Milton Friedman American economist who discovered the economic theory of monetarism Date of Birth: 31.12.1912 Country: USA

1. Biography of Milton Friedman
2. Early Education and Career
3. Contributions to Economic Theory
4. Monetary Theory and Policy
5. Theory of Consumption and Monetary History
6. Impact and Legacy
7. Later Years and Policy Advocacy

Biography of Milton Friedman

Milton Friedman, an American economist who pioneered the economic theory of monetarism, was born in Brooklyn, New York. His parents, Sarah Ethel (née Landau) Friedman and Jenő Saul Friedman, were immigrants from Eastern Europe who moved to Rahway, New Jersey. Despite their modest and unstable income, the family never went hungry and had a warm and friendly atmosphere at home.

Early Education and Career

At the age of 16, Friedman was accepted into Rutgers University with a partial scholarship. In 1932, he earned bachelor's degrees in both economics and mathematics. During his time at the university, Friedman was influenced by two assistants: Arthur F. Burns, who later became the Chairman of the Federal Reserve, and Homer Jones, a future authority in the field of interest rate theory. It was Jones who recommended Friedman to continue his specialization in economics at the University of Chicago. After receiving a master's degree from the University of Chicago in 1933, Friedman went on to pursue doctoral studies at Columbia University in New York. In late 1934, he returned to the University of Chicago as a research assistant. The following summer, he participated in a large-scale consumer budget research project for the U.S. National Resources Committee in Washington, D.C. Friedman's collaboration with the National Bureau of Economic Research began in 1937 when he became an assistant to Simon Kuznets.

Contributions to Economic Theory

In 1940, Friedman and Kuznets completed their joint work "Income From Independent Professional Practices," which later formed the basis of Friedman's dissertation for his doctorate in economics from Columbia University in 1946. One of the conclusions of their research, that "medicine offers only limited opportunities for increasing the incomes of doctors of all specialties compared to dentists," faced significant opposition at the National Bureau of Economic Research, delaying the publication of their book until the end of World War II. Friedman's career as an economist can be traced from his early independent work in the field. His subsequent contributions to the theory and practice of economic science yielded unexpected results, making him a prolific researcher and a popular economist writer. He participated in important research conducted by government and academic institutions and led the so-called Chicago school of economists. Although many of his views on economic theory and government policy remain controversial, as the English economist John Barton stated, "he provided us with the foundation for future macroeconomic research."

Monetary Theory and Policy

During World War II, Friedman participated in the development of tax policies for the U.S. Department of the Treasury and conducted research on wartime statistics at Columbia University. In 1945-1946, he taught economics at the University of Minnesota. He then returned to the University of Chicago and became an assistant professor of economics. With the support of the National Bureau of Economic Research, Friedman began his long-term work on developing monetary theory. In 1950, as a consultant for the implementation of the Marshall Plan, he arrived in Paris, actively advocating for the idea of floating exchange rates. He predicted that the fixed exchange rates established by the Bretton Woods Agreement would ultimately fail, which happened in the early 1970s. His knowledge of theoretical and practical issues related to the economies of European countries grew during his collaboration with Professor James Meade (1953) from the University of Cambridge in England.

Theory of Consumption and Monetary History

Working with Simon Kuznets and economists Dorothy Brady, Margaret Reid, and Rose Director, Friedman formulated and found practical confirmation of his hypothesis of "permanent income consumption." In his book "A Theory of the Consumption Function," published in 1957, Friedman demonstrated that John Maynard Keynes' concept of connecting current consumption with current income would inevitably lead to erroneous conclusions. Instead, Friedman proposed a theory in which consumers base their consumption decisions, except for temporary ones, on expected or permanent income. He called this averaging of income "distributed lags." Through extensive empirical research on consumption data, Friedman found that the results aligned with his theory of permanent income. Franco Modigliani presented a similar theory linked to life cycles in the 1950s, explaining the same economic phenomenon. Friedman's theory of permanent income had a significant impact and led to a change in the formulation of the quantity theory of money. In his subsequent works, Friedman demonstrated that changes in money demand throughout American history have always been determined by changes in the realm of permanent income.

Impact and Legacy

The significance of Friedman's theory of permanent income is difficult to overstate. Most subsequent studies on aggregate consumption confirm this theory, and his methodology for determining and forecasting future incomes has generated significant interest among macroeconomists. Furthermore, important advancements in econometrics during the 1960s and 1970s were achieved through the statistical methods developed by Friedman for estimating permanent income. The publication of the fundamental work "A Monetary History of the United States" in 1963, co-authored with economic historian Anna J. Schwartz, shed light on the importance of Friedman's theory not only in applied economics but also in the field of monetary history. The authors compiled extensive statistical data on money circulation dating back to the American Revolution and provided documentary evidence of the comprehensive impact of the money supply participating in the national circulation on inflationary processes.

Later Years and Policy Advocacy

Friedman's analyses of the shortcomings in Keynesian theoretical frameworks and the effective critique of the Phillips curve, which approximately interprets the natural rate of unemployment, are closely associated with his achievements. His critical analysis of these phenomena had a lasting influence on the development of theoretical aspects of economic policy and the assessment of economic factors affecting unemployment during periods of inflationary growth and periods of declining employment. Moreover, his comprehensive analysis of the role of stabilization policy, particularly his famous analysis of lagged effects in developing economic stabilization strategies, vividly demonstrated how economic stabilization measures could unexpectedly have the opposite effect.

Friedman was awarded the Nobel Memorial Prize in Economic Sciences in 1976 "for his achievements in the field of consumption analysis, monetary history, and the development of monetary theory, as well as for demonstrating the complexity of economic stabilization policies." In his Nobel lecture, he revisited the topic he addressed in 1967 when speaking to the American Economic Association, where he disputed John Maynard Keynes' assertion of a stable relationship between the rate of inflation and unemployment. Friedman concluded that over the long term, the Phillips curve does shift upward due to natural unemployment growth.

Despite his disagreements with President Richard M. Nixon regarding the establishment of strict price and wage controls in 1971, Friedman gained recognition as an advisor to the President. His views on the importance of limited government intervention in social policies became well-known through his regular column in Newsweek magazine since 1966 and his earlier book "Capitalism and Freedom" (1962). His popular book "Free to Choose" (1980) even gave its name to a television series in which he engaged in discussions on social and economic issues.

Many of Friedman's proposals, such as reducing government intervention in the economy, implementing a volunteer military service, and introducing a negative income tax (payments from the government to individuals with low incomes), have been put into practice. However, other proposals, such as financing education based on future payment guarantees, abandoning social security, and minimum wage, continue to face serious objections from politicians.

Despite often being labeled as a "conservative" by political opponents, Friedman is much closer to the classical liberalism of Adam Smith and John Stuart Mill than to the traditionally conservative wing of economic thought. He believed that his pursued goals align with the goals of modern liberal movements, stating, "Differences in economic policy primarily arise from differences in forecasts of economic consequences, not from differences in basic principles and values." Although Friedman's Nobel Prize stirred some objections from professional economists and individuals interested in economic issues, his contributions to theoretical and applied research have received widespread recognition. Paul Samuelson called him an "economist's economist."

After returning from the University of Chicago in 1977, Friedman became a senior research fellow at the Hoover Institution at Stanford University. For three decades, he remained an active member of the American Economic Association, serving as its president in 1967.

Friedman married Rose Director, an economist, in 1938. They met while working together at the University of Chicago. They have a son and a daughter.

In addition to the Nobel Prize, Friedman was awarded the John Bates Clark Medal by the American Economic Association in 1951 and honorary degrees from many American and foreign universities and colleges.