedmans traveled to Stockholm for the Nobel award, protesters were waiting. The furor annoyed the economist, who believed that economic freedom was a force for political freedom.

Friedman’s involvement in policy deepened. In 1980 he served as an advisor to the presidential campaign of Ronald Reagan, and continued to offer some advice after Reagan was in the Oval Office.

Reagan soon supported a politically costly effort by the Federal Reserve to clamp down on the money supply and fight inflation, adhering to Friedman’s principles. Inflation was conquered, but at the cost of a steep recession.

Friedman’s celebrity skyrocketed in 1980 with the 10-part PBS series “Free to Choose,” a compilation of Milton and Rose Friedman’s shared philosophy about personal, political and economic freedom. A book based on the project became the year’s top nonfiction seller. Friedman continued his research at Stanford’s Hoover Institution until the end of his life. He had a history of heart problems, including bypasses, but remained intellectually engaged, reading from a computer screen with enlarged type. One friend said Friedman had fallen in the shower shortly before his hospitalization in San Francisco.

In addition to his wife, he is survived by daughter Janet, an attorney, and son David, a professor of law and economics at Santa Clara University. Family members Thursday requested that any donations be made to the Milton and Rose D. Friedman Foundation. Friedman will be cremated and his ashes spread across the San Francisco Bay, his family said.

jonathan.peterson

@latimes.com

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Voices

‘Milton Friedman revived the economics of liberty when it had been all but forgotten. He was an intellectual freedom fighter. Never was there a less dismal practitioner of a dismal science.’

Margaret Thatcher, former British prime minister

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‘Milton was one of the great thinkers and economists of the 20th century, and when I was first exposed to his powerful writings about money, free markets and individual freedom, it was like getting hit by a thunderbolt.’

Arnold Schwarzenegger, California governor

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‘A champion of limited government and personal freedom, Friedman proposed bold ideas about school choice, tax reductions, and an all-volunteer army that serve as the foundation of many of America’s most successful government reforms.’

President Bush

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“He, more than any other person, has changed the composition and ideology of the economist’s profession.’

Paul Samuelson, professor emeritus of economics at the Massachusetts Institute of Technology


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