Free marketeer has left a strange legacy

There follows a comment by me on the legacy of Milton Friedman from the 20 November issue of Fund Strategy.

Few people under the age of 40 are likely to have heard of Milton Friedman, the doyen of free market economics who died last week. Friedman was one of the key intellectual forces behind what became known as the Thatcher revolution in Britain and the Reagan revolution in America. Yet, given recent developments, his corpse is probably already spinning.

Friedman, who won a Nobel prize in 1976, was partly known as a formidable technical economist. Much of his work focused on the relationship between the money supply and economic activity.

One conclusion he drew was that America’s Federal Reserve was largely responsible for the Great Depression of the 1930s. Although it had the means, it lacked the will to inject sufficient liquidity into the system when it was needed. This conclusion points to another key theme of Friedman’s work: scepticism about the role of the state in resolving economic problems.

But Friedman was not just an academic. He played a key role in popularising his ideas in newspapers and television programmes. For instance, his Free to Choose documentary series was broadcast by the BBC in 1980. Many others also promoted his ideas in the free-market upsurge of the time.

Yet although Friedman is often associated with the Conservative party under Margaret Thatcher, it was Labour that first started to implement his ideas. As Samuel Brittan, a veteran Financial Times columnist, has pointed out, it was James Callaghan, then prime minister, who argued in 1976 that governments could not spend their way into full employment.

In practice this meant pursuing cuts in public spending, along with pay restraint, to deal with what was then called “stagflation” – an ugly combination of stagnation and high inflation.

Where Labour led the Conservatives followed with fervour. What became known as “Thatcherism” involved attacks on public-sector workers and trade unions. In the process the idea that “There is No Alternative” to the market – dubbed “Tina” – was popularised. Socialism and Keynesianism were both discredited in the process.

The great irony of this development was that it robbed conservatism of a sense of purpose. The attack on the unions and the comparisons with the Soviet bloc provided conservatives with a mission. In contrast, today we have a strange combination of Tina without any sense of direction.

The result is a peculiar pro-market anti-capitalism. Capitalism is seen as creating enormous problems – climate change being the most popular current example – but at the same time there is no alternative vision. The result is a popular mood of gloom and despondency. Friedman has left a strange legacy.