Another November, Another Giant Lost: Milton Friedman, July 31, 1912—November 16, 2006, R.I.P

On November 11, 2005, Peter Drucker passed away, at age 95. To me, Drucker was an absent educator, mostly through his books and other writings. He forever altered my perception of the business world with his penetrating insights. Concepts such as the knowledge economy, knowledge worker, the marketing concept, among many others, became part of my mental models to help me understand how the world works.

Unfortunately, I didn’t begin to read Drucker until the late 1980s, after I had left the Big Eight world and started my own CPA practice. It’s a good thing I discovered his work, as it would become a major influence in all of my books. Drucker has left us such a rich legacy—and he was so prescient in his insights—we are still trying to catch up with his teachings.

Before Drucker, though, I stood on the shoulders of two other giants. In my sophomore year in college, thanks to an inspiring economics instructor—Ron Shelke—and a persistent Father, I read one of the two most profound books in my life. The first was Milton and Rose Friedman’s Free to Choose. To say it was an epiphany would be an understatement.

(The second book was George Gilder’s Wealth and Poverty, which my Father initially tried to get me to read after reading a Playboy interview with Gilder. With characteristic hubris, I explained to my Dad how many economic crackpots existed, and since Gilder wasn’t a “credentialed” economist, he couldn’t possibly have anything to say. How wrong I was. Thank heavens my Father had a much more open mind than his idiotic son and bought me the book, which I devoured in one sitting. I keep that copy of Playboy just to remind me to constantly keep an open mind).

In uncommonly clear and concise language from an economist, Friedman taught me many lessons: The role of prices; the power and spontaneous order of the free market; the importance of liberty; the law of unintended consequences, especially as it relates to government regulation; why humans aren’t created equal; vouchers for public schools; the flat tax; who protects the worker and the consumer; monetary lessons; and so much more.

Those familiar with VeraSage know we are huge fans of the four ways one can spend money, which Friedman so brilliantly illustrated in Free to Choose (Category 3—spending someone else’s money on yourself—is why I won’t let Mr. O’Byrne have a mini-bar key).

I became a Friedman Disciple, reading anything and everything I could by this wonderful writer. His book, Capitalism and Freedom, taught me why various occupations insist on government licensure, and forever altered my view of why it is that professions themselves—never the customers whose interests are supposedly being protected—run to the government for this type of anti-competitive protection.

His PhD dissertation, written in 1941, was a fascinating study of five different professions, titled Income from Independent Professional Practice. Its publication was delayed until 1946 because of the controversy it created. Friedman (and co-author Simon Kuznets) concluded that the medical profession had monopolistic powers that enabled it to raise physicians’ incomes above a competitive level. He made no friends among licensed doctors, lawyers, accountants, etc., and one of the most devastating arguments he used in retort to their argument that they had to limit their supply to keep quality high, was this (I’m paraphrasing here): “It’s amazing how members of learned professions will admit publicly they have to be well paid in order to do the right thing.” That’s a disconcerting observation.

Friedman was also partly responsible for the tax withholding act, an idea that was vehemently opposed by the IRS when he proposed it in the 1940s. He regretted the part he played in this, and later became a proponent of the flax tax and the elimination of pay-as-you-go withholding, which of course is now vehemently opposed by the IRS (history, as Mark Twain used to say, doesn’t repeat itself, but it does rhyme). He was also partly responsible for ending the draft during the Nixon administration, and said, “No public-policy activity that I have ever engaged in has given me as much satisfaction as the All-Volunteer Commission.”

Friedman also wrote, along with Anna Schwartz, A Monetary History of the United States, 1867-1960, which posited the Federal Reserve was largely responsible for the Great Depression, negligently allowing the money supply to contract by one-third between 1929-1933. This evidence, along with Jude Waninski’s book, The Way the World Works, which posited the stock market crashed in 1929 in anticipation of Congress passing the Smoot-Hawley Tariff Act in June 1930, were enormous topics of debate during my formative college years.

Friedman wrote a price theory book, which taught the elements of price discrimination that would become so important in my work, though I did not read his textbook until after I published my books. I learned about price theory from David D. Friedman, Milton and Rose’s son, who is an incredible economist in his own right. Visit David’s Blog here, and his Web site here.

Essential Friedman reading: Capitalism and Freedom; Free to Choose; Tyranny of the Status Quo; and Two Lucky People, which are the memoirs of Milton and Rose, and was also the inspiration for the book Paul Dunn and I wrote, The Firm of the Future, since we wrote in our own voices like the Friedman’s.

You can also read the tribute The Economist paid to Dr. Friedman.

There’s so much to say about Friedman I can’t begin to do him justice. Suffice it to say, I’m sure glad he found the actuarial exams too difficult and went into his next best occupational alternative—becoming an economist. There is no way I will ever be able to repay him for all he taught me, as well as being the inspiration for wanting to write.

The world has lost a giant, but I believe Friedman would take solace in the fact that his ideas and ideals will live on in the hearts and minds of millions of lovers of liberty, because he—perhaps more than most—understood that ideas have consequences.

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