The Early Patinkin-Friedman Correspondence

Submitted for consideration to JHET

NOTE. This is the first part of two part study of Patinkin and Friedman (the second part explores the controversy over the oral tradition).

Robert Leeson

Economics Department
Murdoch University

Working Paper No. 164

March 1998

ISSN: 1440-5059
ISBN: 0-86905-635-2

This publication is copyright. Except as permitted by the Copyright Act no part of it may in any form or by any electronic, mechanical, photocopying, recording or any other means be reproduced, stored in a retrieval system or be broadcast or transmitted without the prior written permission of the publisher.


Don Patinkin was the co-author of the Keynesian Neoclassical Synthesis which (prior to Milton Friedman's monetarist counter-revolution) dominated post-war economics. Patinkin was a prolific correspondent, and his letters offer several insights into the controversies of the period. This paper examines the early Patinkin-Friedman correspondence. Against an ongoing background of military threat against the new Israeli State, they discussed warfare - hot, cold and scholarly. They also disagreed about Alfred Marshall's merits, and whether or not he was an anti-Semite. Patinkin also appeared to influence the development of Friedman's methodology of positive economics, accusing Friedman and George Stigler of methodological inconsistency, if not hypocrisy. Patinkin also recorded in his files, but never published, Frank Knight's suspicions about Friedman's views on capitalism.

Journal of Economic Literature Classifications: B2

Contact point: Robert Leeson
Tel: 61 8 9360 2197
Fax: 61 8 9310 7725

Paper requests:

Papers are AUD$5.00, (plus AUD$5.00/order outside Australia).
Postal: Meg Jadlowkier, Economics Department, Murdoch University, Murdoch, WA 6150, Australia.

Limited stock available. No cost to reciprocal providers of working papers.

1. Introduction1

Don Patinkin (1922-95) was the co-author of the Keynesian Neoclassical Synthesis, and became engaged in several important controversies. One of these controversies involved Milton Friedman’s (1956) assertion about a supposed Chicago quantity theory "oral tradition". From 1968 until his death, Patinkin hardly seemed to miss an opportunity of denigrating what her regarded as Friedman’s ‘invention’. This controversy was taken to the 1970 American Economic Association (AEA) meeting by Harry Johnson (1971), and divided at least two Economics Departments, Chicago and the University of Western Ontario, where Patinkin and Johnson were frequent visitors, and where two influential monetarists, David Laidler and Michael Parkin, had migrated from Britain (Parkin 1986; Patinkin 1986).

Milton Friedman’s star rose to spectacular heights following his successful AEA presidential prediction of the breakdown of the Phillips curve trade-off, using his own methodology of positive economics (1968a; 1953). Almost immediately after his AEA address (and, therefore, just before the start of the monetarist decade) Friedman felt that he had been libelled by Patinkin and Johnson. Specifically, Patinkin’s charge was that Friedman’s 1956 essay on ‘The Quantity Theory of Money - A Restatement’ should have been entitled ‘The Theory of Liquidity Preference - A Restatement’.2 Friedman, Patinkin argued, had ‘invented’ a bogus Chicago oral tradition. Patinkin’s assault on Friedman appeared in the first issue of the first edition (1969) of the Journal of Money Credit and Banking (JMCB) which had been founded and edited by a Monetarist, Karl Brunner, who had apparently just invented the word "monetarism".

This essay describes the early correspondence between Patinkin and Friedman prior to Patinkin’s JMCB essay. The correspondence is affectionate and, at times, amusing, although the public tensions that boiled over in 1969 were present in this early private correspondence. Although Patinkin left the University of Chicago in 1948 and migrated to Israel in 1949, Patinkin was a frequent visitor to Chicago and he continued to regard himself, and was regarded by others, as being In The Chicago Tradition (Patinkin 1981, xii).3 Policy disputes in Israel about the appropriate use of the price mechanism as opposed to administrative judgement resulted in what was perceived as a "victory for ... the ‘Chicago’ economists in the Hebrew University" (Pomphret 1976, 26-27, 170). Patinkin was involved in these policy disputes; a common (if exaggerated) perception was "that Don’s message, and that of Economics as a whole, was that of ‘The Gospel According to Chicago’ " (Barkai 1993, 6).4

One of the interesting aspects of Patinkin’s reply to Friedman was that it took him twelve years (1956-68) to respond. Earlier he had displayed signs of wishing to rush into print with his essays. He submitted his essay on ‘Unemployment in Keynesian Systems’ to two journals (apparently simultaneously) for consideration; but the Director of Cowles, Jacob Marschak wrote to him (16 January 1947) requesting that he stop the editorial processing "until your article has been thoroughly discussed in our group ... There is already too much confusion in economics ... Haavelmo also thinks that you ought not to rush with this manuscript which he considers a very provisional result of some ‘games at the blackboard’ ... I do not understand the hurry. The matter is too important ... I hope you will not take a formal point of view, when these goals are at stake".

Thus, if Patinkin were solely interested in correcting an historical error, it seems likely that he would have done the correcting in the 1950s and not the late 1960s. The 1969 JMCB article began as "an aside" in a letter to Friedman in 1959. After Friedman’s (1968b) Encyclopedia entry on the quantity theory, Patinkin wrote up his "aside" and apologised for not having done so years earlier. It is therefore worth investigating the reasons why Patinkin was prepared to launch an attack on Friedman in the late 1960s and not in 1956. Patinkin’s response to Friedman’s 1968 entry reflected, in part, changes in his relationship with Friedman, and in part, perhaps, to a change in the degree of influence that Friedman exerted. These changes are documented in their correspondence.

This essay describes the early personal relations between Patinkin and Friedman and their discussions about Israeli policy disputes (section 2), Patinkin’s response to warfare - hot, cold and scholarly (section 3), their exchanges about Alfred Marshall (section 4), Patinkin’s influence on the development of Friedman’s methodology of positive economics (section 5), and Frank Knight’s suspicions that Friedman’s views on capitalism were oversimplified (section 6). Concluding comments are provided in section 8.

2. Personal Relations

2.1 Patinkin
Patinkin was born and educated in Chicago taking a B.A. (1943), an M.A. (1945) and a Ph.D. (1947) from the University, after having spent two years at Central YMCA College, which subsequently evolved into Roosevelt University (Patinkin 1981, 3, n2). In Palestine Mission, Richard Crossman (1946, 37, 39, 176, 170) recalled that Chicago was one of the cities with a high concentration of Jewish people, with a proportion of Jews to Gentiles roughly similar to the proportion of Jews to Arabs in Palestine. Very few (only 494) American Jews migrated to Palestine between 1936-1945; until 1948, many of the migrants were Socialist-Zionists. The period of mass migration (the ‘Ingathering of the Exiles’) following the establishment of the State of Israel on 14 May 1948 and The Law of Return (1950) almost tripled the population in a decade, despite the exit of over half a million Palestianian Arabs (Patinkin 1956b, 22; Rubner 1960, xvii, 3, 67, 89; Bachi 1958; Donovan 1967). Patinkin (1960, 24) concluded that "the availability of abandoned Arab property greatly simplified the task of absorbing the new immigrants".

Israel’s stock of human capital may have been the highest in the world, with unparalleled levels of X-efficiency. The government also played a very large role in resource allocation and capital formation, and in keeping wage differentials and income inequality low (Patinkin 1974, 6; Easterlin 1961, 71, 76-81; Pomphret 1976, 5; Lerner and Ben-Shahar 1975, 146). Crossman thought that he had witnessed the construction of a "socialist commonwealth ... just as the Americans became a nation through the blood shed in the War of Independence", with labour leaders "fanatically building what they believe will be the only free socialist society in the world". The Interest Law, inherited from the Ottoman period, imposed heavy fines on those charging interest rates in excess of the legal maximum. It was supported by the three socialist parties, and opposed by the Governor of the Bank of Israel, and most economists (Halevi 1969, 100). In the early years, prices were strictly controlled. Food, clothing, building material and foreign exchange were all rationed, until the rampant black market disintegrated the price-fixing system (Patinkin 1960, 108-9). A relatively small percentage of Israel’s national product was generated in the private sector; and a relatively large proportion of investment volume was directed by government officials (Patinkin 1974, 7; Rubner 1960-61, 69-70). The United States Joint Chief of Staff, the State Department and the British Foreign Office all came to believe that Israel was in danger of becoming a communist state, aided by Soviet penetration (Bullock 1985, 648). Patinkin and his wife and young daughter migrated into this turmoil, being employed at the Hebrew University which had been established, according to its President, to "fructify and revive Judaism" (Crossman 1946, 142).

Until his departure for Israel, Patinkin was closely involved with both the Chicago Department of Economics and the Cowles Commission, where a large number of "giants" stalked the corridors. It must have been an extraordinarily exciting period to have been a student, with all sorts of interconnections with world history. One of these "giants", Oskar Lange, failed to turn up for lectures for a while (enlisting Leonid Hurwicz as a stand in); he reappeared shortly afterwards on the front page of the newspapers having an audience with Stalin in Moscow. Likewise, Patinkin’s squash games with Lawrence Klein under the West Stands of Stagg Field were suddenly interrupted by the mysterious closure of the courts (Patinkin 1981, 3-17). Only later was it revealed that Enrico Fermi had started the first primitive uranium reactor in the windowless cellars beneath the grandstands of Stagg Field. Some of the atomic scientists at the University of Chicago became alarmed about the perils of the new discoveries. In June 1945, seven of them unsuccessfully petitioned the United States Secretary of War; Hyman Goldsmith and Eugene Rabinowitch then founded The Bulletin of the Atomic Scientists which acquired a large influence on intellectual life in America (Jungt 1970, 145, 169, 224).5

As a twenty-four year old, Patinkin was moving in some high-powered circles at Cowles and Chicago: Klein, Hurwicz, Marschak, Tjalling Koopmans, Trygve Haavelmo and Ragnar Frisch attended the staff seminar on his essay on ‘Unemployment in Keynesian Economics’ (February 1947). In his early thirties, Patinkin was a valued adviser to David Ben-Gurion and the Isreali Minister of Finance (Arnon 1974, 22). At this age, he was more influential than Friedman at a comparable age. In the same year as Friedman’s (1956) revival of the quantity theory (a revival that would undermine the post-war economic consensus) Patinkin (1956a) attempted to consolidate that consensus by integrating monetary and value theory, thus resolving the Keynes-Classics dichotomy by redefining Keynes’ contribution as the unemployment economics of disequilibrium, not equilibrium as previously maintained by John Hicks and others. This led to a Review of Economic Studies symposium on ‘The Patinkin Controversy’ (Hahn 1960-61) in which Patinkin refused to participate because the editors sought to restrict the length of his reply (Editorial Note 1960-61, 29; Archibald and Lipsey 1958, 1960-61; Hicks 1957).

2.2 Patinkin and Friedman
Friedman (1912-) was ten years Patinkin's senior, and only returned to Chicago in 1946. In spite of the relatively brief period of their time as Chicago colleagues (approximately two years), they obviously became close personal friends. Friedman visited the Hebrew University in 1968, Spring 1972, and Summer 1977 and spent a semester there in 1963: "The time went very quickly and we were very reluctant to leave" (Rose Friedman 1976a, 26; 1977, 26).6 Patinkin's article on 'The Chicago Tradition, the Quantity Theory and Friedman' was published in the February 1969 issue of the JMCB, just prior to the Friedmans’ visit to Israel at the invitation of the Israeli government (Rose Friedman 1976b, 31).

The Patinkin-Friedman correspondence was affectionate and, at times, amusing. On 21 June 1948, Patinkin was offered a two year position as Associate Professor at the University of Illinois. He took up the position on 1 September 1948, but resigned, effective from 28 February 1949, and migrated to Israel.7 In May 1949 the Hebrew University Department of Economics was established (Barkai 1993, 3-4). The Patinkins were initially housed in a Hebrew University flat with no water (which as Patinkin explained to Friedman, made cleaning diapers difficult!), and their electric stove was too expensive to use except for "Special Occasions". Patinkin found that "The time is going by at a terrific pace" (4 February 1950). His daughter Na'ama was "growing. Too fast for me - for now she's started eating her rations of banana and eggs on which we've been feasting for the past seven months" (4 February 1950).

Patinkin asked Friedman for advice about outlets for publications: "I have the feeling that stuff published in Econometrica is pretty much lost as far as any effect goes on economists as a whole" (7 November 1949). He obviously missed his Chicago colleagues: frequently his letters would end with "Best regards to all the people on the staff" (10 November 1948); sometimes with specific requests: "Please go next door and give my best regards to Gregg" (presumably Gregg Lewis). Friedman inquired about Patinkin's "present feelings and views about remaining in Israel? Do you like it well enough so that you are really going to become permanent residents or are you now thinking in terms of possibly returning to the United States? Best regards to all of you from all of us" (9 December 1949).

Patinkin appeared to be exasperated by the time it took Friedman to reply to his letters. Sometimes his own letters would take him a month or more to finish: "My God! Is that how long this letter has been lying here unfinished" (5 March 1950). Mail to Israel was slow and uncertain: "Your JPE article still hasn't shown up yet - though I hope it will within the next week or so" (4 February 1950); and the arrival of academic journals were "awaited with the same anticipation usually reserved for serial magazines ... in these isolated parts" (7 November 1949). Patinkin told Friedman that he would greatly appreciate receiving copies of problems and examinations: "(Suggestion: send these on immediately without any letter; why should I wait two months?)".8

Friedman provided Patinkin with extremely detailed (‘early and often’) comments on various drafts of his papers. In November 1947, Friedman scribbled comments all over Patinkin’s ‘Price Flexibility and Unemployment’; repeating the exercise two months later on the revised version entitled ‘Price Flexibility and Full Employment’. Patinkin told Friedman that "you are a wonderful conscience for me" (4 February 1950).9 Patinkin felt great expectations from Friedman: "One of the things that has kept me back from writing this letter is the feeling that sooner or later I shall be expected to deal with some of the Great Problems here; to make some observation on the Way of Life; to indicate Our State of Mind and General Reaction. And the truth is that I have very little to say on any of these subjects". He was simply too busy dealing with administrative tasks to "do the thing I really want to: get my teeth into some of the practical economic problems facing the country" (7 November 1949).

Friedman took a guiding interest in Patinkin’s career. He advised Patinkin against studying the relationship between liquid assets and consumption in favour of studying the relationship between total asset holdings and consumption (8 November 1948). Later (9 December 1949), he expressed the hope that "by this time you have gotten involved in some of the practical problems of the Israeli government. It seems to me that your education would be greatly furthered by that, and that you would benefit by allowing yourself to get mixed up in it". In 1952, Friedman was approached by the State Department to join a "point 4 tax reform" mission to Israel: "it broke my heart to refuse the request, since I would love personally to spend a few months in Israel for all kinds of reasons that you can readily understand ... In talking to the people in Washington, I mentioned your being there, which they knew about, and urged them strongly to be sure to make every effort to draw you into the mission’s work in an active fashion ... Let me urge you strongly to do anything you can to permit yourself to be drawn in, and I do so , not primarily for the benefits to the mission - which I know would be very great - but because of what I think would be the benefits to you. I can think of no activity which would be of as much marginal value in adding to your background and experience and understanding of Israel’s problems ... I am by no means sure that I didn’t make a mistake in not accepting myself" (2 April 1952).

Patinkin often asked Friedman for advice about teaching and publishing. Economists entering the public service soon became known as "Patinkin’s Boys" (Kleiman 1981, 215; Halevi 1969, 101; Barkai 1993, 7); but their ‘father’ confessed to Friedman that he felt "nervous" about his responsibility for training Israeli economists. He explained that most of the country’s economists had been trained in the German historical tradition and possessed little neoclassical or Keynesian apparatus. Certainly, their choice of visiting experts tended in the early years to be quite left wing (these included Michal Kalecki, Harry Dexter White and Abba P. Lerner). Even when the economy was liberalised in 1952, a Soviet name (New Economic Policy) was used to describe the changes (Kleiman 1981, 211, 214, 216; Rubner 1960, 25; Pomphret 1976, 26-43; Halevi 1969, 96; Barkai 1993, 5). Indeed, one of the first Hebrew economic textbooks, which influenced many early Israeli leaders, propagated a Marxist theory of value (Kleiman 1973). Surprisingly, this textbook, published several years before Fisher (1911), also contained an algebraic formula for the quantity theory, a topic which dominated Friedman’s professional life, and which would later overshadow his relationship with Patinkin.

2.3 Economic Policy Disputes in Israel
Economic policy disputes in Israel (especially in the early period) tended to involve all sorts of passions. An Australian participant at a recent central banking conference in Israel informed me that he had never seen economic policy disputes take on such personal tones. This type of passion is perhaps not surprising in a country where the survival of the State is apparently at stake. In a country such as Australia (which is surrounded by water) insightful paradoxes about water and diamonds generate less passions than the never-ending dispute in Israel (which is surrounded by enemies) about the pricing of water. In 1958, for example, a proposal to export small arms to West Germany (beneficial to Israel and therefore productive of an increased defensive capacity against the nation’s current enemies) was vehemently opposed, and led to a governmental crisis (Easterlin 1961, 84). Often these debates took on an apocalyptic tone, with the survival of the State perceived to be at stake. Thus when Israel became Independent, and excluded from the Sterling area, passions were roused over the desirability of floating the exchange rate and abolishing exchange controls. Initially, Kalecki’s advice was sought; he not only recommended that controls be retained, but advocated that prices should also continue to be controlled (Halevi 1969, 97). Patinkin (1960, 138-140), tentatively, suggested that "The market mechanism could probably be used here to greater advantage than it has been hitherto". In his second Horowitz Lecture in Israel, Friedman (1972, 54-5) argued that: "Who do you suppose invented the modern system of exchange control? It was Hjalmar Schacht in 1934 in Germany. What did he invent it for? He invented it primarily in order to despoil the Jews ... As a Jew, rather than an economist, I say to you, why don’t you get rid of the false appearance, why don’t you abolish the exchange controls and make your practise conform to your values. Set your people free". Later, after the unexpected defeat of the Labor Party in May 1977, Milton Friedman (who had just been awarded a Nobel Prize) had a meeting with the new Minister of Finance.10 In October 1977, Isreal adopted a floating exchange rate and abolished exchange controls on current account transactions (Halevi 1979, 11-12, 16, 25; Rubner 1960, 129).

Friedman was famous (or notorious) for seeing a reasonable approximation to perfect competition breaking out wherever he looked, restrained (only temporarily) by the foolish and misguided interventions of governments. In his Newsweek column, (5 May 1969, 44), after a visit to Israel, and immediately after the publication of Patinkin’s JMCB article (February 1969), he reflected on an excursion to the occupied west bank territory and on Moshe Dayan’s political "policy of laissez faire ... [and] almost literal policy of laissez faire in the economic sphere ... the military, who generally favor running things by direct orders coming down a chain of command, are in Israel the strongest supporters of free markets and non intervention ... To the casual observer the area appears to be prospering". In this free trade induced harmony, "The Jordanian Arabs were peacefully going about their business. I had no feeling whatsoever of being in an occupied territory".

According to Friedman (1972, 56-7) this was part of a 2,000 year "tradition that had enabled the Jews to survive in the Diaspora"; which competed against "a tradition of a hundred years, a tradition of socialism. But, at least at an earlier stage of Israel’s history, markets and economists were suspect; the State was built by enthusiasts and visionaries to whom economic calculation meant little (Kleiman 1981, 224). But in 1985, a group of eight economists formulated and implemented an anti-inflation stabilisation programme. The Israeli authorities had self-consciously pursued an ambitious program of economic development and full employment, financed in an inflationary fashion (Halevi 1969, 75). The 1985 stabilisation programme reduced the annual rate of inflation from 500 percent to less than 20 percent with minimal adverse effects on employment. Friedman (1992, 234-248) reflected on the success of this operation in comparison to a similar, but disastrous, strategy pursued by another group of Chicago-trained economists in Chile.

Patinkin had previously reflected to Friedman that "One of the fundamental things is that Israel would never have been built up if the people had listened to economists. They would never have dared and succeeded in doing what they have done. Now I know you are going to tell me this is all silly; so I won't continue. But you're wrong" (7 November 1949). This private type of disagreement contrasts with their very public dispute over the quantity theory. Indeed, Patinkin seemed determined to refer to this dispute as often as possible. For example, the Israeli 1985 stabilisation policy illustrated ‘Some Simple Truths of Monetary Theory’ as opposed to "Milton Friedman’s well known dictum that ‘inflation is always and everywhere a monetary phenomenon’" (Patinkin 1993, 103-5).11

3. Warfare: Hot, Cold and Scholarly

Like other Israelis of his generation, Patinkin lived through the Second World War, plus the Arab-Israeli conflicts of 1948-9, 1956, 1967, and 1973. One of his last letters to Paul Samuelson was written during the Gulf War: "As you can well imagine, the situation here is very quite tense, but except for a minority of extremists, we are keeping our calm. And the most important condition for doing so is to continue with our work as usual - no matter how removed it is from our present threatening position: work therapy" (28 August 1990). Patinkin contributed as much as anybody to the development of Israel; at the time of his public dispute with Friedman, he also became an intense critic of government economic, foreign and defence policy, expressed through the public medium of a newspaper column. Despite his rage: "Don’s message ... failed to prevent Israel’s Great Inflation" (Barkai 1993, 12-3).

On 4 February 1950, Patinkin informed Friedman that he had been lecturing on "my favourite topic - the Marshall Plan. The reason for this favouritism is that here I have found an opening wedge into the doctrinaire socialist thinking that is all too frequent in Israel. According to this commonly accepted interpretation, the only reason for the Marshall Plan is the necessity of the U.S. to eliminate unemployment in its economy. For me the ERP [Economic Recovery Program] is a made-to-order counterexample ... I have found nothing quite as successful as statistics in cutting short political diatribes. Sometimes I run into trouble. I always make it clear that individual interest groups in the U.S. have attempted and in some cases succeeded in exploiting the program as a means of dumping. But I insist that quantitatively this element has not been very strong. This was the line I took in a series of lectures I gave to some high school graduates from the collective settlements. These kids have all grown up in these settlements and have received all their education there. As usual, their economic training was straight and unadulterated Rosa Luxembourg. I found myself not making much progress with them: to be frank it was like talking to a stone wall ..."

Some of his most passionately felt academic controversies took place against the background of military threat; and on at least one occasion, Patinkin turned to Friedman for moral support, displaying signs of over-sensitivity. In January 1950, Econometrica published rejoinders to Patinkin’s essay on ‘The Indeterminancy of Absolute Prices in Classical Economic Theory’ (1949) by Hickman, Phipps and Leontief without an immediate reply from Patinkin. Hickman (1950, 20) purported to find a "basic methodological flaw" in Patinkin’s argument; Leontief (1950, 21) found Patinkin’s argument and conclusions to be "erroneous"; Phipps (1950, 26) doubted that Patinkin had correctly specified a classical model. Patinkin requested Friedman to get hold of the offending issue, "clip out the pages of the Phipps-Hickman-Leontief articles and airmail them to me as soon as possible". Patinkin also asked Friedman to do the proof reading in case their wasn't sufficient time to get the galleys to Israel; and, not for the last time, to "find out who did the refereeing on the Hickman paper" (4 February 1950). Patinkin (1972, 282-3) was still sensitive about this criticism more than twenty years later. In other disputes, Patinkin sought to discover the identity of referees and sometimes attempted to persuade editors to reveal the names of anonymous referees by stating that the referee appears to have been a specific person.

During this controversy, Patinkin reflected that "It's characteristic of human nature that I should be troubled by this matter at the same time when the world seems to have a pretty good chance of going to pot in Korea. If only the U.S could have wiped out the North Koreans within a few days ... But the longer this drags on the more dangerous it becomes. Furthermore, the origins of the fighting in Korea are now back in the distant irrelevant past ... Now all the people see are Americans fighting Koreans and their lineup on that question is the same as their lineup on America vs. Russia ... I'm becoming more and more convinced that the U.S. is losing badly on the propaganda front - and I'm taking Israel as an example. There are few communists here - there is a larger party of communist sympathisers - and every one of them is an ardent and vociferous advocate of Russia's case in any conflict. They never miss an opportunity to accuse America, to distort facts, to smear. The propaganda they have built up about an imperialist U.S. forcing Marshall aid on an enslaved Europe is a case in point. You would think that with something like this the U.S. would have succeeded in making the purposes of its program clear. But that just isn't so ... The U.S. doesn't have the army of unpaid and intense sympathisers that Russia does; and from what I have seen here I am convinced that this places it at a serious disadvantage. It has placed too much emphasis on military strength; not enough on pleading - and making - its case before world public opinion" (15 July 1950).

In 1950, Friedman (1992, 248) was a consultant to the Marshall Plan agency, analysing the Schuman Coal and Steel Community, which later became the Common Market. Friedman (6 November 1950) wrote from Paris about his experiences with the Economic Cooperation Administration: "on coming into Germany, Rose and I had a tremendous feeling of revulsion, the hatred of years came to the surface + we saw a Nazi in every German face. That softened a bit but did not disappear in a few days ... Industrially, Europe is a mess. By comparison, the U.S. is the purest of pure competitive economies. Everything here is rigid + controlled and competition almost nonexistent. God knows what can be done about it".

4. The Other Marshall

Two Marshalls (General, cum Secretary of State, and Alfred) figure prominently in the correspondence. There are detailed discussions lasting many months about the Marshallian demand curve (Friedman 1949a). Patinkin was ambivalent about Alfred Marshall’s qualities. In deciding to recommend his students to use Stigler’s Price Theory ("it’s neat and precise") he informed Friedman that "I shall also assign Marshall, altho I’m not sure why. It’s primarily the force of tradition. Or maybe when I reread it now I’ll find out why you think so highly of him. (Incidentally, I wonder how your opinion of Marshall as an economist with a healthy empirical bent stands up against the description of the method he used in one of his studies. See his preface to Industry and Trade (1919), p.vii third paragraph - the one beginning with ‘In pursuit ...’)".

In contrast, Friedman (1996, 1989) was "a long-time Marshallian". In A Theoretical Framework For Monetary Analysis, Friedman (1974, 18) wrote that "Keynes was a true Marshallian in method ... Where he deviated from Marshall, and it was a momentous deviation, was in reversing the roles assigned to prices and quantities. He assumed that, at least for changes in aggregate demand, quantity was the variable that adjusts rapidly, while prices was the variable that adjusts slowly, at least in a downwards direction". Earlier, he had told Patinkin that he was surprised to find in Marshall the statement that for "more complex problems" it was desirable to take quantities rather than prices as the independent variable: "as I write I find myself very confused about what it does all mean and portend, and I have pages and pages of scribblings in my notes that I can’t now understand ... This is so darn intriguing that I have already spent more time on this now than I can afford" (2 April 1952).

Patinkin was concerned about the accuracy of Friedman’s interpretation of Marshall. Friedman held a social gathering for the Patinkins before they left Chicago, and years later, Patinkin wrote that he had "been meaning to write for some time ... You said then that Marshall was an anti-Semite, and that all you had to do was look up the reference to "Jew" in his Principles. I didn’t get a chance to do this then but your statement stuck in my mind and when I got back to Jerusalem I did just that. I also looked in all his other books. To my great surprise I found nothing corresponding to your accusation; on the contrary I was left with the distinct impression that he had a great admiration for what he called the economic and financial capabilities of the Jews" (20 March 1952). Patinkin detected in Friedman what he regarded as a tendency to reconstruct history in an unreliable fashion. Their correspondence reveals that the JMCB essay had a history of disputes over historical accuracy (discussed in less public domains).

5. An Influence on Friedman’s Method of Positive Economics?

Even though Friedman was an accomplished statistician and had extensive experience with the National Bureau of Economic Research statistical investigations, Patinkin adopted an aggressively missionary posture with respect to the overriding importance of empirical work; hovering on the brink of accusing Friedman of methodological inconsistency. Commenting on Friedman’s (1949b) exchange with Neff (1949a, 1949b), Patinkin told Friedman that his position "represents a basic departure from the empirical verification you usually demand from others. You base your whole scheme on the sensitivity of the expenditure function to changes in real balances; and if your scheme is to be practical this sensitivity must be strong enough to bring the system back to full employment within an acceptable (one year?) interval. What empirical evidence can you adduce in support of such a faith? ... there is a burden of proof upon you, one that you have never recognised" (7 November 1949).

Stigler’s approach to empirical evidence was also criticised: it "sent shudders" through Patinkin (4 February 1950). Reviewing the Stigler (1947) Lester (1947) Machlup (1947) controversy on marginal productivity, Patinkin (4 February 1950) complained that "Machlup and Stigler dispense with [Lester’s] findings much too glibly ... I would like to ask Machlup your question: under what circumstances would you reject the marginal productivity theory. I don’t know if he can produce any (can you?); but even if he did, I would be willing to bet that faced with such circumstances, he would plead ‘special factors’. The damned thing is that it’s almost impossible to set up a critical experiment in economics". Stigler, he thought, was guilty of dismissing observations on a priori grounds: "it does seem to me that Stigler must present some empirical evidence before sounding off like that. Isn’t it a sad reflection on the sad state of economics that Stigler can write a straight textbook analysis of minimum wage legislation without even feeling himself obliged to make any empirical surveys. Stigler is just an example of what everybody does - including yours truly. I am merely bemoaning the type of training we receive that doesn’t make us horrified at ‘casual empiricism’ … I’d like to get your reaction" (5 March 1950).

Patinkin never seemed to miss an opportunity to reinforce this message: "I understand that the A.E.R. pays something for major articles. Is this correct? Please answer on the basis of your own experience. After all, we must be empirical" (10 November 1948). In reply to these strictures, Friedman informed Patinkin that "I have been trying to write some kind of article on the general methodological problem you raise ..." (8 November 1948).12

6. Knight and Friedman

The Patinkin Archives reveal fresh evidence about Frank Knight’s (1885-1972) suspicions about Friedman’s counter-revolution. These supplement Jacob Viner’s (1882-1970) suspicions, which have already been documented by Patinkin. In defending himself against Patinkin’s accusations, Friedman (1974, 165-7) referred to Viner’s writings in the 1930s. Patinkin responded by enlisting Viner in support of his suspicions about the Chicago counter-revolution: "It was not until after I left Chicago in 1946 that I began to hear rumours about a "Chicago School’ which was engaged in organised battle for laissez faire and ‘quantity theory of money’ and against ‘imperfect competition’ theorizing and ‘Keynesianism’". Viner went on to recount his experiences of an "ideologically loaded" conference at Chicago in 1951 (Viner cited by Patinkin 1981, 266).

Meyer Burstein13 informed Patinkin of Knight’s "enormous" admiration for Friedman: "I remember a Kaldor seminar at UC. Kaldor was killing the Defenders of the Local Faith. FHK was no longer up to it (1956). He summoned a student. ‘Get Milton! Bring Milton here at once! Milton came. Kaldor survived but some local pride was salvaged". In 1968, Patinkin sent Knight an early version of his JMCB essay. Patinkin (1981, 44, n25, 265) referred to Knight’s "warm" reply (dated 19 March 1969) "declining comment", stating that Knight "went on to write briefly about other matters". These "other matters" involved an assessment of contemporary developments at Chicago, which Patinkin, for whatever reason, declined to report. Writing on University of Chicago, Department of Economics notepaper, Knight concluded that "I simply can’t work in the spiritual atmosphere of the world right now, and of this university community in particular" (19 March 1969). Patinkin asked Roger Weiss for his assessment (which he recorded in a conversation, dated 6 December 1972): "Knight very critical of Friedman’s views on capitalism: oversimplified. Very much alone in last years. Stigler remained very close to Knight - tho now trying to say that Knight did not do anything new after early 1930s".

7. Concluding Remarks

Reading and reporting private correspondence can be fascinating; it can also amuse the prurient, as Don Moggridge (1992, 839) pointed out. Patinkin (6 March 1992), in this vein, told Samuelson that "one of the advantages of working in the history of thought is that we can indulge in gossip and present ourselves as being engaged in scholarship".14

But several points of genuine historical interest emerge from the early Friedman-Patinkin correspondence. Patinkin several times confronted Friedman (and indirectly, Stigler) with the charge of methodological inconsistency in their approach to empirical evidence. Patinkin’s dissatisfaction with the prevailing climate of casual empiricism also provides an important illustration of the motive thrust behind the desire to increase the rigour of theoretical and empirical economics (sometimes described as the formalist revolution). Patinkin (1981, 16-17) found the fruit of the formalist revolution a little disappointing, and turned instead to a study of rhetoric (clearly revealed in his correspondence towards the end of his life). Others, such as Klein (who became co-ordinator of President-elect Carter’s economic task force), objected to Patinkin’s scepticism about econometrics: "I don’t really like or appreciate your final three sentences ... We are a force (with models) in policy making at the very highest levels of government and enterprise ... I think you have the wrong pitch on these points; we definitely over-fulfilled the C.C. [Cowles Commission] visions" (to Patinkin 2 April 1979).

Friedman (1953, 5) wrote that "the progress of positive economics" could lead to differences being "eliminated"; leaving only differences in basic values "about which men can ultimately only fight". Friedman (1974a, 159) suggested that the "fundamental reason ... for his slighting the short-run context of most of my framework is that Patinkin, even more than Tobin, is Walrasian, concerned with abstract completeness, rather than Marshallian, concerned with the construction of special tools for special problems". Far from eliminating differences, Friedman’s counter-revolution produced an enormous amount of heat in addition to light. No dispute of the period was more heated than the controversy over the Chicago oral tradition.

At the start of his publishing career, Patinkin (7 November1949) asked Friedman whether his Econometrica articles (1948; 1949) "deserve translation into English ... Query: do you think I should do this. I don’t have to add that I want a frank answer; I know I will get one". Towards the end of his life, Patinkin moved away from this post-war methodological focus: his interests had "to a certain extent led me into the sociology of knowledge and more recently into literary criticism and hermeneutics" (to Samuelson 28 August 1990).

Documentary research revealed that Friedman’s hostile questioning of the Cowles econometricians led to the creation of an oral tradition known as "the Friedman critique". In response to his critique, Koopmans asked Friedman: "But what if the investigator is honest?" (cited by Epstein 1987, 107). The Patinkin-Friedman correspondence reveals the existence of another oral tradition: "the Friedman question": "under what circumstances would you abandon your pet theory?" (4 February 1950).

The Patinkin Archives also document the extraordinary influence that Friedman exerted on his colleagues and students. Gary Becker, for example, reflected to Patinkin (6 April 1979) on Friedman’s influence in the 1950s: "I did not fully appreciate the power of Cowles at that time because of the great influence on me exerted by Milton Friedman. In my judgement, he was by far the most dominating and most interesting person in the department, and I abandoned my affiliation with Marschak and Cowles to pursue further my contacts with Friedman".

The Patinkin Archives illustrate the extent of Friedman’s early influence on Patinkin. They argued passionately, but privately, with undiminished affection. As both reached the pinnacle of their influence, this affection soured, and Patinkin devoted an extraordinary proportion of his professional energy to publicly questioning Friedman’s reliability as a source of historical knowledge. Harry Johnson became involved in what was virtually a coordinated attack on Friedman. The dispute over the historical accuracy of a 1956 introductory essay escalated into the charge that Friedman was "a crook" (Johnson to Patinkin, 29 September, 1969). Friedman’s increasing influence (especially after his 1967 Presidential Address), exerted over a wider professional and political landscape, provoked Patinkin to launch an extraordinarily vitriolic attack on his friend and colleague; an episode that is examined in the sequel to this essay (Leeson 1998).


Archibald, C. and Lipsey, R. 1958. Monetary and Value Theory: A Critique of Lange and Patinkin. Review of Economic Studies XXVI: 1-22.

___ 1960-61. Monetary and Value Theory: Further Comment. Review of Economic Studies XXVIII: 50-56.

Arnon, J. 1974. The Economist’s Task in Government. In Halevi and Kupps eds

Bachi, R. 1956. Ed. Scripta Hierosolymitana: Studies in Economic and Social Science. Vol III Jerusalem: Magnes Press, Hebrew University.

Barkai, H, Fischer, S and Liviatan, N eds. 1993. Monetary Theory and Thought: Essays in Honour of Don Patinkin. London: Macmillan.

Barkai, H. 1993. Don Patinkin’s Contribution to Economics in Israel. In Barkai et al eds.

Bullock, A. 1985. Ernest Bevin Foreign Secretary. Oxford University Press: Oxford.

Coats, A. W. 1981. Ed. Economists in Government: An International Comparative Study. Durham: Duke University Press.

Crossman, R. 1946. Palestine Mission. London: Hamish Hamilton.

Donovan, R. J. 1967. Israel’s Fight for Survival. New York: Signet.

Easterlin, R. 1961. Israel’s Development, Past Accomplishments and Future Problems. Quarterly Journal of Economics 75: 63-86.

Editorial Note. 1960-61. Review of Economic Studies XXVIII: 29.

Epstein, R. 1987. A History of Econometrics. Amsterdam: North Holland.

Friedman, M. 1949a. The Marshallian demand curve. Journal of Political Economy LVII, December: 463-95.

____1949b. Rejoinder. American Economic Review XXXIX: 949-955.

____1953. Essays in Positive Economics. Chicago: University of Chicago Press.

__ 1956. ed. Studies in The Quantity Theory of Money. Chicago: University of Chicago Press.

____1968a. The Role of Monetary Policy. American Economic Review May, 58: 1-17.

__ 1968b. Quantity Theory. In International Encyclopedia of the Social Sciences. 432-447.

__1969. Invisible Occupation. Newsweek 5 May: 44.

___ 1972. Money and Economic Development. New York: Praeger.

____1974. A Theoretical Framework for Monetary Analysis. And Comments on the Critics. In Gordon ed.

___ 1992. Money Mischief: Episodes in Monetary History. New York: Harcourt Brace Jovanovich.

___ 1996. Review of Groenewegen’s A Soaring Eagle: Alfred Marshall 1842-1924. Journal of Economic Literature December: 1989-1991.

Friedman, R. 1976a. Milton Friedman: Husband and Colleague (6). Oriental Economist October:22-26.

___1976b. Milton Friedman: Husband and Colleague (8). Oriental Economist December: .

___ 1977. Milton Friedman: Husband and Colleague (9). Oriental Economist January: 24-32.

Gordon, R. J. 1974. ed. Milton Friedman's Monetary Framework: A Debate with his Critics. Chicago: University of Chicago Press.

Hahn, F. 1960-61. The Patinkin Controversy. Review of Economic Studies XXVIII: 37-43.

Halevi, N. 1969. Economic Policy Discussion and Research in Israel. American Economic Review 59.2: 75-118.

___1979. The Exchange Rate in Israel. Revue Economique 1, January: 10-30.

Halevi, N. and Kupps, Y. 1974. Eds. Issues in the Economy of Isreal. Jerusalem: Falk Institute.

Hammond, J. D. 1996. Theory and Measurement: Causality Issues in Milton Friedman's Monetary History. Cambridge: Cambridge University Press.

Hickman, W. B. 1950. The Indeterminacy of Absolute Prices in Classical Economic Theory. Econometrica 18.1, January: 9-20.

Hicks, J. R. 1957. A Rehabilitation of ‘Classical’ Economics. Economic Journal LXVVII: 278-289.

Johnson, H. G. 1971. The Keynesian Revolution and the Monetarist Counter-Revolution. American Economic Review 61. 2, May: 91-106.

Jungk, R. 1970. Brighter than a Thousands Suns. London: Pelican.

Kleiman, E. 1973. An Early Modern Hebrew Textbook of Economics. HOPE 5: 339-358.

Kleiman, E. 1981. Israel: Economists in a New State. In Coats ed.

Kochav, D. 1974. The Economist’s Task in Government. In Halevi and Kupps eds.

Laidler, D. 1980. Monetarism: An Interpretation and an Assessment. Economic Journal 91.361, March: 1-28.

Leeson, R. 1998. Patinkin, Johnson and ‘The Shadow of Friedman.’ Mimeo (work-in-progress).

Leontief, W. 1950. The Consistency of the Classical Theory of Money and Prices. Econometrica January, 18.1: 21-24.

Lerner, A.P. and Ben-Shahar, H. 1975. The Economics of Efficiency and Growth: Lessons from Isreal and the West Bank. Cambridge, Mass: Ballinger.

Lester, R. 1947. Marginalism, Minimum Wages and Labor Markets. American Economic Review March: 135-148.

Lucas, R. E. 1980. Methods and Problems in Business Cycle Theory. Journal of Money Credit and Banking 12.4, November: 696-715.

Machlup, F. 1947. Rejoinder to an Antimarginalist. American Economic Review March: 148-154.

Moggridge, D. 1992. Maynard Keynes: An Economist’s Biography. Routledge: London.

Neff, P. 1949a. Professor Friedman's Proposal: A Comment. American Economic Review XXXIX: 946-9.

____1949b. Final Comment. American Economic Review XXXIX: 955-6.

Parkin, M. 1986. Essays On and In the Chicago Tradition: A Review Essay. Journal of Money Credit and Banking 18.1, February: 104-116.

Patinkin, D. 1956a. Money, Interest and Prices: An Integration of Monetary and Value Theory. Evanston, Illinois: Row Peterson. First Edition.

___ 1956b. Money and Price Developments in Israel: 1949-53. In Bachi ed. 22-52.

___ 1960. The Israel Economy: The First Decade. Jerusalem Post Press; Jerusalem

___ 1972. Samuelson on the Neoclassical Dichotomy. Canadian Journal of Economics 5.2, May: 279-83.

___ 1974. Economic Research in Isreal. In Halevi and Kupps eds.

___ 1981. Essays On and In the Chicago Tradition. Durham: Duke UP.

___ 1986. A Reply. Journal of Money Credit and Banking 18.1, February: 116-121.

___ 1993. Israel’s Stabilization Program of 1985, or Some Simple Truths of Monetary Theory. Economic Perspectives Spring: 103-128.

Phipps, C. G. 1950. A Note on Patinkin’s ‘Relative Prices’. Econometrica January, 18.1: 25-6.

Pomphret, R. 1976. Trade Policies and Industrialisation in a Small Country: The Case of Israel. Lubingen: University of Keil.

Rubner, A. 1960. The Economy of Israel: A Critical Account of the First Ten Years. London.

Solberg, W. U. And Tomlinson, R. W. 1997. Academic McCarthyism and Keynesian Economics: The Bowen Controversy at the University of Illinois. HOPE 29.1, Spring: 55-81.

Stigler, G. 1947. Professor Lester and the Marginalists. American Economic Review March: 154-157.


  1. I am grateful to the staff of the Special Collections Library, Duke University, for their assistance in writing this and an accompanying essay, and for their permission to quote material from the Special Collections Library. The essays (and especially my understanding of Don Patinkin) has been improved by comments and information provided by Bob Dimand, Graeme Dorrance, Paul Evans, Stanley Fischer, Milton Friedman, Craufurd Goodwin, Dan Hammond, David Laidler, Richard Lipsey, Donald Moggridge, Michael Parkin, Mark Perlman, Paul Samuelson, Winton Solberg, Frank Steindl and James Tobin. Haim Barkai circulated this paper to his colleagues at the Hebrew University of Jerusalem; their collective response was very helpful to me.

  2. This phrase was used by David Laidler (1980, 3), although not specifically in connection with Patinkin's assault on Friedman.

  3. Robert Lucas (1980, 696, n) developed part of his approach to business cycles after attending Patinkin's 1979 course on the History of Monetary Thought.

  4. Patinkin was a member of the Foreign Currency Committee (1953-4) and sided with the majority position, which rejected the 'free market' proposal to immediately abolish currency controls (correspondence from Barkai, January 11, 1998).

  5. Later, some of Patinkin's correspondence came from the Israel Academy of Sciences and Humanities, Albert Einstein Square.

  6. I am grateful to Haim Barkai for providing me with this information.

  7. I am grateful to Winton Solberg (correspondence 24 November 1997) for this information which came from the University of Illinois Transactions of the Board of Trustees, 45th Report. Thus, Patinkin was not lost to the University of Illinois because of the Bowen controversy, as implied by Solberg and Tomlinson (1997, 80).

  8. Even to the University of Illinois, Friedman, to ensure that his correspondence got through, thought it was wise to address his letter to "Professor" Patinkin: "then the mail people know that they're dealing with the faculty and not with students" (8 November 1948).

  9. Patinkin was referring to Friedman's insistence that he rewrite an article for the AER two or three times to improve the quality.

  10. Friedman was in Isreal to receive an honorary doctorate from the Hebrew University. Politicians, of course, ask advice from economists for a variety of motives. For an Isreali example of this, see Kochav (1974, 16)

  11. Samuelson (9 August 1993) informed Patinkin that "I found your piece on the Israel inflation and stabilisation [Patinkin 1993] fascinating from beginning to end. Somewhere in my writings I mentioned that around 1939 Stan(islaus) Ulam, already a great young mathematician and later to become (with Teller) the inventor of the hydrogen bomb, challenged me: 'Name one theory in economics that is neither trivial nor obvious'. I muttered: 'The theory of comparative advantage". Now in 1993 I can tell him (in Valhalla), 'The predictable and documented change in behaviour during the frictionless inflation and its stabilisation.'" An implication of Samuelson's letter is that had the Israeli stabilisation experience been available and documented in the 1970s, then the monetarist anti-Keynesian counter-revolution need never have happened. But it is doubtful whether the experience of the Israeli economy (which is based on a permanent semi-war footing) is generalisable to the inflation and strike-torn Western economies of the 1970s. Patinkin (1993, 120-1) clearly spelt out the special forces at work in Israel at that time (which included a coalition of the two major parties).

  12. Friedman was specifically referring to philosophical disputes about public works, "unborne costs and unappropriable benefits" which had to be resolved on "empirical grounds".

  13. There is no date visible on my photocopy of the letter, but appears to have been written immediately after Patinkin's December 1973 AER essay on Knight.

  14. One Nobel prize winner (21 October 1991) was not averse to gossiping with Patinkin about an ex-student (who later won a Nobel prize): "just between us two girls, much in that thesis paralleled my views of the time - including the ultimate title which I knew would catch on". These scandalous sentiments were prefaced by the words, "For your eyes only".

[ WPS Home Page | WPS Index ]