. 2023. Jennifer Burns. Farrar, Straus and Giroux.
If you were asked to discover a famous economist based on the next facts, who would you name?
- In 1936 he elected Democrat Franklin Roosevelt as president.
- Supported significant portions of Roosevelt’s New Deal, which some critics viewed as positive
socialist. - Preferred moderate Dwight Eisenhower over conservative icon Robert Taft in 1952
Republican presidential nomination. - The despised anti-communist scourge Senator Joseph McCarthy.
- Attacked the fervently right-wing John Birch Society as “fundamentally wrong.”
- Considered the flawed gold standard.
- In the context of the common good he said: “[T]“Here, important tasks that must be carried out by the state” are too sensitive to be left “entirely to private charity or local responsibility”.
- Opposed “right to work” laws.
- Considered that John Maynard Keynes was right to argue that the federal government needed to support demand in times of crisis.
- Criticized supply-side economics and denied that tax cuts were consistently self-financing.
Milton Friedman (1912-2008) might not be the primary name that involves mind. Associating him with these bullet points seems particularly paradoxical given the subtitle of Jennifer BurnsBiography of the Nobel Prize winner – “The Last Conservative”.
However, Burns shows that Friedman’s views on various issues evolved over time and that his libertarian outlook sometimes brought him into conflict with conservative orthodoxy, equivalent to in his advocacy for a government-provided universal basic income.
Friedman has undoubtedly influenced public policy, particularly through his campaigns to abolish conscription and introduce school vouchers. However, the rationale for reviewing this book lies in Friedman’s economic contributions slightly than his political beliefs. Most famously, Friedman, working with Anna Schwartz, discovered that controlling the cash supply was the important thing to maintaining stable economic growth.
That’s to not say that the duo’s acclaimed treatise on the topic settled the matter once and for all. As Burns documents, other outstanding economists rejected the Friedman-Schwartz thesis or integrated it right into a synthesis called New Keynesianism. The Fed, for its part, alternated between managing rates of interest and managing monetary aggregates. In short, Friedman didn’t completely reshape economic policy, but he undoubtedly stays a force to be reckoned with, someone whose ideals could not less than be in comparison with your individual. On the primary page of her introduction, Burns quotes Joe Biden on the 2020 campaign: “Milton Friedman is no longer running the show!”
Friedman gained his lasting place in the talk not least by vigorously defending his proposals and skewering opposing views. Burns claims that Kenneth Arrow, Paul Samuelson and James Tobin all declined the chance to affix the school on the University of Chicago because they feared the considered being confronted with Friedman each day. Tjalling Koopmans told his colleagues that Friedman’s relentless criticism threatened his sanity and led him to take a leave of absence from a therapeutic music camp.
Ultimately, the worth for investment professionals lies in the chance to achieve a deeper understanding of economic theory by studying its history. Burns informatively traces the event and conflicts between concepts equivalent to Austrian economics, the opposing theories of Keynes and Friedman (developed with Margaret Reid) of the consumption function, and the relative income and wealth-income hypotheses. Reading these narratives reminds the practitioner that an economist’s forecast of GDP, inflation, or rates of interest relies on premises which might be removed from universally accepted as certainties. Nor will every economist agree with every statement made by the writer. For example, Burns blames fractional reserve banking primarily for the various bank failures of the Great Depression era. She doesn’t mention government bans or restrictions on branch business. These uniform banking laws resulted in a lot of banks becoming overly focused on loans tied to a single industry that dominated the local economy.
Furthermore, Burns calls the abstraction of perfect competition “an unrealistic but useful assumption.” She doesn’t indicate that Friedrich Hayek, a outstanding figure within the book, argued forcefully that perfect competition was actually useless as a heuristic start line. Perfect competition requires perfect knowledge, ignoring the essential feature of fragmented information and the all-important knowledge acquisition through the market process.
Burns shows Frank Knight explaining gains that may not exist under conditions of perfect competition on the premise of uncertainty. No less necessary, nevertheless, is the time value of cash, which is missing from their discussion. Someone has to advance the capital to construct the means of manufacturing goods before they could be sold. The providers expect compensation for the delay in consumption, which they might alternatively finance with their money.
Ultimately, nevertheless, it’s Friedman’s economic interpretations, not the writer’s, which might be most significant to the reader. At 575 pages, including her extensive notes and index sections, Burns’ book is just not a fast read, but it surely is a vigorous one. She embellishes the text with the form of verbal games for which her subject was known. “But in the long run,” she writes, “Bretton Woods was dead,” alluding to an oft-quoted—and largely misunderstood—remark by Keynes.
Burns also integrates allusions into chapter headings. For example, “Hidden Figures,” which focuses on Friedman’s little-recognized female collaborators, borrows from the title of a 2016 film about African-American women who played a vital but largely ignored role within the U.S. space program .
All in all, conscientious participants within the investment decision will find it each enjoyable and professionally enriching.
*The reviewer thanks Gene Epstein for his suggestions. Any errors or omissions are the only real responsibility of the reviewer.
