Milton Friedman

Milton Friedman was a U.S. economist and Nobel laureate known as the most compelling advocate of free-market capitalism and monetarism in the twentieth century.

Toward the beginning of his career during the 1950s and 1960s, Friedman's strong advocacy of monetary policy over fiscal policy and free markets over government intervention was considered revolutionary by the laid out macroeconomics community, which was overwhelmed by the Keynesian position that fiscal policy — government spending and tax policies to influence the economy — is a higher priority than monetary policy — control of the overall supply of money accessible to banks, consumers, and businesses — and that an interventionist government could moderate recessions by utilizing fiscal policy to prop up aggregate demand, prod consumption, and reduce unemployment.

In a direct test to the Keynesian foundation, Friedman and his fellow monetarists held that governments could foster economic stability by controlling the supply of money that flows into the economy and allowing the remainder of the market to fix itself (monetarism) and contended for a return to the free market, remembering smaller government and deregulation for most areas of the economy (free-market capitalism).

When Friedman kicked the bucket in 2006 at 94 years old, his hypotheses had been compelling to such an extent that the Wall Street Journal said that he had "reshaped modern capitalism" and "provided the intellectual foundations for the counter inflation, tax-cutting, and antigovernment policies" of President Ronald Reagan and British Prime Minister Margaret Thatcher.

Education and Early Career

Milton Friedman (1912 to 2006) was brought into the world to immigrant parents in Brooklyn, N.Y., and experienced childhood in a small town in New Jersey, 20 miles from New York City. In his Nobel life story, Friedman described his family as "warm and supportive" — yet the family income as "small and highly uncertain." His dad kicked the bucket during his senior year in high school, and he took different tasks to supplement a grant to Rutgers University, where he earned an undergraduate degree in math and economics in 1932. On the recommendation of a Rutgers teacher, Friedman was awarded a grant to an economics graduate program at the University of Chicago in 1932.

Over the course of the next 14 years, notwithstanding academic jobs at the University of Chicago and Columbia University, Friedman held a series of government jobs that deepened his skill in mathematical statistics and economic theory and contributed to publications on consumption and income analysis that sent off his career.

For instance, Friedman's consumer budget study at the National Resources Committee contributed to his popular Theory of the Consumption Function, and his professional income study (Incomes from Independent Professional Practice) at the National Bureau of Economic Research (NBER) presented the groundbreaking concepts of permanent and fleeting income (his permanent income hypothesis) into economic science.

Prior to earning a Ph.D. in Economics from Columbia University in 1946, Friedman spent World War II in a select team of statistical analysts working on wartime tax policy for the U.S. Treasury Department (1941 to 1943) and filling in as mathematical analysts on weapon design, military strategies, and metallurgical tests at Columbia University (1943 to 1945). Of note, during these early years at the U.S. Treasury, the well known enemy of taxation crusader recommended expanding taxes to stifle wartime inflation and devised the main system of income tax withholding.

The University of Chicago and Hoover lnstitution (1946 to 2006)

In 1946, Friedman accepted an offer to show economic theory at the University of Chicago and gone through the next 30 years leading groundbreaking analysis and developing free-market speculations that tested Keynesian economics — the school of felt that had ruled macroeconomics since the New Deal.

Studio on Money and Banking: A key institutional achievement during this period at the University of Chicago was Friedman's foundation of a money and banking studio that allowed his monetary studies to develop from individual grant into a cumulative collection of work that drove the recovery of both empirical and hypothetical research in the fields of monetary history and statistics.

The Chicago School of Economics: Friedman likewise turned into the most renowned graduate of the Chicago School of Economics, a neoclassical school founded during the 1930s by his teacher, Frank Knight, to advance free markets and the concept of rational expectations, a macroeconomic theory that holds that individuals base decisions on three factors — human rationality, accessible data, and past encounters — and that means both that current expectations directly influence the future economy and that economists can accurately model future inflation and interest rates with no requirement for government intervention.

Nobel Prize in Economic Sciences (1976): In 1976, right away before he retired from the University of Chicago, Friedman was awarded the Nobel Prize in Economic Sciences for his accomplishments in the fields of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy.

Hoover lnstitution of Stanford University: From 1977, when he retired from active educating at the University of Chicago, until his death in 2006, Friedman filled in as a Senior Research Fellow at the Hoover lnstitution of Stanford University, a public policy think tank advancing the principles of individual, economic, and political freedom.

Friedman the Theoretical Economist

Certain of Friedman's achievements as a hypothetical economist have been influential for the point that even vocal neo-Keynesian pundits respect the brightness of his logic, including his statement that economic models ought to be judged by the precision of their predictions about behavior — not by their psychological realism.

For instance, in Friedman's rational behavior model on consumption behavior, consumer inclinations can be communicated mathematically in terms of utility, and consumer decisions are driven by rational estimations to augment utility. Up to that point, Keynesian economists had explained consumer decisions all the more freely in psychological terms, e.g., a tendency to spend some (however not all) of any increase in income.

Outstanding commendation from ideological rivals includes Paul Krugman's statement that "Friedman's two greatest victories as an economic scholar came from applying the hypothesis of rational behavior to questions different economists had thought past its range."

Theory of the Consumption Function

Friedman's most memorable generally applauded application of the hypothesis of rational behavior to economic examples was A Theory of the Consumption Function, his 1957 book that made the case for his permanent income hypothesis — a consumer spending theory that states that saving and spending decisions are based on perceptions of permanent — not impermanent — changes to income. Individuals spend at a level reliable with their expected long-term income and save provided that current income is surprisingly high permanent income. By effectively settling previous errors in the analysis of the relationship among income and spending. Friedman established the groundwork for all subsequent economic analysis of spending and saving examples.

Prediction of Stagflation

One more indisputable Friedman victory, lauded by pundits as well as admirers, was that his rational-behavior clarification of inflation accurately anticipated a phenomenon that foundation Keynesians believed was incomprehensible: stagflation, a period of stale economic growth with simultaneous high inflation and high unemployment.

In 1967, when Friedman introduced his prediction of stagflation in a presidential address to the American Economic Association, he was testing winning economic speculations based on the Phillips curve, an economic model that demonstrated a historical correlation among unemployment and inflation that Keynesian economists had consistently assumed was stable, i.e., that high inflation would continuously be associated with low unemployment and low inflation with high unemployment.
At that point, Keynesian economists had been utilizing the Phillips curve to contend that the stable tradeoff among unemployment and inflation justified expansionary fiscal policies and deficit spending that drove higher inflation, since it would keep unemployment low. Friedman's counterargument to the Keynesians in 1967 was that, even however the data showed a correlation among inflation and unemployment, it was just an impermanent trade-off — not a stable correlation — and both inflation and unemployment would eventually be high simultaneously. Friedman's rational behavior contention was that consumers dealing with long-term inflation eventually build expectations of future inflation into saving and spending decisions, which eventually drops the power of high inflation to keep employment high.

At the point when the stagflation of the late 1970s proved the exactness of Friedman's prediction that the historical correlation among inflation and unemployment would eventually break down, it was hailed as "one of the great victories of postwar economics."

Monetarism and the Great Depression

At the point when Friedman won the Nobel Prize in 1976, the Committee refered to a book on monetarism that he and his partner Anna Schwartz had distributed in 1963: A Monetary History of the United States, 1867-1960. In this book, Friedman utilized highly detailed hypothetical and empirical analysis of the job of money in the U.S. economy since the Civil War to make the counter Keynesian case that control of the money supply was a primary device of economic management — as it had been all through pre-Keynesian economics.

The contention against monetary policy had been predominant since the Great Depression during the 1930s, when the monstrous economic crisis made interest rates so low that there was no incentive to contribute — and Keynesians accepted that any extra cash siphoned into the economy would have just been held by individuals and banks without kicking off the economy. In that specific situation, Keynesians effectively advocated fiscal policy (principally government spending) over monetary policy to pull the economy out of the Great Depression.

The most disputable position in Friedman's 1967 book targeted this Keynesian approach to the Great Depression — and it turned out to be very compelling with economists and the overall population: his contention that the government (the Federal Reserve) made the Great Depression more awful by not sanctioning monetary policies. In the book, that's what friedman asserted — assuming the Federal Reserve had prevented the emotional drop in money supply by bailing out banks in the mid 1930s — they might have prevented the wave of bank disappointments that made individuals decide to hold cash as opposed to set aside installments and made banks hold deposits instead of make loans to restore the economy.

One reason that an enemy of government economist like Friedman would advocate any government action whatsoever is that monetary policy is the least interventionalist (and ideally apolitical) action that the government can take in the economy. For instance, the Federal Reserve is a central bank, so it controls the monetary base — the total currency in circulation and in bank vaults as well as bank deposits at the Federal Reserve (however not the bank accounts of individuals).

All the Federal Reserve needed to do to increase the money supply (as per Friedman) was to make more monetary base and afterward let market forces play out — with no further government contribution. Conversely, Keynesian fiscal policies required significantly more government contribution in the economy. For instance, a government-funded public works project to increase employment wouldn't just be administered by government authorities yet it could likewise be utilized to serve political closures.

Neo-Keynesian pundits of the book include Paul Krugman, who — in spite of the fact that he called A Monetary History a "tremendous work of extraordinary grant" — protested Friedman's contention that the Federal Reserve made the Great Depression more regrettable by not establishing monetary policies. The Fed expanded the monetary aggregate that is under their control — the monetary base — so Krugman considers it highly debatable to say that the Fed might have prevented the crash of the money supply that thusly set off the collapse of spending that deepened the depression. (Money supply is an alternate monetary aggregate that includes currency plus bank deposits that can be utilized as cash.)

Krugman likewise forewarned that what Friedman guaranteed in the book — that the Federal Reserve had transformed a cyclical recession into a major depression by neglecting to bail out the banks — was widely misconstrued by certain economists and the public as Friedman accepting that the Federal Reserve had caused the Great Depression, which made the depression a disappointment of big government — not a disappointment of unrestricted free markets.

Real-World Application of Monetarism

Friedman first presented monetarism in quite a while 1959 book, A Program for Monetary Stability, and for the next three decades monetarism was a major subject of economic debate. In subsequent publications and public appearances throughout the next 25 years, he made the case for controlling the money supply so effectively that his reputation as an economist was defined to a large degree by the monetarism doctrine he made.

In any case, by the 1980s, in the wake of outstanding disappointments of major monetary policy drives in reality, a portion of his staunchest proponents started to reverse their support of monetarism. At the point when an affirmed monetarist In the U.K., Prime Minister Margaret Thatcher, authorized monetary policy to control inflation in the mid 1980s, the inflation rate leaped to 23% — and monetarism was abandoned by 1982. In the U.S., when the Federal Reserve endeavored monetarism by consistently developing the money supply to control inflation in the late 1970s, the difficult recession of 1981-1982 — with interest rates at the highest levels since the Civil War and unemployment in double digits — was the outcome.

By 1982, the U.S. had abandoned monetarism practically speaking — and in 1986, the New York Times reported that Beryl Sprinkel, President Reagan's Chief Economist and one of the "most relentless hardliners" of monetarism, had publicly denied the theory.

Of note, when gotten some information about the failed U.S. endeavor, Friedman said that what happened wasn't a disappointment of monetarism — it was an execution disappointment by the Federal Reserve, i.e., they had zeroed in on interest rates rather than money. '"Monetarism would work, if the Fed connected the policy to a computer and depended generally on the computer to control the economy."

In this unique circumstance, pundits have credited Friedman's strong advocacy of monetarism to a principally hardliner motivation: monetarism served his unilateral enemy of government agenda. Since he accepted that the Federal Reserve ought to develop the money supply at a consistent, low, fixed rate without even small deviations in response to economic conditions, monetary policy could be progressing automatically — and government authorities would have no control by any means.

Friedman's Monetarism versus Keynesian Economics

John Maynard Keynes and Milton Friedman were two of the most persuasive economic and public policy thinkers of the twentieth century. In the event that Keynes was the most persuasive economic thinker of the principal half of the twentieth century, Friedman was the most powerful economic thinker of the final part.

Until Friedman, Keynesian economics was the prevailing paradigm in economic idea. To a large degree, U.S. government policy was driven by Keynesian principles of interventionist fiscal policy to streamline recessions and prop up aggregate demand, including strategic government spending to prod consumption and mitigate unemployment.

Pundits of Keynes have marked his speculations as pseudo-logical justification for childish chosen legislators to run fiscal deficits and accumulate gigantic levels of government debt.

While Keynes has stayed well known — and he is widely credited with making the principal systematic approach to macroeconomic government policy — Friedman's contentions against Keynesian fiscal policy and for monetary policy have been predominant since the 1980s.

Pundits of Friedman have said that he motivated policies that "put millions… jobless in quest for low inflation" and "demonized nearly all that the government did, regardless of how beneficial or democratically picked." As James Galbraith, the child of the liberal economist John Kenneth Galbraith, put it: "Milton Friedman didn't make a differentiation between the big government of the People's Republic of China and the big government of the United States."

The Public Face of Free Markets

In 1976, when Friedman was awarded the Nobel Prize in Economic Sciences for his work on consumption analysis, monetary history and theory, and the complexity of stabilization policy, it denoted the changing of the tide away from three decades of Keynesian Economics and toward the Chicago School of Economics he had helped to establish.

With this international validation of his hypotheses and the major intellectual victory of his prediction of stagflation in the late 1970s — something foundation Keynesians generally believed was unimaginable — Friedman turned into the new public face of free markets.

Following three decades of Keynesian dominance, Friedman reshaped academic idea in economics around a laissez-faire, free-market accentuation on prices, inflation, and human incentives — a direct counter to Keynes' emphasis on employment, interest, and public policy.

Over the course of the next three decades, Friedman and his partners at the Chicago School of Economics contended against deficit spending and expansionary fiscal policy and for monetarism, deregulation in many areas of the economy, and a return to the free-market, small-government principles of classic economists, like Adam Smith.

Friedman the Public Intellectual

One of Friedman's most critical achievements was the degree to which his speculations influenced government policy and public assessment as well as economic research. As the Nobel Committee noted in 1976, "It is extremely rare for an economist to use such influence, directly and indirectly, on the direction of logical research as well as on genuine policies." At his death in 2006, Federal Reserve Chairman Ben Bernanke said: "Among economic researchers, Milton Friedman had no peer. The direct and indirect influences of his thinking on contemporary monetary economics would be hard to exaggerate.

Friedman's reach as a representative was similarly noteworthy. As well as having the ear of powerful lawmakers and composing academic papers, he arrived at the public through famous books, columns, and TV appearances. From debating highly technical economic principles at the academic level to imparting the economic benefits of free markets and small government to TV crowds in direct, plain language, hardly any public intellectuals in any field have been as effective.

During Friedman's milestone interviews on Phil Donahue's show in 1979 and 1980, the host said his visitor was "a man who won't ever be blamed for making economics confounding," and told Friedman: "The decent thing about you is that when you speak, I quite often understand you."

Notwithstanding addresses on college grounds (e.g., Stanford and NYU), Friedman had a 10-series TV program named "Free to Choose," based on his best-selling book with a similar name,

Economist Walter Block, sometimes a friendly instigator of Friedman, memorialized his contemporary's 2006 death by expressing, "Milton's courageous, clever, savvy, smooth and indeed, I'll say it, inspirational analysis must stand apart as an illustration to every one of us."

Imparting Economics to the Masses

One measure of the degree to which Friedman has moved the center of debate about the proper job of government in the economy is the way that certain of his core ideas have become well known wisdom.

"Judge policies by their outcomes, not their expectations."

In numerous ways, Friedman was an idealist and freedom supporter activist, however his economic analysis was constantly grounded in viable reality. He broadly told Richard Heffner, host of "The Open Mind," in a meeting: "One of the great errors is to judge policies and programs by their goals as opposed to their outcomes."

A significant number of Friedman's most disputable positions were based on this principle. He went against raising the minimum wage on the grounds that he felt it inadvertently hurt youthful and low-gifted workers, especially minorities. He likewise went against tariffs and endowments since they inadvertently hurt domestic consumers.

His well known 1989 "Open Letter" to then-medicate czar Bill Bennett called for the decriminalization, all things considered, generally on account of the devastating unintended effects of the medication war. This letter lost Friedman an area of conservative supporters, who he said failed "to perceive that the very measures you favor are a major source of the wrongs you deplore."

"Inflation is dependably and wherever a monetary phenomenon."

The most renowned extract from Friedman's compositions and talks is: "Inflation is generally and wherever a monetary phenomenon." He defied the intellectual climate of his time and reasserted the quantity theory of money as a practical economic principle. In a 1956 paper named "Studies in the Quantity Theory of Money," That's what friedman found, over the long haul, increased monetary growth increases prices however doesn't really influence output.

Friedman's work busted the classic Keynesian division on inflation, which stated that prices rose from by the same token "cost-push" or "demand-pull" sources. It likewise put monetary policy on a similar level as fiscal policy.

"Technocrats must not control the economy."

In a 1980 Newsweek column, Milton Friedman said: "In the event that you put the federal government in charge of the Sahara Desert, in five years there'd be a shortage of sand." Though maybe wonderful, this well known expression illustrates Friedman's much of the time opinionated opposition to government intervention into the economy; the Sahara Desert has as a matter of fact long been largely owned by different (African) national governments and has never encountered a shortage of sand.

Friedman was a vocal pundit of government power and was persuaded free markets operated better on grounds of ethical quality and proficiency. In terms of the genuine economics, Friedman laid on a couple of clich\u00e9s and fundamental, incentive-based examinations. He offered that no bureaucrat would or could spend money as admirably or as carefully as the taxpayers from whom it was taken. He talked frequently of regulatory capture, the phenomenon where powerful special interests co-select the very agencies designed to control them.

To Friedman, government policy is made and carried out through force, and that force makes unintended results that don't come from voluntary trade. The political power of government makes an incentive for the well off and devious to abuse it, assisting with creating what Friedman named "government disappointment."

"Government disappointments can be as terrible, or more awful, than market disappointments."

Friedman cherished bringing up government disappointments such that proved his contentions about unintended results and the awful incentives of government policy.

He uncovered how President Richard Nixon's wage and price controls prompted gas shortages and higher unemployment. He jumped on the Interstate Commerce Commission (ICC) and Federal Communications Commission (FCC) for making de facto imposing business models in transportation and media. Broadly, he contended that the combination of public schooling, the lowest pay permitted by law laws, drug forbiddance, and welfare programs had unexpectedly forced numerous ghetto families into cycles of crime and poverty.

The Bottom Line

Friedman is widely considered the most powerful economic and public policy thinker of the final part of the twentieth century, just as Keynes is considered the most persuasive of the primary half. One of Friedman's most huge achievements was the degree to which his speculations influenced government policy and public assessment as well as economic research.

Friedman's public policy speculations are based on two core principles: 1) voluntary interactions among consumers and businesses frequently produce results better than those created by government decree; 2) policies have unintended outcomes, so economists ought to zero in on results, not goals.

Friedman's utilization of monetarism to go against Keynesian hypotheses based on the Phillips curve is considered a major intellectual victory by the two pundits and admirers. At the point when the stagflation of the late 1970s proved the precision of his prediction that the historical correlation among inflation and unemployment would eventually break down, it was hailed as "one of the great victories of postwar economics."

Highlights

Milton Friedman, one of the leading economic voices of the last half of the twentieth century, advocated numerous economic ideas that are as yet important today — most importantly, free-market capitalism and monetarism.
Friedman's advocacy of monetarism was powerful to such an extent that he reversed the situation of economic idea away from Keynesian fiscal policy toward monetary policy zeroed in on control of the money supply to control inflation.
Friedman's economic hypotheses became what is known as monetarism, which discredited important parts of Keynesian economics, a school of believed that was predominant in the primary half of the twentieth century.
Throughout his academic career, Friedman composed compelling articles on the modern economy and distributed spearheading books that impacted how economics is instructed.

FAQ

What Inspired Friedman to Become an Economist?

Friedman, who was brought into the world in 1912, said that the Great Depression was of one of the main factors affecting his decision to turn into an economist. He needed to investigate the causes and results of such widespread economic misery.

Did Friedman Say that Greed Is Good?

Friedman didn't say that "greed is great" — that is a line from the 1987 film "Wall Street" — however he composed a well known article in The New York Times in 1970: The Social Responsibility of Business is to Increase Profits. That article has been called the motivation for the greed-is-great overabundances of activist investors who push companies to make shareholder value no matter what — and to the exclusion of any remaining considerations, remembering investing for employees and delivering value to customers.

Was Friedman a Libertarian?

Walter Block said that Friedman called himself a small "l" freedom supporter, and he was obviously lined up with the freedom advocate principles of small, less nosy government and deregulation all through his career.