Everything about Milton Friedman totally explained
Milton Friedman (
July 31 1912 –
November 16 2006) was an
American Nobel Laureate economist and
public intellectual. He made major contributions to the fields of
macroeconomics,
microeconomics,
economic history, and
statistics. In 1976, he was awarded the
Nobel Prize in Economics for his achievements in the fields of
consumption analysis,
monetary history and theory, and for his demonstration of the complexity of
stabilization policy. He was an advocate of
economic freedom.
According to
The Economist, Friedman "was the most influential economist of the second half of the 20th century…possibly of all of it".
Alan Greenspan stated "There are very few people over the generations who have ideas that are sufficiently original to materially alter the direction of civilization. Milton is one of those very few people." In his 1962 book
Capitalism and Freedom, Friedman advocated minimizing the role of government in a
free market as a means of creating political and social freedom. In his 1980 television series
Free to Choose, Friedman explained his view of how free markets work, emphasizing his conviction that free markets have been shown to solve social and political problems that other systems have failed to address adequately. His books and columns for
Newsweek were widely read, and even circulated underground behind the
Iron Curtain.
Earning a
Ph.D. in economics from
Columbia University in 1946, Friedman originally was a
Keynesian supporter of the
New Deal and advocate of high taxes. He moved away from the idea of central control in the 1950s, along with his close friend
George Stigler. His political philosophy, which Friedman himself considered
classically liberal and
consequentialist libertarian, stressed the advantages of the marketplace and the disadvantages of government intervention, strongly influencing the outlook of
American conservatives and
libertarians. He adamantly argued that if
capitalism, or economic freedom, is introduced into countries governed by totalitarian regimes,
political freedom would tend to result. He lived to see some of his
laissez-faire ideas embraced by the mainstream, especially during the 1980s, a watershed decade for the acceptance of Friedman's ideas in many countries. His views of monetary policy, taxation, privatization and deregulation informed the policy of governments around the globe, especially the administrations of
Ronald Reagan in the U.S.,
Brian Mulroney in Canada,
Margaret Thatcher in Britain, and
Augusto Pinochet in Chile.
Early life
Milton Friedman was born on
July 31,
1912 in
Brooklyn, New York to a working family of Jewish immigrants from
Beregszász in
Hungary (now
Berehove, part of
Ukraine). He was the first son and youngest child of Sára Eszter Landau and Jenő Saul Friedman, both of whom worked as
dry goods merchants. Shortly after Milton's birth, the family relocated to
Rahway, New Jersey. A gifted student, Friedman graduated from
Rahway High School in 1928, shortly before his 16th birthday.
Friedman was awarded a competitive scholarship to
Rutgers University in
New Jersey, graduating with a
Bachelor of Arts in 1932. He specialized in
Mathematics, and initially intended to become an
actuary but found the exams cumbersome and quit. During his time at Rutgers, Friedman fell under the influence of two economics professors,
Arthur F. Burns and
Homer Jones. At the height of the
Great Depression, they convinced him that the study of
Economics could help to solve the ongoing economic difficulties, and he ended up graduating with the equivalent of a double major in Mathematics and Economics.
Upon his graduation from Rutgers, Friedman turned down an offer to study
applied mathematics at
Brown University, instead accepting a scholarship to study Economics at the
University of Chicago (
M.A., 1933). During this year in
Chicago, Friedman's intellectual development was strongly influenced by
Jacob Viner,
Frank Knight, and
Henry Simons. It was also during this time at Chicago that Friedman met his future wife,
Rose Director (sister of prominent law professor
Aaron Director). After completing his master's degree, Friedman spent the next academic year (1933–34) on a postgraduate fellowship at
Columbia University, where he studied
statistics with renowned statistician and economist
Harold Hotelling. He was back in Chicago for 1934–35, spending the year working as a
research assistant for
Henry Schultz, who was then working on his
Theory and Measurement of Demand. During this year, Friedman formed what would prove to be lifelong friendships with
George Stigler and
Wilson Allen Wallis.
Public service
Friedman was initially unable to find academic employment, so in 1935, he followed his friend W. Allen Wallis to
Washington, D.C., where
Roosevelt's New Deal was "a lifesaver" for many young economists. At this stage, Friedman said that he and his wife "regarded the job-creation programs such as the
WPA,
CCC, and
PWA appropriate responses to the critical situation", but not "the price- and wage-fixing measures of the
National Recovery Administration and the
Agricultural Adjustment Administration". Foreshadowing his later ideas, he saw
price controls as interfering with an essential signaling mechanism to help resources go where they're most valued. Indeed, Friedman later concluded that all government intervention associated with the New Deal was "the wrong cure for the wrong disease", arguing that the money supply should simply have been expanded, instead of contracted. In
Monetary History of the United States he argues that the
Great Depression was caused by
monetary contraction, which was the consequence of poor policy making by the
Federal reserve and the continuous crises in the banking system.
In 1935 he began work at the National Resources Committee, which was then working on a large consumer budget survey. Ideas from this project later became a part of his
Theory of the Consumption Function. Friedman moved to the
National Bureau of Economic Research in fall 1937 to assist
Simon Kuznets in his work on professional income. This work led to their jointly authored
Incomes from Independent Professional Practice, which introduced the concepts of permanent and transitory income, a major component of the
Permanent Income Hypothesis that Friedman worked out in greater detail in the 1950s. The book hypothesizes that professional licensing artificially restricts the supply of services and raises prices.
In 1940, Friedman was appointed an assistant professor teaching Economics at the
University of Wisconsin–Madison, but encountered
antisemitism in the Economics department and decided to return to government service. Friedman spent 1941–43 working on wartime
tax policy for the Federal Government, as an advisor to senior officials of the
United States Department of the Treasury. As a Treasury spokesman in 1942 he advocated a
Keynesian policy of
taxation, and during this time he helped to invent the payroll
withholding tax system.
In his autobiography, he comments on "how thoroughly Keynesian I was then". As Friedman grew older he reversed himself; in 2006 he observed, "You know, it's a mystery as to why people think
Roosevelt's policies pulled us out of the
Depression. The problem was that you'd unemployed machines and unemployed people. How do you get them together by forming industrial cartels and keeping prices and wages up?"
Academic career
Early years
In 1943, Friedman joined the Division of War Research at
Columbia University (headed by
Wilson Allen Wallis and
Harold Hotelling), where he spent the rest of the war years working as a mathematical statistician, focusing on problems of
weapons design,
military tactics, and
metallurgical experiments. Then in 1945, Friedman submitted
Incomes from Independent Professional Practice (co-authored with Kuznets and completed in 1940) to Columbia as his doctoral dissertation. The university awarded him a
Ph.D. in 1946. Friedman spent the 1945–46 academic year teaching at the
University of Minnesota (where his friend George Stigler was employed).
University of Chicago
In 1946, Friedman accepted an offer to teach economic theory at the University of Chicago (a position opened by Jacob Viner's departure to
Princeton University). Friedman would stay at the University of Chicago for the next 30 years. There he helped build a close-knit intellectual community that produced a number of Nobel Prize winners, known collectively as the
Chicago School of Economics.
At the same time he moved to the University of Chicago, Arthur Burns, who was then the head of the
National Bureau of Economic Research, asked Friedman to rejoin the Bureau's staff. He accepted the invitation, and assumed responsibility for the Bureau's inquiry into the role of
money in the
business cycle. As a result, he founded the "Workshop in Money and Banking" (the "Chicago Workshop"), which led a revival in monetary studies. During the latter half of the 1940s, Friedman began a collaboration with
Anna Schwartz, an
economic historian at the Bureau, which would ultimately result in the 1963 publication of a book co-authored by Friedman and Schwartz,
A Monetary History of the United States, 1867–1960.
Friedman spent the 1954–55 academic year as a Visiting Fellow at
Gonville and Caius College, Cambridge. At the time, the Cambridge economics faculty was deeply divided into a
Keynesian majority (including
Joan Robinson and
Richard Kahn) and a virulently anti-Keynesian minority (headed by
Dennis Robertson). Friedman speculates that he was invited to the fellowship because his extreme
laissez-faire views were unacceptable to both of the Cambridge factions, a fact that highlights how far out of the mainstream Friedman was in the 1950s.
Nobel memorial prize and retirement
In 1976, Friedman won the
Nobel Memorial Prize in Economic Sciences "for his achievements in the fields of consumption analysis,
monetary history and theory and for his demonstration of the complexity of stabilization policy". and asked to create a television program presenting his economic and social philosophy. The Friedmans worked on this project for the next three years, and in 1980, the ten-part series, entitled
Free to Choose, aired on
PBS. The companion book to the series (co-authored by Milton and his wife,
Rose Friedman), also entitled
Free to Choose, was the bestselling nonfiction book of 1980 and has since been translated into 14 foreign languages.
Friedman served as an unofficial adviser to Ronald Reagan during his 1980 presidential campaign, and then served on the President's Economic Policy Advisory Board for the rest of the
Reagan Administration. In 1988, he received the
National Medal of Science and Reagan honored him with the
Presidential Medal of Freedom.
Milton Friedman is today known as one of the most influential economists of the 20th century. Throughout the 1980s and 1990s, Friedman continued to write
op-eds and appear in the media. He made several trips to
Eastern Europe and to
China.
In Friedman's last email interview in 2006, he said that the greatest threat to the world's economy is "Islamofascism, with terrorism as its weapon". Milton Friedman died at the age of 94 in
San Francisco on
November 16 2006. Friedman's son is the philosopher and economist
David D. Friedman.
Scholarly contributions
Economics
Friedman was best known for reviving interest in the money supply as a determinant of the nominal value of output, that is, the
quantity theory of money.
Monetarism is the set of views associated with modern quantity theory. Its origins can be traced back to the 16th-century
School of Salamanca or even further but Friedman's contribution is largely responsible for its modern formulation. He co-authored, with
Anna Schwartz,
A Monetary History of the United States (1963), which sought to examine the role of the money supply and
economic activity in U.S. history. A striking conclusion of their research was one regarding the role of money supply fluctuations as contributing to economic fluctuations. Several regression studies with David Meiselman in the 1960s suggested the primacy of the money supply over investment and government spending in determining consumption and output. These challenged a prevailing but largely untested view on their relative importance. Friedman's empirical research and some theory supported the conclusion that the short-run effect of a change in the money supply was primarily on output but that the longer-run effect was primarily on the price level.
Friedman was the leading proponent of the
monetarist school of economic thought. He maintained that there's a close and stable link between
inflation and the
money supply, mainly that the phenomenon of inflation is to be regulated by controlling the amount of money poured into the national economy by the Federal Reserve Bank. Friedman's arguments were designed to counter popular claims that inflation at the time was the result of increases in the oil price, or increases in wages: as he wrote, Friedman rejected the use of
fiscal policy as a tool of
demand management; and he held that the government's role in the guidance of the economy should be severely restricted. Friedman wrote extensively on the Great Depression, which he called the
Great Contraction, arguing that it had been caused by an ordinary financial
shock whose duration and seriousness were greatly increased by the subsequent contraction of the money supply caused by the misguided policies of the directors of the Federal Reserve.
Friedman also argued for the cessation of government intervention in
currency markets, thereby spawning an enormous literature on the subject, as well as promoting the practice of freely floating
exchange rates. Friedman's macroeconomic theories were soon displaced. His close friend
George Stigler explained, "As is customary in science, he didn't win a full victory, in part because research was directed along different lines by the
theory of rational expectations, a newer approach developed by
Robert Lucas, also at the University of Chicago."
Friedman was also known for his work on the consumption function, the
permanent income hypothesis (1957), which Friedman himself referred to as his best scientific work. This work contended that rational consumers would spend a proportional amount of what they perceived to be their permanent income. Windfall gains would mostly be saved. Tax reductions likewise, as rational consumers would predict that taxes would have to rise later to balance public finances. Other important contributions include his critique of the
Phillips curve and the concept of the
natural rate of unemployment (1968). This critique associated his name, together with that of Edmumd Phelps, with the insight that a government that brings about higher inflation can't permanently reduce unemployment by doing so. Unemployment may be temporarily lower, if the inflation is a surprise, but in the long run unemployment will be determined by the frictions and imperfections in the labour market.
Friedman's essay "
The Methodology of Positive Economics" (1953) set the
epistemological course for his own subsequent research and to a degree that of the
Chicago School of Economics. There he argued that economics as
science should be free of value judgments for it to be objective. Moreover, a useful economic theory should be judged not by its descriptive realism (hair color, etc.) but by its simplicity and fruitfulness as an engine of prediction.
Statistics
Although less popularly known for these advances, Friedman was also widely agreed to be a brilliant statistician. One of his most famous contributions to
statistics is
sequential sampling. "Friedman did statistical work at the Division of War Research at Columbia. He and his colleagues came up with a sampling technique, known as
sequential sampling, which became, in the words of
The New Palgrave Dictionary of Economics, 'the standard analysis of quality control inspection.' The dictionary adds: 'Like many of Friedman’s contributions, in retrospect it seems remarkably simple and obvious to apply basic economic ideas to quality control; that however is a measure of his genius.'"
Other work
"He was also a key member of the team that developed a new proximity fuse for anti-aircraft projectiles, preventing bombs from going off unless they're near the object they're meant to destroy." Friedman did, however, believe a nation could compel military
training as a reserve in case of war time. He served as a member of President Reagan's
Economic Policy Advisory Board in 1981. In 1988, he received the
Presidential Medal of Freedom and the
National Medal of Science. He said that he was a libertarian philosophically, but a member of the U.S.
Republican Party for the sake of "expediency" ("I am a libertarian with a small 'l' and a Republican with a capital 'R.' And I'm a Republican with a capital 'R' on grounds of expediency, not on principle.") But, he said, "I think the term
classical liberal is also equally applicable. I don't really care very much what I'm called. I'm much more interested in having people thinking about the ideas, rather than the person."
Friedman was supportive of the state provision of some
public goods that the market isn't seen as being able to provide. However, he saw the scope of such goods as being minimal, and argued that many of the services performed by government could be performed better by the private sector. Above all, if some public goods are provided by the state, he believed that they shouldn't be a
legal monopoly where private competition is prohibited. For, example, in response to the
United States Post Office's legal monopoly on mail, he said
Friedman made headlines by proposing a
negative income tax to replace the existing
welfare system and then opposing the bill to implement it because it merely supplemented the existing system rather than replace it.
In 2005, Friedman and more than 500 other economists called for discussions regarding the economic benefits of the
legalization of marijuana.
Michael Walker of the
Fraser Institute and Friedman hosted a series of conferences from 1986 to 1994. The goal was to create a clear definition of
Economic freedom and a method for measuring it. Eventually this resulted in the first report on worldwide economic freedom,
Economic Freedom in the World. These annual report has since provided data for numerous peer-reviewed studies and has influenced policy in several nations.
Along with sixteen other distinguished economists he opposed the
Sonny Bono Copyright Term Extension Act and filed an
amicus brief in
Eldred v. Ashcroft.
Honors, recognition, and influence
Friedman allowed the
Cato Institute to use his name for its
Milton Friedman Prize for Advancing Liberty in 2001. The award is given out biannually. The Friedman Prize went to the late British economist
Peter Bauer in 2002, Peruvian economist
Hernando de Soto in 2004,
Mart Laar, former Estonian Prime Minister in 2006 and a young Venezuelan student
Yon Goicoechea in 2008.
His wife Rose, sister of
Aaron Director, with whom he founded the
Milton and Rose D. Friedman Foundation for School Choice, served in the international selection committee. Friedman's son,
David D. Friedman, has carried on his tradition of arguing in favor of free markets, but to a further extreme, advocating
anarcho-capitalism.
Hong Kong
Friedman once said "if you want to see capitalism in action, go to
Hong Kong". He believed the
Hong Kong economy was the best example of a
laissez-faire capitalism economy.
One month before his death, he wrote the article "Hong Kong Wrong - What would Cowperthwaite say?" in the
Wall Street Journal, criticizing
Donald Tsang, Chief Executive of Hong Kong, for abandoning "positive noninterventionism". Tsang later said he was merely changing the slogan to "big market, small government", where small government is defined as less than 20% of GDP. In a debate between Tsang and
Alan Leong, rivals for the position of Chief Executive, Leong brought up the topic and accused Tsang of angering Friedman to death.
Chile
» For more information on Milton Friedman's views on Chile, see Miracle of Chile.
In 1975, two years after the military coup that toppled the government of
Salvador Allende, the economy of
Chile experienced a crisis. Friedman accepted the invitation of a private foundation to visit Chile and lecture on principles of economic freedom. Friedman also met with the
military dictator, President
Augusto Pinochet, during his visit, but he didn't serve as a formal advisor to the Chilean government. Instead, Chilean graduates of The Chicago School of Economics and its new local chapters were appointed to key positions in the new government, which allowed them to advise the dictator on economic policies in accord with the School's economic doctrine.
At home, several critics attacked Friedman's association with Pinochet, who had violently deposed Allende, the elected socialist head of state. He came under heavy criticism from exiled Chilean Foreign Affairs Minister
Orlando Letelier, who criticized Friedman's economic theories. In 1976, Letelier wrote:
According to his critics, Friedman didn't criticize Pinochet's dictatorship at the time, nor the assassinations, illegal imprisonments, torture, or other atrocities that were well-known by then. Later, in
Free to Choose, he said the following: "Chile isn't a politically free system and I don't condone the political system ... the conditions of the people in the past few years has been getting better and not worse. They would be still better to get rid of the junta and to be able to have a free democratic system."
When he went to receive his Nobel prize in Stockholm, he was met by demonstrations. In an interview on the PBS program in 2000, Friedman attributed these demonstrations by opponents he recognized from earlier occasions to communists seeking to discredit anyone with even the slightest connection to Pinochet — such as himself — adding that "there was no doubt that there was a concerted effort to tar and feather me".
Friedman defended his role in Chile on the grounds that, in his opinion, the move towards open market policies not only improved the economic situation in Chile but also contributed to the softening of Pinochet's rule and to the eventual transition to a democratic government in 1990. That idea followed from
Capitalism and Freedom, in which he declared that economic freedom isn't only desirable in itself but is also a necessary condition for political freedom. He stressed that the lectures he gave in Chile were the same lectures he later gave in
China and other
socialist states. In the 2000 PBS documentary
The Commanding Heights, Friedman continued to claim that criticism over his role in Chile missed his main point that freer markets led to freer people, and that Chile's unfree economy had led to the military government. Friedman argued that the economic liberalization he advocated led to the end of military rule and a free Chile. When they complained that a fee was charged for attending his lecture at the University and that hitherto lectures by visiting scholars had been free-of-charge, Friedman replied that previous lectures hadn't been free-of-charge in a meaningful sense: Lectures always have related costs. What mattered was whether attendees covered those costs, or those who didn't attend. Friedman thought that it was fairer that only those who attended, paid.
Friedman made a great impact on a group of young intellectuals in the
Independence Party, including
Davíð Oddsson who became Prime Minister in 1991 and began a radical program of monetary and fiscal stabilization, privatization, tax rate reduction (for example, lowering the corporate income tax rate from 45% to 18%), definition of exclusive use rights in fisheries, abolition of various government funds for aiding unprofitable enterprises and liberalization of currency transfers and capital markets. In 1975, Iceland had the 53rd freest economy in the world, while in 2004, it had the 9th freest economy, according to the
Economic Freedom of the World index designed by Canada’s
Fraser Institute. According to the
index designed by the
Heritage Foundation, Iceland as of 2008 has the 5th freest economy in the world.
Davíð Oddsson was Prime Minister for thirteen and a half years, to 2004. The present Prime Minister,
Geir H. Haarde supports similar policies.
Estonia
Although Friedman never visited
Estonia, his book
Free to Choose exercised a great influence on that nation's then 32-year-old prime minister,
Mart Laar, who has claimed that it was the only book on economics he'd read before taking office. Laar's reforms are often credited with responsibility for transforming Estonia from an impoverished Soviet Republic to the "Baltic Tiger". A prime element of Laar's program was introduction of the
flat tax. Laar won the 2006 Milton Friedman Prize for Advancing Liberty, awarded by the
Cato Institute.
As a result of Laar's adherence to the principles in
Free to Choose, Estonia now consistently ranks highly in the Heritage Foundation/
Wall Street Journal Economic Freedom Index.
Criticism
Friedman has attracted substantial criticism over his views, both from economic libertarians and leftists.
Libertarian Criticisms
In 1971,
Murray Rothbard wrote a lengthy article for
The Individualist which heavily criticized several of Friedman's viewpoints as totalitarian and statist. In particular, Rothbard criticized Friedman's viewpoint that the micro- and macro-spheres are entirely separate with the government needing to take an active role in the macro-sphere as false and dangerous, the view that it's beneficial for the government to control currency to maintain constant price levels as bogus and harmful, and the viewpoint that nonpaying benefiters positive
externalities created by various services should be taxed to pay producers of that service as an absurd position that opens the door for the most ridiculous forms of totalitarianism. More generally, he criticizes Friedman's efforts to make the government more efficient as highly detrimental to individual liberty, and concludes that "And so, as we examine Milton Friedman’s credentials to be the leader of free-market economics, we arrive at the chilling conclusion that it's difficult to consider him a free-market economist at all."
Film appearance
Milton Friedman appeared on the documentary film
The Corporation to discuss his views on corporate
externalities. He was also interviewed on
The One Percent and played the Economist in the 1978 film
Tältet.
Further Information
Get more info on 'Milton Friedman'.
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