Institute of International Peace Leaders

Institute of international peace leaders

"Empowering Leaders, Building Bridges, Creating Peaceful Communities."

Milton Friedman and the Neoliberal Revolution

Dr. Austin Mardon & Benjamin Tuner

Milton Friedman had a great impact on the neoliberal movement among Western democracies in the late 1970’s and early 1980’s, and remained a pillar of the movement through into the new millennium. Far from being a new player on the field, Friedman had already been writing policy papers on economics from what became the neoliberal perspective for decades by the time stagflation primed society for change. When faced with radical ideas on both the left and the right, Friedman falls firmly on the conservative side of the spectrum with a unique brand of mistrust of authority in the hands of democratically elected governments, and an almost unbelievably naïve trust in authority in the hands of undemocratic, self-interested, corporate executives. Placed in the historical context, Friedman did make a compelling case and for a time appeared to solve the economic problems seen in the 1970’s, and for a time his policies may have even appeared to be working.
The rise of neoliberal ideology in the mid to late 1970’s was a response to a complicated set of social and economic challenges that matured the 1960’s and continued through the 1970’s. Social unrest was driven by a skepticism towards the modern view of economics and societal structure, with large numbers of people feeling modernity did not hold any promise for them; their aim was to shift the societal and economic focus from one of quantity and reshape it to a focus on quality (Pakhomov, 2020). The concerns that led to the rise of counterculture were very real; economic growth had slowed, the gains accumulated were being swept away by massive, sustained inflation (Benton, 2021). There were powerful mass movements forming that questioned the most basic ideas of liberal democracy, with some like the Youth International Party, led by Abbie Hoffman, seeking to manipulate capitalist institutions including the media to attract supporters and promote their vision of creating a decentralized, socialist state (Joselit, 2002). The risk posed by movements like these finding genuine support required urgent action to solve the problems of economic stagnation and inflation (stagflation). In seeking to address these problems, new ideas were required. The economic policy priorities laid out by John Maynard Keynes were not working for democracies in the latter half of the 20th century; Keynes had been influential in economic policy for many decades, but his ideas had been shaped by his experience of coming to maturity during the Great Depression. His focus was on deficit spending by governments to determine aggregate demand in pursuit of full employment (Benton, 2021). Not only had full employment never been achieved under the Keynesian approach, but government intervention was increasingly unable to manage economic problems.
These factors created an opportunity for Milton Friedman, neoliberal economist, to gain influence and convince governments to adopt his neoliberal economic policy agenda. Central in his ideas was a realignment to more classical liberal economic thinking from the 17th and 18th centuries as promoted by Jeremy Bentham, John Stuart Mill, and Adam Smith, holding that government should have an extremely limited role in the economy and that a self-regulating marketplace was the most efficient manager of economic resources (Labonté & Stuckler, 2016). One of the major departures promoted by Friedman was that governments not only shouldn’t be trying to achieve full employment, but should instead focus on keeping inflation low and maintaining monetary stability; in fact, he argued, there would always be a certain level of unemployment due to various market forces. He referred to this as the natural rate of unemployment (Benton, 2021). It is understandable from the economic context to understand why Friedman was so focused on economic stabilization, and more understandable still to see why capitalists were prepared to embrace his ideas in the face of not just stagflation but the social upheaval it was driving. The very concept of liberalism and capitalism were being threatened by mass movements, supported by people who did not feel the system held any benefit for them any longer. It was necessary to rethink their ideology to save the system that was benefitting them.
Friedman’s economic perspective fit perfectly into the neoliberal world view of limited government and personal freedom. In his view, the best way to manage the economy was not to have a heavy-handed government trying to determine how resources can best be used while pursuing specific outcomes such as full employment, rather it was more important to allow the market to regulate itself; individual freedom would be more efficient at achieving economic stability, and in this case the concept of individual freedom extending to corporations making business decisions (Hertzel, 2007). Moreover,
Friedman argued that inflation, deflation, and macroeconomic instability were the result of poor policy on the part of central banks; among his topics of discussion were that the Great Depression, for example, was the direct result of the breakdown of U.S monetary institutions (Hertzel, 2007). This concept of personal choices being made by economic actors from the individual to the multinational organization level is collectively referred to as the price system, and Friedman believed the price system was a superior economic pilot for a nation than robust regulatory framework (Hertzel, 2007). Friedman also criticized government intervention aimed at suppressing inflation as being ineffective and creating distortions in the market. He continued, arguing that such regulation inflated currency exchange rates that were propped up by exchange controls, amounting to waste (Hertzel, 2007). Translating these criticisms into policy solutions, it becomes a justification for free trade and the free and unregulated transfer of capital across international borders.
Much of what Friedman argued for in economic policy was directly in line with Adam Smith and the invisible hand of the free market, but there was a major and important difference between the U.S and most other major economies when Friedman became so influential, and that is the matter of money supply. When classical liberalism came to prominence, it existed in systems of currency anchored by the traditional gold standard system. Friedman had lived under the Interwar Gold Exchange Standard, the Bretton Woods System, and finally the Flexible Exchange Rates System (Dellas & Tavlas, 2018). He did not feel any monetary policy based in the gold standard would be viable in the late 20th century global economy and beyond, and instead advocated for flexible exchange rates. One of the central ideas promoted by Friedman was that the money supply should be increased at a constant rate every year to encourage economic growth while keeping inflation to a minimum (Hertzel, 2007). His argument centered around the harmful effects of the unpredictability of money supply, and that the cure for such effects being a single rule of consistent annual increases. When he proposed this policy under the administration of President John F. Kennedy, his argument was given the analogy of driving a car and locking the steering in one position despite knowing there are turns in the road ahead (Hertzel, 2007). Here an interesting contradiction in Friedman’s neoliberal logic can be observed; tying the hands of the central bank to a constant rate of increase in the money supply is to apply a regulation that really does tie the governments hands behind it’s back. Consistency in monetary policy is indeed an important element in domestic economic stability, but in failing to respond to market conditions in their monetary policy, a central bank could dramatically destabilize an economy. Here Friedman argues that because central banks had been undisciplined in the past, their power to control the money supply should be so tightly regulated as to eliminate the possibility of responding to market conditions; this is similar to arguing that a stopped clock is right twice a day so all the clocks should be stopped.
Friedman’s primary concern in promoting a fixed money supply was with promoting healthy international trade relations, directly at the expense of domestic economic concerns (Dellas & Tavlas, 2018). The concept of free trade and globalization of economic systems is central to neoliberal ideology, and Friedman successfully convinced major economic powers including the United States and United Kingdom to adopt economic policy that promoted free trade.
At the heart of Friedman’s promotion of free trade is an ideological perspective borrowed from classical liberalism that power should be dispersed; he felt that assigning functions to government that could otherwise be carried out by the market would create a system of coercion in place of free participation (Dellas & Tavlas, 2018). This means he was consistently interested in taking the power out of government hands and empowering the market to determine the direction that the economy would
move. Contrary to the characterization by many, neoliberals and Friedman did not argue simply for deregulation of the market. While it is true he argued regulatory frameworks should be dismantled and the market freed to function without government interference, to characterize this as just deregulation is only part of the story. Friedman was arguing not simply for the removal of regulations, but for a broad realignment of the role of government in the marketplace, which meant reinventing the regulatory framework to empower private interests to make decisions and operate without government oversight (Mason, 1980). When negotiating a free trade deal, for example, yes removing government quotas and tariffs is part of the process, but regulation allowing for the free movement of goods and capital across international borders is also required. This is, in and of itself, a regulatory process merely with a different set of priorities from the Keynesian system.
One of the primary points of concern for Keynesian economists through the Great Depression and the post-war period was the idea of market domination by large companies (Labonté & Stuckler, 2016). The argument was that part of the reason for the Great Depression was too many large companies squeezing out smaller competitors and contributing to a lack of competition in the marketplace. Friedman refuted those claims, but it is interesting to note that while he adopted the classical liberal view that power should not be too concentrated, he was entirely unconcerned with too much power being concentrated in the hands of large corporations. Monopoly power does not appear on Friedman’s list of grievances because, he would argue, if in a free market one company was able to dominate a market segment, that was the will of the market (Labonté & Stuckler, 2016). It is an interesting contradiction in the internal logic of Friedman and neoliberals more broadly that the market works because competition breeds innovation and maintains economic balance, but that monopolistic companies eliminating competition in the marketplace is of no concern. The harmful effects of corporate monopolies include removing the one market feature that was central to Friedman’s justification of the market as the ideal economic controller: competition.
In conclusion, Milton Friedman was clearly a central figure in the neoliberal movement and successfully influenced economic policy across the globe. The system he inspired with his neoliberal perspective on the function of the market, and specifically the role of government in the marketplace, echo forward into the current time period. He refuted the central logic of Keynsian economics, was a founding member of the Chicago School of economic theory, and successfully led the effort to re-align government policy with regards to the role government should play in the marketplace. Among his primary successes was shifting the focus of economic policy from a hands-on regulatory system aimed at achieving full employment to a free market approach reminiscent of classical liberal theory of the decentralization of power and non-interference of government in economic matters. At the same time, his arguments may have leaned too far in favour of international trade relations at the expense of domestic economic policy, he mischaracterized Keynesian quantity theory (Mason, 1980), and his fears about the centralization of power that drove his anti-government sentiments were entirely absent when related to corporate monopolies in the marketplace. At a time when western economies were badly in need of a new way of doing things, Friedman was a long-established economist who presented different ideas in an otherwise largely homogenous field. The ideology of Friedman’s economics continues to dominate the global economic system today, and the consequences of his views will continue to affect the marketplace for decades to come.


Benton Jr, R. (2021). Commentary on and Further Extension of Stanley J. Shapiro’s Review of Milton Friedman: Fifty Years Later. Journal of Macromarketing, 41(3), 449–453.
Bernards, N. (2022). The World Bank, Agricultural Credit, and the Rise of Neoliberalism in Global Development. New Political Economy, 27(1), 116–131.
Clayton, D. M. (2018). Black Lives Matter and the Civil Rights Movement: A Comparative Analysis of Two Social Movements in the United States. Journal of Black Studies, 49(5), 448–480.
Dellas, H., & Tavlas, G. S. (2018). Milton Friedman and the Case for Flexible Exchange Rates and Monetary Rules. The Cato Journal, 38(2), 361.
Forder, J., & Monnery, H. (2019). Why Did Milton Friedman Win the Nobel Prize? A Consideration of His Early Work on Stabilization Policy. Econ Journal Watch, 16(1), 130–145.
Garrison, Charles B. 1984. “Friedman versus Keynes on the Theory of Employment.” Journal of Post Keynesian Economics 7 (1): 114. doi:10.1080/01603477.1984.11489487.
Hetzel, R. L. (2007). The Contributions of Milton Friedman to Economics. Economic Quarterly (10697225), 93(1), 1–30.
Jack, C. (2018). Producing Milton Friedman’s Free to Choose: How Libertarian Ideology Became Broadcasting Balance. Journal of Broadcasting & Electronic Media, 62(3), 514–530.
Joselit, D. (2002). Yippie Pop: Abbie Hoffman, Andy Warhol, and Sixties Media Politics. Grey Room, 8, 62–79.
Labonté R., & Stuckler D. (2016). The rise of neoliberalism: how bad economics imperils health and what to do about it. Journal of Epidemiology and Community Health (1979-), 70(3), 312–318.
Laidler, David. 2017. “Milton Friedman: Contributions to Economics and Public Policy.” History of Political Economy 49 (4): 730–39. doi:10.1215/00182702-4296449.
Li, J. F., & Lin, Z. X. (2016). Social benefit expenditures and stagflation: evidence from the United States. Applied Economics, 48(55), 5340–5347.
Mason, W. (1980). Some Negative Thoughts on Friedman’s Positive Economics. Journal of Post Keynesian Economics, 3(2), 235–255.
Pakhomov, O. (2020). The Cold War and The Political Legacy of The Counterculture of the 1960s. Comparative Civilizations Review, 83, 124–149.
Patinkin, D. (1972). Friedman on the Quantity Theory and Keynesian Economics. Journal of Political Economy, 80(5), 883.

About Writers:

Benjamin Tuner is an article writer at the Antarctic Institute of Canada

Austin Mardon, PhD, CM, FRSC, is an Adjunct Professor in the Faculty of Medicine and Dentistry at the University of Alberta.