This book chronicles key discussion between perhaps the two greatest economists from the end of World War II to the beginning of this century. These discussions took place for nearly five decades, for eight years (1965 – 1973,) through columns written in the weekly magazine, Newsweek. Remarkably, although the two tended to have dramatically opposite views, they always remained friends on a personal level, with deep respect for each other.
Paul Samuelson was of course the world-known liberal economist from MIT, noted for his strong beliefs in Keynesianism and thus considerable amounts of governmental intervention in the economy – a true liberal. He is also acknowledged for his textbook Economics, the most widely sold textbook of its kind ever sold. He received the Nobel Prize in Economics in 1970.
Milton Friedman, almost equally famous, was a University of Chicago-based conservative economist, fiercely opposed to the interventional ideals of Samuelson. His mantra, instead, was to prescribe the amount of money supply in a society, i.e., its liquidity situation, as the critical factor to drive economic progress. Friedman was indeed brilliant, and conservative, a non-interventionalist. Friedman received the Nobel Prize in 1976.
Both were trained as mathematical economists, comfortable not only to work with mathematical equations but also with modern statistical methods.
Now a few words about the author of this remarkable book, Nicholas Wapshott. He has written many books that all fall into the genre of economics/ political science, such as the biography of Margaret Thatcher and the widely acclaimed Keynes Hayek: The Clash that Defined Modern Economics. He lives in New York City.
For me, as a reviewer, this book provides plenty of associations relating to my own economic studies several decades ago at the Norwegian School of Economics and Yale. The book Is full of economists’ and politicians’ names, anecdotes and events. Some might perhaps say that there might be too much detail. I do not share this view. The book gave me a vivifying reminder of what I once found to be such stimulating economic science, a true tour!
The first three of the book’s 17 chapters detail the careers of Samuelson and Friedman, as well as how Newsweek's ownership shifted hands from the Astors to the Grahams (Washington Post). Then in chapter four there is a brief review of Friedman's two key writings: Essays in Positive Economics and A Monetary History of the United States, 1867 -1960, the latter turning on its head the causes for the crash of 1929 and the Great Depression, namely that this was primarily caused by the tightness of money in circulation.
The next chapter builds up to arguing how to cope with the fundamental dilemma: to intervene in the economy or not to intervene. Hayek's highly influential book The Road to Serfdom (1944) provided plenty of inspiration for the conservative side. Leading economists lined up on both sides, Robert Solow and others with Samuelson, George Stigler, Gary Becker, Theodore Schultz and others on the side of Friedman.
Keynes was by many considered one of the major economists who ever lived. Samuelson even considered him the greatest. Number two was Adam Smith according to Samuelson; number three was Leon Walros, the Lausanne-based economist of the 18th century. But Friedman was unstoppable when it came to questioning Keynes. Economics was about money. His just mentioned A Monetary History of the United States, gave him what he felt was ammunition, further supported with arguments from Hayek. But as Friedman's monetarist ideas gathered momentum, Samuelson was trying to stop this anti-Keynes counter revolution in its track using cold, clear logic. He described the hyperinflation that came about during the Vietnam period, for instance, as producing a classical demand-pull inflation, i.e., “too much spending chasing a limited supply of goods, with labor markets tight and under backlogs high as overtime production could not produce as much as needed” (Newsweek, Dec. 1970). Aren't we seeing much of this today too?
But the inflation was not stopped. Nixon, then president, hesitated to curtail government spending- he was more interested in being reelected than initiating unpopular moves. The number of new government agencies mushroomed for instance. Aren't we seeing the same today?
The next chapter, chapter 10, provides details around both Samuelson and Friedman's Nobel Prize awards, in 1970 and 1976 respectively, as already noted. It is worthwhile to observe that there were demonstrations in the streets of Stockholm when Friedman got the prize, none the least due to allegations that he might be close to general Pinochet of Chile. My sense is that such demonstrations might have been expected anyhow, in light of the largely left leaning political norms of the Swedish society at the time.
The battle against inflation went on, and President Carter appointed the charismatic former banker Paul Volcker to now lead the battle. His “miracle prescription” was to increase the money supply, coupled with high interest rates. Inflation subsequently came down, and Volcker and Friedman received full credit for this remarkable achievement.
Then enter the new president, Ronald Reagan, and the young Chicago based economist Arthur Laffer, with his so-called bell-shaped curve indicating that overall tax return would not necessarily go up when the tax rate would be raised beyond a certain point. Accordingly, taxes were reduced!
The next two chapters, 13 and 14, are both relatively peripheral to the main body of this text. The first has to do with how the two heroes of the book, Samuelson and Friedman, stopped writing for Newsweek around 1983. Fatigue and frustration with having to live up to weekly deadlines, always with constraints regarding the permissible length of their writings seem to have been the reasons. In the UK, Margaret Thatcher was a firm believer in Friedman. She initiated several important changes to enhance deregulation, many of them having had lasting transformational impacts on the UK society.
Then comes President Bush, the elder. The September 11th, 2001, terrorist attack represented a shock to the US. Are we no longer secure at home? But also, the economy suffered. To stimulate the economy the new Federal Reserve Chairman, Alan Greenspan, initiated a drive to lessen the cost of money. Cheap money was not what Friedman had prescribed, however. But it seemed to work!
Following, Ben Bernanche became Federal Chairman. He was initially a “brilliant MIT graduate”, but relatively conservative. When the economic crisis hit Wall Street so hard in 2008, he did not hesitate to intervene, using large amounts of government funds to bail out several banking or insurance firms that elsewise might have risked defaulting. This was truly Samuelson-style thinking! Bernanche was indeed comfortable!
The last chapter of this remarkable book covers several “post happenings” after the deaths of both of these giant economists (first Friedman in 2006, then Samuelson in 2009). Partly this deals with where the two wanted their collected writings to be placed, in the end Samuelson at the MIT archives, Friedman at Stanford’s Hoover institution. And there were some departing shots between the two camps. Since Friedman passed away first, these came largely from the Samuelson side, but not from Samuelson himself. Lawrence Summers, ex-President of Harvard University and ex-Secretary of the US Treasury, Samuelson’s nephew and tennis partner, was quite critical of Friedman, and so was Robert Solow, the other MIT economist of world fame.
The author appropriately raises the question at the end of the book: what were the lasting legacies of each of these two giant economists? The author seems to feel that Friedman's legacy might perhaps be stronger than Samuelson's. Keynesian thinking is no longer as strong as it might have been, he says. This might perhaps have more to do with the political “pain versus pleasure’ in practising Keynesianism and, typically calling for a rather robust political determination versus conservative, with the laissez faire of such politicians commonly involving relatively less political guts. There is perhaps a clear trend towards “baking the cake before you eat it”. But there is probably not a steady state balance between the two extremes here. The pendulum goes back and forth! Thus also, it is probably far too early to declare Friedman more influential than Samuelson, or vice versa.
I am left with a lot of admiration for what the author has accomplished in putting together this book. As already pointed out, there are numerous names and anecdotes - perhaps too many! But this does not detract from the overall impressive message of this book, namely that the battle over the free market has been going on for a long time, and it is rolling back and forth and likely to continue. To gain further insight into this core dilemma the book offers indispensable insights. It is indeed also interesting reading for anyone preoccupied with modern economics. I can recommend this book highly!
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