Milton Friedman is among the most publicly visible of
modern economists. He has won respect from both his followers and those
economists who disagree strongly with his views. Few significant honors in
economics have not come Friedman’s way. He was president of the American
Economic Association in 1967 and in 1976 received the Nobel Prize in
economics. Looking very much like everyone’s “favorite uncle,” Friedman often
disarms his adversaries with a wink and a gentle smile, but those who have
argued with him find him a formidable debater. He is able to express
complicated ideas in simple terms understandable by those untrained in formal
economic theory. This makes him popular with the media and keeps Friedman in
touch with a wide audience. Friedman has been a vital force in
attacking the orthodoxy of the Keynesian economics. He has done this in a way
that combines his argumentative talents with solid, empirical research and a
desire not merely to tear down existing economic theory but to restructure
it. Friedman’s most notable research has involved monetary theory, but, as
with all master economists, his thoughts have touched many areas of economics.
In the monetary field, Friedman has reconstructed the quantity theory of
money, reemphasized the importance and significance of monetary policy,
questioned the Keynesian interpretation of the Great Depression, and
developed his own prescriptions for preventing future economic catastrophe. Friedman has also made major
contributions in such areas as risk and insurance (answering why people
simultaneously gamble and buy insurance) and has developed a theory of consumption
based on wealth, as opposed to the Keynesian view that consumption depends
only on current income. Along the way, he has attempted to restate
the classical liberal philosophy of Adam Smith in terms pertinent to the
modern era. (Friedman’s admiration of Adam Smith is virtually unbounded: he
wears a necktie patterned with cameos of Smith during public appearances.)
Friedman has offered many ideas about replacing the influence of government
with market solutions. For example, he argues that government should give
vouchers (grants) to parents so that all children can attend schools tailored
to their individual needs. He also argues that cash grants to poor people
make more sense than such programs as food stamps because these grants would
both leave more choices in the hands of the poor and require fewer tax
dollars. Friedman’s restatement of
the quantity theory of money is important because it made the theory
statistically testable, something the old theory was not. His restatement is
essentially a theory of the demand for money, whereas the original version
was a theory of the price level. Friedman’s analyses of the statistical
evidence indicate that the demand for money is stable over the long run, and
he concludes that large changes in the supply of money cause undesirable
fluctuations in employment and in the price level. His disenchantment with
fiscal policy is due in large measure to the fact that government deficits
are most often financed by inflationary expansions of the supply of money and
credit. Finally, Friedman has been critical of the performance of the Board
of Governors of the Federal Reserve System. He sees the Fed as either
following the wrong policy (trying to control interest rates instead of the
money supply) or yielding to political pressure rather than sound economic
logic. |
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Author:
Ralph Byrns |
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Economics
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