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He was the first son and youngest child
of Sára Eszter Landau and Jenő Saul Friedman,[6] 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.[7]
Friedman was awarded a competitive scholarship to Rutgers University
in New Jersey, graduating with a Bachelor of Arts in 1932.[8] 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.[9]
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".[10] Foreshadowing his later
ideas, he saw price controls as interfering with an essential
signaling mechanism to help resources go where they are 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.[11] In Monetary History of the United
States, he argues that the Great Depression was caused by monetary
contraction, which was the consequence of poor policymaking by the
Federal reserve and the continuous crises in the banking system.[12]
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.[13][14] 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.[15]
In his autobiography, he comments on "how thoroughly Keynesian I was
then".[16] 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 had
unemployed machines and unemployed people. How do you get them
together by forming industrial cartels and keeping prices and wages
up?"[17]
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".[1] In 1977, at age 65, Friedman retired from
the University of Chicago after teaching there for 30 years. He and
his wife moved to San Francisco. From 1977 on, he was affiliated with
the Hoover Institution at Stanford University. During the same year,
Friedman was approached by the Palmer R. Chitester Fund[18] 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.[19][20] 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".[21] Milton Friedman died at the age of 94 in San Francisco on
November 16, 2006.[22][23] 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 is 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,
Inflation is always and everywhere a monetary phenomenon.
—Milton Friedman, A Monetary History of the United States 1867-1960
(1963)
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.
The Fed was largely responsible for converting what might have been a
garden-variety recession, although perhaps a fairly severe one, into a
major catastrophe. Instead of using its powers to offset the
depression, it presided over a decline in the quantity of money by
one-third from 1929 to 1933 ... Far from the depression being a
failure of the free-enterprise system, it was a tragic failure of
government.
—Milton Friedman, Two Lucky People, 233
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
did not 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."[24]
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.[25] 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 cannot
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.'"[26]
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 are near the object they are meant to destroy"[26] during
the second world war.
Public policy positions
Friedman was in favor of abolishing the Federal Reserve System and
replacing it with a mechanical system in nature that would keep the
quantity of money going up at a steady rate, issued directly by the
government and cutting back on fractional reserve banking powers for
the banks. Friedman also supported libertarian policies such as
decriminalization of drugs and prostitution. During the Nixon
administration he headed the committee to explore a move towards a
paid/volunteer armed force. He would later state that his role in
eliminating the draft was his proudest accomplishment.[27] Friedman
did, however, believe a nation could compel military training as a
reserve in case of war time.[28] 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 am 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."[29]
Friedman was supportive of the state provision of some public goods
that the market is not 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 should not 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
There is no way to justify our present public monopoly of the post
office. It may be argued that the carrying of mail is a technical
monopoly and that a government monopoly is the least of evils. Along
these lines, one could perhaps justify a government post office, but
not the present law, which makes it illegal for anybody else to carry
the mail. If the delivery of mail is a technical monopoly, no one else
will be able to succeed in competition with the government. If it is
not, there is no reason why the government should be engaged in it.
The only way to find out is to leave other people free to enter.
—Milton Friedman, Friedman, Milton & Rose D. Capitalism and Freedom,
University of Chicago Press, 1982, 29
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.[30]
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.[31]
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".[32] 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".[33] 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 did not 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.[34] He came under heavy criticism from exiled Chilean
Foreign Affairs Minister Orlando Letelier, who criticized Friedman's
economic theories. In 1976, Letelier wrote:
It is curious that the man who wrote a book, Capitalism and Freedom,
to drive home the argument that only classical economic liberalism can
support political democracy can now so easily disentangle economics
from politics when the economic theories he advocates coincide with an
absolute restriction of every type of democratic freedom.
—Orlando Letelier, "The Chicago Boys In Chile", The Nation, 28 August
1976
Friedman encapsulated his philosophy in a lecture at La Universidad
Católica de Chile, saying: "free markets would undermine political
centralization and political control."[35]
According to his critics, Friedman did not criticize Pinochet's
dictatorship at the time, nor the assassinations, illegal
imprisonments, torture, or other atrocities that were well-known by
then.[36] Later, in Free to Choose, he said the following: "Chile is
not a politically free system and I do not 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."[37]
When he went to receive his Nobel prize in Stockholm, he was met by
demonstrations. In an interview on the PBS program Commanding Heights
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".[38]
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 is not 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.[39] 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.[38]
Iceland
Friedman visited Iceland in the autumn of 1984, met with prominent
Icelanders and gave a lecture at the University of Iceland on the
Tyranny of the Status Quo. He participated in a lively television
debate on August 31, 1984 with leading socialist intellectuals,
including President Ólafur Ragnar Grímsson.[40] 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 had not been free-of-charge in
a meaningful sense: Lectures always have related costs. What mattered
was whether attendees covered those costs, or those who did not
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 Davíđ Oddsson who became Prime Minister
in 1991 and began a radical program of monetary and fiscal
stabilization, privatization, tax rate reduction (e.g., 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. Davíđ Oddsson was Prime Minister for thirteen and a half
years, to 2004. The present Prime Minister, Geir H. Haarde supports
similar policies.[41]
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 had 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.[42]
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.[43]
Criticism
Friedman has attracted substantial criticism over his views, both from
economic libertarians and those on the left.
Criticism from fellow economists
Princeton University economist Paul Krugman, while regarding him as a
'great economist and a great man', criticized him in this way:
In the aftermath of the Great Depression, there were many people
saying that markets can never work. Friedman had the intellectual
courage to say that markets can too work, and his showman's flair
combined with his ability to marshal evidence made him the best
spokesman for the virtues of free markets since Adam Smith. But he
slipped all too easily into claiming both that markets always work and
that only markets work. It's extremely hard to find cases in which
Friedman acknowledged the possibility that markets could go wrong, or
that government intervention could serve a useful purpose. [44]
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 is beneficial for the government to
control currency to maintain constant price levels as bogus and
harmful, and the viewpoint that nonpaying beneficiaries of 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 is
difficult to consider him a free-market economist at all."[45]
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.[46]
See also Works of Milton Friedman
List of economists
List of notable Presidential Medal of Freedom recipients
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