Patinkin, Johnson, and the Shadow of Friedman

George Stigler (1987, 311) concluded that his friend and Chicago colleague, Milton Friedman, had “established (to my complete satisfaction) his claim as the best debater in a profession that likes to debate.” Since Friedman (like Stigler) set out to change the direction of economic policy and research he could not have been surprised by the controversy his efforts elicited. Indeed, he courted controversy to further his counterrevolution. He informed Don Patinkin (8 November 1948) that he had been disappointed with the “very little violent criticism” of his “Monetary and Fiscal Framework for Economic Stability” ([1948] 1953): “I, too, have been expecting that someone would take a crack at it…. I shall certainly be disappointed if someone doesn’t write a rejoinder to it.”¹

Some of his opponents reacted more strongly than perhaps he had bargained for. Toward the end of the “monetarist decade” (1975–84), David Hendry and Neil Ericsson presented an explosive critique of Friedman and Anna Schwartz’s Monetary Trends (1982). Titled “Assertion without Empirical Basis,” they concluded that Friedman and Schwartz’s “assertions” were “devoid of credibility…. rigorous evaluation of empirical claims seems a necessary first step towards taking the con out of economics” (1983, 82; 1991). The London Guardian of 15 December 1983 reported the Hendry and Ericsson paper under the title “Monetarist’s guru ‘distorts his evidence.’” Friedman was incensed and wrote to Hendry requesting that he disown the account in the Guardian. But Hendry replied that “if your assertion is true that newspapers have produced ‘a spate of libellous and slanderous’ articles ‘impugning Anna Schwartz’s and [your] honesty and integrity’ then you must have ready recourse to a legal solution” (letter from Hendry to Friedman, 13 July 1984, quoted in Hammond 1996, 199).

Friedman’s star rose to spectacular heights following his successful American Economic Association (AEA) presidential prediction of the breakdown of the Phillips curve trade-off (the applied policy framework of the Keynesian neoclassical synthesis) using his own methodology of positive economics (1968c; 1953). Almost immediately after his AEA address Friedman felt that he had been libeled by two friends and Chicago colleagues, Don Patinkin and Harry Johnson, who had both made major contributions to the postwar consensus. They effectively accused him (to paraphrase) of assertion without historical basis. Specifically, the charge was that Friedman’s 1956 essay, “The Quantity Theory of Money—A Restatement,” should have been titled “The Theory of Liquidity Preference—A Restatement.” Friedman, they argued, had invented a bogus Chicago oral tradition. This was the primary accusation, but there was also the accusation that Friedman’s monetarism consisted of (paraphrasing again) policy assertion without empirical or theoretical basis (see, for example, Johnson 1971a). Patinkin (1972, 1987) was determined to demonstrate “the short-run nonneutrality of money in the quantity theory” and to highlight Friedman’s “misleading” discussion of the quantity theory. The disputed historical evidence appears, in part, to have been a surrogate for the policy implications of Friedman’s monetarism and his unspecific discussion about how disinflation would affect output and employment. Friedman (1968c, 5) suspected that the “pendulum may well have swung too far” with respect to the perceived influence of money; Patinkin and Johnson appeared to suspect that the pendulum had swung too far with respect to Friedman’s influence.

It took Patinkin twelve years to reply to Friedman’s 1956 essay, although earlier he had displayed signs of wishing to rush into print with his essays. Thus, if Patinkin were solely interested in correcting a historical error, it seems likely that he would have done the correcting in the 1950s, and not in the late 1960s. Patinkin’s 1969 Journal of Money, Credit, and Banking essay began as “an aside” in a 1959 letter to Friedman. After Friedman’s (1968b) Encyclopedia entry on the quantity theory, Patinkin wrote his “aside” and apologized for not having done so years earlier. Patinkin’s ([1962] 1965, 54–55 n. 5) earlier criticism...