Statement on the Life and Death of Milton Friedman by Jim Johnston, Director, The Heartland Institute

Published November 20, 2006

The passing of 1976 Nobel laureate Milton Friedman on November 16, 2006 has prompted several tributes to his remarkable wide body of work.

Most have emphasized his libertarian dedication to personal freedom. Some have rightfully described his contributions as rivaling Keynesian economics (as opposed to the economics of Keynes, which is not the same).

One aspect, however, seems to be left out of the discussion. It is the abandonment in 1971 of the fixed exchange rates established at the 1944 meeting of the WWII allies in Bretton Woods under the leadership of John Maynard Keynes. You can see my rendition at

I playfully attribute the development of the FOREX derivatives after the fixed exchange rates were removed by the Nixon Administration under the leadership of Treasury Secretary George Shultz, a close friend of Milton Friedman, supposedly because Friedman could not make a bet against the British pound in the late 1960s. Actually, substituting foreign exchange futures and options markets for regulation by central bankers was a substantial improvement in the hedging of currencies by businesses.

Banks initially opposed the contracts, calling them the creation of Chicago “crapshooters.” Later the banks used the FOREX contracts to hedge the tailored currency guarantees they sold to their customers. The move from regulation to markets was to pave the way for derivative contracts in heating oil, gasoline, crude oil, and natural gas in the order that they were deregulated.

The growth in financial and other derivatives, where speculators meet hedgers, continues even today–indeed, Indeed, so much so that the daily volume of trading exceeds trillions of dollars. It would not be unfair to say financial derivative trading is one of the largest institutions in the world. Just think, it started out by being Milton Friedman’s bookie.

Economist Jim Johnston ([email protected]) is a member of the board of directors of The Heartland Institute.