Milton Friedman, free-market champion, helped invent tax withholding from paychecks
The economist most associated with shrinking government once helped build the machinery that funds it: in wartime Washington, Milton Friedman worked on the payroll withholding system. He later spent decades arguing for steady money growth, floating currencies and school vouchers, won a Nobel in 1976 and advised Reagan and Thatcher.
Friedman was born in Brooklyn on 31 July 1912, the youngest of four children of Jewish immigrants from Carpathian Ruthenia who ran a dry goods business. He grew up in Rahway, New Jersey, finished high school before turning 16, and was the first in his family to go to university, on a scholarship to Rutgers. He planned to become an actuary, but the Depression turned him toward economics, and he chose a Chicago scholarship over one in mathematics at Brown. There he met the economist Rose Director, later his wife.
In 1935 he found work in New Deal Washington, backing job-creation schemes but not price and wage fixing, which he thought scrambled the signals that steer resources. From 1941 to 1943 he advised the Treasury on wartime tax policy and helped design withholding; he later said he wished it could be abolished, and Rose teased him about his part in enlarging government. During the war he also did statistical research on weapons and tactics at Columbia.
Chicago hired him in 1946, and he stayed about thirty years, anchoring the Chicago school with George Stigler and mentoring future laureates such as Gary Becker and Robert Lucas. His permanent income hypothesis held that people spend according to expected long-run income, smoothing consumption. With Anna Schwartz he wrote A Monetary History of the United States, published in 1963, blaming the Great Depression on a monetary contraction the Federal Reserve failed to counter. He argued unemployment has a natural rate and that pushing below it only speeds inflation, anticipating stagflation.
His 1962 book Capitalism and Freedom proposed a volunteer army, a negative income tax, school vouchers and an end to the war on drugs. After retiring in 1977 he advised Ronald Reagan and Margaret Thatcher. A 2011 poll of economists ranked him second only to Keynes for the twentieth century. He died on 16 November 2006.
Source: Milton Friedman
