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Milton Friedman was an American economist, statistician, scholar, and an author who is remembered as the father of monetarism and a proponent of free markets. Milton Friedman is a renowned economist born on July 31, 1912 to Jewish immigrants in Brooklyn, New York City (Cole, 115).
At the age of twenty, he got his Bachelor of Arts from Rutgers University and went to pursue his Masters at the University of Chicago in 1933. He later earned his P.H.D in 1946 from Columbia University. Thereafter, he taught at the University of Chicago for over three decades. In 1952, he was awarded the John Bates Clark Medal which recognizes economists below the age forty for exceptional accomplishment (Bandyk, 46).
Milton Friedman received a Nobel Memorial Prize winner “in Economic Sciences in 1976 for his achievements in the field of consumption analysis, monetary history, and theory, and for his demonstration of the complexity of stabilization policy” (Bandyk, 46). He previously served as an advisor to President Richard Nixon and was a president of the American Economic Association in 1967.
In 1977, Friedman retired from Chicago University and became a senior research fellow at the Hoover Institution at Stanford University. He also became an economic advisor to Barry Goldwater who was the republican presidential aspirant in 1964 (Bandyk, 46). In 1981, he sat at the economic policy advisory board headed by President Reagan and was awarded the Presidential Medal Of Freedom as well as the National Medal of Science, in 1988. Friedman died of heart attack in San Francisco at the age of 94, in November 16, 2006 (Cole, 116).
Friedman’s contribution to economics
Friedman is referred to as the father of monetarism due to his efforts of coming up with the quantity theory of money. This school of thought looks at money supply as a key determinant of the nominal rate of output. Monetarism is the proponent related to contemporary quantity theory of money and Friedman is attributed to its popularization (Schwartz, 256).
In 1963, he co-authored with Anna Schwartz in an examination of the significance of money supply and economic activity in the history of U.S, in a book called ‘A Monetary History of the United States’ (1963). They concluded that money supply fluctuations are attributable to fluctuations in the economy (Schwartz, 256).
He also collaborated with David Meiselman to show the dominance of money supply over government expenditure and investment as key factors that affect output and consumption. Friedman’s experimental research and part of the theory was on the findings that the short-run outcome of an alteration of the money supply largely relied on output. However, in the end, the effect was mainly on the price level (Schwartz, 258).
Friedman was the chief advocate of the monetarist thought of economics. According to him, there is an intact and constant relationship between money supply and price inflation. “Primarily, price inflation ought to be adjusted with monetary deflation, while price deflation is regulated with monetary inflation” (Schwartz, 258).
He legendary wisecracked that price deflation could be dealt with by “dropping money out of a helicopter” (Schwartz, 258). He counteracted common allegations that price inflation was back then instigated by rising prices of oil or wages. He said in 1970 during one of his lectures, “inflation is always and everywhere a monetary phenomenon.”
Friedman rejected the exercise of fiscal policy as an instrument of demand management; and instead argued that the government’s role in economy regulation should be very limited. He broadly wrote on the Great Depression, which he referred to as the Great Contraction (Schwartz, 257).
He argued that it was because of normal financial “shock” whose extent and gravity were significantly amplified by the successive tightening of the money supply due to ill-advised policies of the Federal Reserve directors. He argued that the Fed was accountable for translating a small or a severe recession into a great catastrophe. Distant from the depression being a letdown of the capitalism system, it was a terrible malfunction of government (Schwartz, 257).
Friedman believed in termination of government interference in currency markets therefore producing a massive literature on the matter. He therefore became a proponent of a market practice based on liberally floating exchange rates. Friedman wrote an essay named “The Methodology of Positive Economics (1953)” which paved way for the epistemological blueprint for his later research and to a great extent shaping economic research of the Chicago School of Economics.
He said that for economics to be objective as a science, it ought to be liberated to value judgments. In addition, a practical economic theory should be evaluated by its simplicity and productivity as an engine of forecast and not by its explanatory pragmatism (Schwartz, 259).
Friedman is also remembered for his contribution on the consumption function and the permanent income hypothesis (1957), which he submitted to as his greatest scientific work. In this work, he argued that rational consumers would expend a proportional sum of money they professed as their permanent income (Cole, 119).
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Extra gains would be typically saved. Rational consumers will also expect that tax deductions have to rise afterwards to poise public finances. Another of Friedman’s important contribution was his evaluation of the Philips curve (relationship between inflation and employment) in addition to the theory of “natural rate of unemployment (1968)” (Cole, 120).
This brought his association with Edmund Phelps, citing that a government that creates greater inflation cannot lastingly cut unemployment as a result. Unemployment could be in the short term lower, if the inflation is a shock. However, in the end, unemployment will be influenced by the abrasions and flaws of the labor market.
Friedman made a landmark input in statistics through his development of sequential sampling. With the help of his colleagues, he invented this sequential sampling technique at the Division of War Research in Columbia. Sequential sampling became “the standard analysis of quality control inspection” according to The New Palgrave Dictionary of Economics.
In the words of the dictionary it states that, “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” (Schwartz, 260).
Public policy positions
Friedman made great and numerous contributions towards public policy especially in the monetary aspect. Friedman was of the view that if money supply was centrally controlled there would be an automatic system to keep the money supply increasing steadily. However, he emphasized on a “real” non-government intervention in the gold standard so that money was created through the private market.
He advocated for an economy where governments did not meddle with economic behavior and where full employment policies had been consigned to the dustbin. He opposed Federal Reserve’s authority over the economics profession, for instance, through his letter to Robert Auerbach a Housing Bank Committee investigator and an economics professor in 1993 (Bandyk, 46).
Friedman wrote an article in 1955 called ‘The Role of Government in Education’ proposing enhancement of publicly driven schools with privately governed but publicly sponsored through vouchers like in Chile and Sweden. He also agreed with permissive policies like legalization of prostitution and drugs.
He was also a chief proponent of a volunteer military, urging that the paper was “inconsistent with a free society.” He was of the view that the draft was discriminatory and illogical hindering young men to nature their future as they deemed fit, under capitalism and freedom (Cole, 123).
Friedman did not object to attempts by government to provide essential public goods that could not be effectively supplied by private sector without consumer exploitation. Although, his emphasis was that a good number of services provided by the government could be offered much better by the private sector.
He therefore cautioned against a legal monopoly, so as to inhibit private competition. Similarly, he was resoundingly against public monopoly of the post office. He hit newspaper headlines when he advocated negative income tax as a substitute to the present welfare system (Cole, 125).
For the period between, 1986 and 1994, Friedman and Michael Walker of Fraser Institute organized a sequence of conferences aimed at giving a clear definition to economic freedom as well as a technique of computing it. This led to the first annual report; Economic Freedom in the World which currently offers data for many peer-reviewed studies as well as influencing policy innumerous nations (Cole, 125).
A number of Keynesian economists like James Galbraith criticized Friedman’s free market philosophy during the 2007 to 2010 financial crisis as being responsible for the crisis (Cole, 125). In 2007, Paul Krugman, a Keynesian Nobel laureate criticized Friedman on his rigid stand on the sole role of the markets, such that he did not admit to market failure at any point. Krugman was however criticized of being double minded about Friedman (Schwartz, 261).
Murray Rothbard of Austrian school criticism, criticized Friedman for attempting to disadvantage individual liberty by making government more resourceful in 1971. He termed Friedman as not qualified to be the free-market economics leader. Other people like Naomi Klein have criticized him for his work in Chile and Indonesia (Cole, 127).
Milton Friedman is certainly a figure to reckon with in the study of economics. He managed to make a legendary name for himself unlike many economists in the field. Apart from bold pieces and unshaken thoughts on free market, Friedman has contributed to policy making in several nations.
He has also sat in important policy making boards in the U.S as well as contributing to numerous economic research forums. Every theory or proponent faces criticism, just like Friedman. However, on the overall he has contributed immensely in the study of economics today, to be the father of monetarism.
Bandyk, Matthew. “Milton Friedman.”U.S. News & World Report. 2009, Vol. 146 Issue 2, p46-46. Print.
Cole, Julio. “Milton Friedman 1912-2006.” Independent Review.2007, Vol. 12 Issue 1, p115-128. Print.
Schwartz, Anna. “Monetary Policy and the Legacy of Milton Friedman.” CATO Journal 28.2 (2008): 255-262. Print.