Milton Friedman: July 31, 1912–November 16, 2006

✪ Milton Friedman was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the complexity of stabilization policy. Friedman was among the intellectual leaders of the Chicago School Of Economics, a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago which rejected Keynesianism in favor of monetarism until the mid-1970s. Several students, young professors and academics who were recruited or mentored by Friedman at Chicago also went on to become leading economists. Friedman is widely acknowledged among government and financial circles as the most influential economist of the Twentieth Century.

Friedman’s legacy consists mostly of his challenges to what he called “naive Keynesian theory” began with his interpretation of consumption, which tracks how consumers spend. He introduced a theory which would later become part of mainstream economics and he was among the first to propagate the theory of consumption smoothing. During the 1960s, Friedman became the main vocal advocate opposing Keynesian government policies. He theorized that a natural rate of unemployment was naturally built into the economy and argued that unemployment below this rate would cause inflation to accelerate.

Friedman was best known for reviving interest in the money supply as a determinant of the nominal value of output. Friedman promoted a macroeconomic viewpoint known as monetarism and argued that a steady, small expansion of the money supply was the preferred policy, as compared to rapid, and unexpected changes. His ideas concerning monetary policy, taxation, privatization and deregulation greatly influenced government policies, especially during the 1980s.

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; however, Friedman’s contributions are largely responsible for its modern popularization.

Friedman was the main proponent of the Monetarist School of economics. He maintained that there is a close and stable association between inflation and the money supply, mainly that inflation could be avoided with proper regulation of the monetary base’s growth rate. He famously coined the term “dropping money out of a helicopter.”

Friedman’s works cover a broad range of economic topics and public policy issues. His books and essays have had global influence, including in former communist states.

Friedman was a lifelong Republican but also supported some Libertarian views such as the decriminalization of drugs and abolishing the Federal Reserve. He served as an advisor to U.S. President Ronald Reagan and Conservative British Prime Minister Margaret Thatcher. His political philosophy extolled the virtues of a free market economic system with minimal government intervention in social matters. In his 1962 book Capitalism and Freedom, Friedman advocated for policies such as a volunteer military, freely floating exchange rates, abolition of medical licenses, a negative income tax and private school vouchers.

Friedman was born in Brooklyn, New York City on July 31, 1912 to Sára Ethel (née Landau) and Jenő Saul Friedman; Jewish working-class immigrants from Beregszász in Carpathian Ruthenia, Kingdom of Hungary (now Berehove in Ukraine). They emigrated to America in their early teens & worked as dry goods merchants. Friedman was their fourth child and only son, as well as the youngest of all their children. Friedman’s father, Jenő Saul Friedman, died during Friedman’s senior year of high school, leaving Friedman and two older sisters to care for their mother.

In his early teens, Friedman was injured in a car accident, which scarred his upper lip. A talented student and an avid reader, Friedman graduated from Rahway High School in 1928, just before his 16th birthday. He was the first in his family to attend a university after being awarded a competitive scholarship to Rutgers University from where he graduated in 1932.

Friedman initially intended to become an actuary or mathematician; however, due to the state of the economy, which at that time was in a depression, convinced him to become an economist instead. He was offered two scholarships to do graduate work, one in mathematics at Brown University and the other in economics at the University of Chicago. Friedman chose the latter, earning a Master of Arts degree in 1933.

After graduation, Friedman was unable to find academic employment, so in 1935 he followed his friend W. Allen Wallis to Washington, D.C., where Franklin D. Roosevelt’s New Deal was “a lifesaver” for many young economists. At this stage, Friedman said he and his wife “regarded the job-creation programs such as the WPA, CCC, and PWA appropriate responses to the current critical situation”, but not “the price-and wage-fixing measures of the National Recovery Administration and the Agricultural Adjustment Administration.”

Although Friedman concluded government does play a role in the monetary system he was extremely critical of the Federal Reserve due to its poor performance and felt it should be abolished.

Later, Friedman and his colleague Anna Schwartz wrote A Monetary History of the United States, 1867–1960, which argued that the Great Depression was caused by a severe monetary contraction due to banking crises and poor policy decisions on the part of the Federal Reserve.

Friedman would later conclude all government intervention associated with the New Deal was “the wrong cure for the wrong disease,” arguing the Federal Reserve was to blame, and that they should have expanded the money supply in reaction to what he later described in A Monetary History of the United States as “The Great Contraction.”

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

At a University of Chicago event honoring Friedman, Ben Bernanke remarked:

“Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression, you’re right. We did it. We’re very sorry. But thanks to you, we won’t do it again.”

Friedman also argued for the removal of government intervention in currency markets, thereby spawning an enormous amount of literature on the subject, as well as promoting the practice of freely floating exchange rates.

Friedman would remain a strong advocate for floating exchange rates throughout the entire Bretton-Woods period (1944–1971). He argued a flexible exchange rate would make external adjustment possible and allow countries to avoid balance of payments crises. He viewed fixed exchange rates as an undesirable form of government control & intervention.

During 1940, Friedman was appointed as an assistant professor teaching economics at the University of Wisconsin–Madison, but left to return to government service after encountered anti-semitism in the Economics Department. From 1941 to 1943 Friedman worked on wartime tax policy for the Federal Government as an advisor to senior officials of the United States Department of the Treasury.

In 1945, Friedman submitted Incomes from Independent Professional Practice to Columbia University as his doctoral dissertation. In 1946, the university awarded him a PhD in economics.

In 1946, Friedman accepted an offer to teach economic theory at the University of Chicago. Friedman would go on to work for the University of Chicago for the next 30 years. There, he contributed to the establishment of an intellectual community that produced a number of Nobel Memorial Prize winners, known collectively as the Chicago School Of Economics.

One of Milton Friedman’s most popular works, A Theory of the Consumption Function, challenged traditional Keynesian viewpoints about the household. Friedman’s counterpart Keynes believed people would modify their household consumption expenditures to relate to their existing income levels. However, Friedman thought income was a more complex construct; consisting of several different components, both transitory and permanent. Milton Friedman’s research into public consumption changed how economists interpreted the consumption function; and his work pushed the idea that current income was not the only factor affecting people’s adjusted household consumption expenditures.

In 1962, Friedman openly criticized Social Security in his book Capitalism and Freedom, arguing that it had unnecessarily created welfare dependency. Friedman was against public housing as he believed it was also a form of welfare. He believed that one of the main arguments politicians have for public housing is that regular low-income housing was too expensive due to the imposed higher cost of a fire and police department. He believed public housing would only increase taxes without really benefiting low income people in the long run. Friedman was also against minimum wage laws; as he saw them as a clear case as one can find that they ultimately created job destruction.

Capitalism and Freedom was inspired by a series of lectures Friedman gave at Wabash College which brought him national and international recognition outside of Academia. Capitalism and Freedom has since been translated into eighteen foreign languages. Friedman concludes Capitalism and Freedom with his “classical liberal” stance that government should keep out of matters that do not require its involvement and only involve itself when absolutely necessary for the survival of its people and the country. He recounts how the best of a country’s abilities come from its free markets; while its failures mostly come from government intervention.

Friedman was awarded the Nobel Memorial Prize in Economic Sciences, the sole recipient for 1976, “for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy”

in 1977, at the age of 65, Friedman retired from the University of Chicago after teaching there for 30 years. He and his wife moved to San Francisco, where he became a visiting scholar at the Federal Reserve Bank of San Francisco. From 1977 on, he was also an affiliated fellow at the Hoover Institution at Stanford University.

Friedman was an economic advisor and speech writer in Barry Goldwater’s failed presidential campaign of 1964. He was an advisor to California governor Ronald Reagan and was active in Reagan’s presidential campaigns. He served as a member of President Reagan’s Economic Policy Advisory Board starting in 1981.

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. Friedman became known as “the ‘guru’ of the Reagan Administration.” In 1988, he received the Presidential Medal of Freedom and the National Medal of Science.

His citation for the Presidential Medal of Freedom reads:

“He has used a brilliant mind to advance a moral vision: the vision of a society where men and women are free, free to choose, but where government is not as free to override their decisions. That vision has changed America, and it is changing the world. All of us owe a tremendous debt to this man’s towering intellect and his devotion to liberty.”

Throughout the 1980s and 1990s, Friedman continued to write editorials and appear on television. He also made several visits to Eastern Europe and to China, where he also advised governments.

Friedman met his wife, Rose Friedman (née Director), at the University of Chicago in 1932. The couple and wed six years later, in 1938 and remained married until his death in 2006. Milton & Rose had two children, David and Jan.

According to a 2007 article in Commentary magazine, Friedman’s “parents were moderately observant Jews, but Friedman, after an intense burst of childhood piety, came to reject religion altogether.” Friedman described himself as agnostic.

On November 16, 2006, Friedman died of heart failure at the age of 94 years in San Francisco. At the time of his death, he was still a working economist conducting original economic research. His final column was published in The Wall Street Journal the day after his death. Milton Friedman’s somewhat controversial influence and legacy in America still remains strong today within the American Conservative Movement. As per his wishes, Friedman’s body was cremated and his ashes scattered on San Francisco Bay. ✪