The evil that men do lives after them. Such is the legacy of the economist Milton Friedman, who died last week at the age of 94.
If you are to believe the paid apologists of capitalism – whether of the conservative, liberal or New Labour variety – Friedman was a great man.
The Guardian’s obituary described him as “one of the greatest economists of all time, to be included in the same category of pre-eminent figures as Adam Smith, David Ricardo, Karl Marx and John Maynard Keynes”.
That anyone should bracket Friedman with such figures is almost beyond belief. Adam Smith’s writings were a pioneering attempt to understand the peculiarities of a new economic system that was beginning to emerge in Britain some 230 years ago – industrial capitalism.
Smith saw it was the labour of those who worked that increased society’s wealth – and that profit was a “deduction” from that labour.
Ricardo carried Smith’s analysis forward. He too recognised that the market system led to increased wealth for capitalists, but increased unemployment and poverty for workers.
Keynes came to prominence in the great economic crisis of the 1930s. He too saw that capitalism can create crises which wreak havoc with people’s lives.
Friedman, in contrast, was an uncritical apologist for the horrors of capitalism. He supported the “neoclassical” economic theory that had turned its back on many of the insights of Smith and Ricardo.
Neoclassical theory held that the economy would always run smoothly – providing that capitalists were freed from “interference” by the state, and from “unnatural monopolies” such as trade unions.
This theory was very convenient for academics whose careers depended on ingratiating themselves with the powers that be. It reigned supreme in universities for more than half a century.
But then came the great crisis of the 1930s, with massive piles of unsold goods, hundreds of banks going bust and a third of the population unemployed in the US and Germany.
The complete unreality of the old orthodoxy became apparent, not only to those suffering from the slump, but also to capitalists looking to the state to protect them from bankruptcy.
Keynes argued that the state had to intervene to prevent capitalism from destroying itself. This approach became the new orthodoxy, accepted by Tory and Labour leaders alike for three decades after the Second World War.
Economists such as Friedman, who held on to the old views, were marginal figures, almost a laughing stock to most of their profession.
But crisis suddenly hit world capitalism again in the years between 1973 and 1976, and from 1980 to 1982. Governments tried to apply the remedies proposed by Keynes – and found they did not work.
Friedman suddenly became a significant figure. He preached that capitalism had to be “freed” from state interference. The rich had be given free rein to get richer. There had to be an end to attempts to keep unemployment down.
It was a popular message for economists. They had blamed the slump of the 1930s on a lack of state intervention. Now they blamed the new crises on such intervention.
Friedman’s ideas were first put into practice in Chile in 1973, after a brutal military coup led by General Pinochet that killed thousands of people and destroyed the working class movement.
The experiment ended in disaster, with the country’s major banks going bust eight years later. But this did not stop Margaret Thatcher from implementing Friedman’s ideas in Britain in the 1980s.
Friedman claimed to develop two new economic theories. The first was that if things went wrong with the capitalist economy, it was because the government did not know how to control the supply of money.
But this “monetarist” theory was neither new – Karl Marx had already torn it apart in the third volume of Capital a century before – nor could it be applied in practice. Governments found they could not control the money supply, and economists bickered over how one could even measure it.
Friedman’s second “innovation” was to argue that government attempts to reduce unemployment could not work because there was a “natural rate of unemployment”.
Without realising it, Friedman was simply reiterating an old truth about capitalism – that it needed what Marx called a “reserve army” of the unemployed to keep wages down.
But Friedman’s theoretical inadequacy did not matter – he provided an ideological justification for attacks on workers. That is why apologists for capitalism are extolling Friedman. The rest of us should spit on his grave.