Milton Friedman was among the most publicly visible of
modern economists. He won respect from both his followers and those
economists who disagree strongly with his views. Few significant honors in
economics failed to land in Friedman’s hands 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
disarmed his adversaries with a wink and a gentle smile, but those who argued
with him found him a formidable debater. He was able to express complicated
ideas in simple terms understandable by those untrained in formal economic
theory. This made him popular with the media and kept Friedman in touch with
a wide audience. Friedman was a vital force in attacking the
orthodoxy of the Keynesian economics in a way that combined 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 involved monetary theory, but, as with all master economists, his
thoughts touched many areas of economics. In the monetary field, Friedman 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 catastrophes. Friedman also made major
contributions in such areas as risk and insurance (addressing why people
simultaneously gamble and buy insurance) and developed a theory of
consumption based on wealth, as opposed to the orthodox Keynesian view that
consumption depends only on current income. Along the way, he attempted to restate the
classical liberal philosophy of Adam Smith in terms pertinent to the modern
era. (Friedman’s admiration of Adam Smith wais virtually unbounded: he regularly
wore a necktie patterned with cameos of Smith during public appearances.)
Friedman also offered many ideas about replacing the influence of government
with market solutions. For example, he argued that government should give
vouchers (grants) to parents so that all children can attend schools tailored
to their individual needs. He also argued 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 was
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 indicated that the demand for money is stable over the long run, and
he concluded that large changes in the supply of money cause undesirable
fluctuations in employment and in the price level. His disenchantment with
fiscal policy was 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 was critical of the performance of the Board of
Governors of the Federal Reserve System. He perceived 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. |
|
Author: Ralph Byrns |
|
Economics
instructors and students are hereby granted provisional permission to use
these materials for educational purposes only. Commercial use of any of these
materials is forbidden. Withdrawal of this permission may be announced at
this site without notice, and these materials may not be used thereafter without
written permission. |
|
|
