Milton Friedman (born 1912) was the founder and leading proponent of "monetarism," an economic doctrine which considers the supply of money (and changes therein) to be the primary determinant of nominal income and prices in the economy.
Milton Friedman, a native of Brooklyn, New York, was born July 31, 1912. After earning an undergraduate degree from Rutgers University in 1932 and a Master's degree from the University of Chicago the following year, Friedman became a research economist with the National Bureau of Economic Research in New York and later with the U.S. Treasury Tax Research Division. He earned a doctorate in economics from Columbia University in 1946 and after brief spells at Wisconsin and Minnesota universities returned to the University of Chicago to begin a long and distinguished career of teaching and research. After retiring in 1979 Friedman continued an active schedule of research and publishing at the Hoover Institute of Stanford University.
According to the monetarist view which Friedman developed and popularized, the private economy is basically stable unless disturbed by rapid money supply fluctuations or other government actions. Friedman advocated a "constant monetary rule" whereby the nation's money supply would grow by a fixed percentage each year, thereby avoiding overexpansion and inflation.
Blamed the "Fed" for Depression
Friedman's positions consistently put him at odds with the Federal Reserve System (often called the "Fed"), the central bank legislated by Congress in 1913 to create and control the nation's money supply. In his monumental A Monetary History of the United States, 1867-1960 (with Anna J. Schwartz, 1963) Friedman provided a startling analysis of the Great Depression (1929-1933), arguing that the Fed deserved considerable blame for allowing a dramatic fall in the money supply during this period. The traditional Keynesian view is that the Fed played an insignificant role and was powerless to stem the economic slide.
Although Friedman resisted offers to take government jobs himself, his ideas achieved considerable success in altering government policies. This was reflected, for example, in the historic setting of monetary growth targets by the Federal Reserve Board in 1979, a practice which Friedman had long advocated.
Friedman was also a staunch defender of the free enterprise system and a proponent of individual responsibility and action. In Capitalism and Freedom (1962) he outlined his concept of the proper role of government in a free society. These views were popularized through a regular Newsweek column starting in 1966 and through books such as There Is No Such Thing As A Free Lunch. His ideas were brought vividly home to the American public through an award-winning ten-part television series in 1980 entitled Free to Choose (co-authored with his wife, Rose Friedman).
As a scholar Friedman was prolific. Among his other well-known books are Essays in Positive Economics (1953), which included famous papers on the methodology of economics; Studies in the Quantity Theory of Money (1956), which revitalized the classic quantity theory of money as a foundation for monetarism; A Theory of the Consumption Function (1957), which provided a novel explanation for consumption decisions based on lifetime rather than current income; and Monetary Trends in the United States and the United Kingdom (co-authored with Anna J. Schwartz, 1982).
Friedman's articles in professional journals consistently challenged orthodox views and presented new ways of understanding economic data and events. In "The Role of Monetary Policy" in American Economic Review (1968) Friedman invented the now famous "long run natural rate of unemployment." This article provided strong arguments for refuting the simple Phillips Curve hypothesis that less unemployment could be achieved at the cost of higher inflation. The Phillips Curve analysis had been used by policy-makers to justify expansionary fiscal spending. Friedman's analysis, however, showed that attempts to lower the rate of unemployment below the "natural" level would cause only temporary reductions in unemployment and in the long run produce higher inflation along with higher unemployment.
In subsequent writings Friedman elaborated his views on these issues (A Theoretical Framework for Monetary Analysis, 1971, and "Nobel Lecture: Inflation and Unemployment," in Journal of Political Economy, 1977). Friedman's explanation for "stagflation," the existence of stagnant demand and high unemployment simultaneous with inflation, proved to be more convincing than orthodox Keynesian theories and provided tremendous impetus for defections from the Keynesian camp.
Nobel Prize Winner
Friedman's achievements were recognized early in his career. In 1951 he was awarded the John Bates Clark Medal of the American Economic Association, and in 1962 he was awarded the Paul Snowden Russell Distinguished Service Chair at the University of Chicago. In 1976 Friedman won his greatest honor, the Nobel Prize in Economics. Throughout his career Friedman earned numerous other awards and honorary doctorates from colleges and universities throughout the world.
In addition to his prolific writing, Friedman found time to be president of the American Economic Association (1967), vice-president of the Western Economic Association (1982-1983), and president of the Mont Pelerin Society (1970-1972). He was on the board of editors of the American Economic Review (1951-1953) and of Econometrica (1957-1969) and a member of the advisory board of the Journal of Money, Credit, and Banking (1968 into the mid-1980s).
In 1992 a reviewer breathlessly summarized the accomplishments of Friedman's book Money Mischief: Episodes in Monetary History, suggesting the economist has the rare ability to communicate his message to the non-academic. "Friedman compares inflation to alcoholism; blames the rise of Chinese communism, in large part, on an inadequately controlled money supply; defines and describes MV=PT in four brief paragraphs; tells how three Scottish chemists ruined William Jennings Bryan's political career through their pioneering work with gold; and relates many other anecdotes befitting the book's subtitle, Episodes in Monetary History."
Held Strong Views
When Friedman would speak on, for instance, the woes of the U.S. education system, his free-market and anti-union views were readily apparent. "Why is it that our educational system is turning out youngsters who cannot read, write, or figure? The answer—simple but nonetheless correct—is that our current school system is a monopoly that is being run primarily by the teachers' unions: the National Education Association and the American Federation of Teachers. They are among the strongest trade unions in the country and among the most powerful lobbying groups.
"The people who run the unions aren't bad people; they're good people—just like all the rest of us. But their interests and the interests of a good school system are not the same."
Friedman was equally outspoken on the legalization of drugs. When an interviewer asked what good would come of it, the economist said, "I see America with half the number of prisons, half the number of prisoners, then thousand fewer homicides a year, inner cities in which there's a chance for these poor people to live without being afraid for their lives, citizens who might be respectable who are now addicts not being subject to becoming criminals in order to get their drug, being able to get drugs for which they're sure of the quality. You know, the same thing happened under prohibition of alcohol as is happening now (with drugs)."
Milton Friedman will be remembered as one of the most gifted economists of the 20th century. His iconoclasm often made him a controversial figure, yet unfolding events showed him to be ahead of his time, such as in resisting the spread of federal government power and in being a "watchdog" of the monetary authority. He excelled as an orator and debater. His popular writings in Newsweek and elsewhere provided succinct and novel solutions for economic ills which would allow the free market to work, such as the "negative income tax," an all-volunteer army, and floating exchange rates. While economists continue to debate the relevance of "monetarism" for policy decisions, there is little question that Friedman left the profession with and valuable new insights on economic behavior.
Further Reading on Milton Friedman
Additional information on Friedman can be found in L. Silk, The Economists (1976); Karl Brunner (editor), Milton Friedman in Our Time (1979); R. Sobel (author of four articles for this publication; see contributor list), The Worldly Economists (1980); Jr. Shackleton and G. Locksley (editors), Twelve Contemporary Economists (1981); and Mark Blaug, Great Economists Since Keynes (1985).
The opposing, in large part, Keynesian economics was developed by John Maynard Keynes in The General Theory of Employment, Interest, and Money (1936). See also Hirsch, Abraham, Milton Friedman: Economics in Theory and Practice, Harvester Wheatsheaf, 1990.