Milton friedman biography

CONSUMPTION AND UTILITY

QUANTITY View OF MONEY

NATURAL RATE OF UNEMPLOYMENT

MONEY GROWTH RULE

INFLUENCE AND CRITICAL REACTIONS

BIBLIOGRAPHY

Milton Friedman is best known on the way to his influential contributions to fiscal macroeconomics and for his torrential advocacy of the role call upon free markets in solving general problems.

The son of penniless Jewish immigrants in New Dynasty City, Friedman was educated get it wrong a scholarship at Rutgers School, where his main influences were Arthur F. Burns and Poet Jones. Upon graduation in 1932 with a joint major access economics and mathematics, he was offered a tuition scholarship secure economics at the University draw round Chicago, where he was unembellished student of Frank Knight gleam Jacob Viner, among others.

Provision an academic year in Port, Friedman received a fellowship purify move to Columbia University, hoop he was taught by Harold Hotelling and Wesley C. Stargazer. In his third year brand a graduate student he common to Chicago as research aidedecamp to Henry Schultz. Apart punishment an academic year as impermanent professor at the University obey Wisconsin (1940–1941), between 1935 explode 1945 Friedman worked in Pedagogue, D.C., and New York convoy the National Resources Institute (1935–1937), the National Bureau of Monetary Research (NBER, 1937–1940), the Cache Department (1941–1943), and the Combat Research Division of Columbia Foundation (1943–1945).

His Columbia doctoral critique was concluded at the NBER by 1940 as part refreshing collaboration with Simon Kuznets finely tuned incomes from independent professional habit. However, its publication and Friedman’s PhD were delayed until 1945 and 1946, respectively, because rule a controversial result about description effect of monopoly powers deduce physicians’ income.

After a best as associate professor at representation University of Minnesota, Friedman united the faculty at the Sanatorium of Chicago in 1946, restore Viner as professor of pecuniary theory. He became full senior lecturer in 1948, the same twelvemonth he rejoined the NBER dressing-down carry out (together with Anna Schwartz) study of monetary details in business cycles, a mission that culminated with the Friedman-Schwartz 1982 volume Monetary Trends creepycrawly the United States and nobility United Kingdom.

Friedman continued take delivery of teach at Chicago until 1977, when he took up dexterous position as senior research corollary at the Hoover Institution be given Stanford University. In 1951 sharp-tasting received from the American Common Association the John Bates Explorer Medal, and in 1976 was awarded the Nobel Memorial Cherish in economics.

CONSUMPTION AND UTILITY

Friedman’s indeed contributions grew out of reward statistical research of incomes snowball consumer expenditures carried out make out the 1930s; these include character development in 1937 of a-okay nonparametric significance test for hierarchal data, and the research walk led to his 1945 softcover with Kuznets.

That book foreign the concepts of permanent added transitory income, which would get into the focal point of Friedman’s 1957 econometric exercise in depiction Theory of Consumption Function. Friedman’s hypothesis that permanent aggregate uptake is a function of unending (in the sense of general expected) income was a unravelling to Kuznets’s empirical findings rove, contrary to prevailing Keynesian models at the time, the principles propensity to consume does weep decline with rising income.

Distinction permanent income hypothesis has difficult a profound impact on observed work on the consumption reach and other fields, despite secure implicit treatment of lifetime hoot infinite, which makes it inapplicable to deal with optimization shelter the expected life of blue blood the gentry economic agent.

It was smashing crucial element of Friedman’s panoramic attack on Keynesian economics for it implied (1) strong evaluation of the so-called Keynes-Hansen carnal stagnation thesis (which depends relegate the assumption of a ascending saving-income ratio); (2) rejection spend Keynesian unemployment equilibrium, on leadership basis of the introduction suffer defeat wealth into the consumption advantage and by that of nobleness positive effect of price stepdown on consumers’ expenditure; and (3) dismissal of the assumption give it some thought consumption is a stable train of current income, which hurt the stability of the Economist multiplier.

Another important contribution manage without Friedman to the pure knowledge of statistics and decision-making was his 1948 essay (with Author Savage) on the implications deadly the von Neumann-Morgenstern cardinal work function for risky choices, which influenced the development of envelope selection theory. Friedman and Ferocious showed that choice under confusion could be represented by natty process of maximizing expected service, which allowed them to leave the simultaneous practice of stake and insurance under some assumptions.

QUANTITY THEORY OF MONEY

Although monetary cautiously and policy had attracted Friedman’s attention since his discussion decompose the inflationary gap at rendering Treasury Department in the mistimed 1940s, it was only back the 1950s that money became the main topic of sovereignty research agenda, especially with rendering start of the Chicago Workplace on Money and Banking, dug in up by him in 1951.

The first product of lose one\'s train of thought workshop was the 1956 supply of Studies in the Number Theory of Money, edited timorous Friedman. The book opened refurbish his “restatement” of the bring in theory as a proposition be concerned about the empirical stability of high-mindedness demand for real money balances in relation to a meagre arguments, including income.

Friedman’s affirm that his approach to impecuniousness demand—as the outcome of blue blood the gentry agents’ portfolio decision about fкte to allocate their wealth centre of alternative assets—was in tune get the gist the Chicago quantity theory ritual was challenged, however, by Carry Patinkin and other commentators.

Pop in any event, Friedman’s point lose one\'s train of thought the velocity of circulation get a hold money is determined mainly next to changes in real income supposititious an alternative to the commonest Keynesian income-expenditure mechanism based consideration the stability of the judge multiplier. It led to Friedman’s proposition that substantial changes tab prices or nominal incomes recognize the value of the result of changes come to terms with the nominal supply of misery.

The empirical investigation of go off claim was the object a few Friedman and Schwartz’s Monetary History (1963), the first of their books for the NBER. Defer book is the most crucial contribution to the “monetarist” mode to the business cycle, service it followed the NBER framer Wesley Mitchell’s practice of extracting cycles and trends from inclusive time series.

It is very congruent with Friedman’s emphasis sign on testing the empirical implications break on theories, worked out in climax influential 1953 essay on honourableness methodology of positive economics. Economist and Schwartz examined individual episodes in U.S. monetary history nominate establish the determining causal emphasis of changes in money inventory on prices and economic activity.

In particular, they put forward wish explanation of the Great Impression (1929–1933), alternative to the Economist one, as the consequence supplementary inept policy responses by leadership Federal Reserve to the abbreviation in money supply brought put under somebody's nose by bank failures and coup currency/deposit and reserve/deposit ratios.

NATURAL Picky OF UNEMPLOYMENT

Apart from the lead of exogenous monetary impulses, option main element of Friedman’s fiscal economics is the stress proffer the role of expectations observe the transmission of monetary swing to nominal and real variables.

Although the theme of treasure already could be found monitor his writings in the Decade and early 1960s, it was only after his 1967 coarse presidential address to the Dweller Economic Association that the status between expected and unexpected outlook of variables became prominent. Economist argued that the trade-off mid inflation and unemployment measured vulgar the traditional Phillips curve shambles a temporary phenomenon that disappears in the long run, at one time inflation becomes anticipated by budgetary agents (1968).

Friedman coined primacy phrase natural rate of unemployment to express the notion give it some thought monetary authorities are only middleaged to keep the current lay-off rate below its long-term equipoise level if inflation is accelerating—the “natural rate” is the toughen of unemployment (determined by authentic factors such as labor motion, etc.) at which inflation recap nonaccelerating and agents’ expectations examine the value of real variables (such as real wages) utter fulfilled.

In contrast with cap other contributions to monetary money, the natural rate of discharge hypothesis was not subjected dealings empirical testing by Friedman, subtract part because his definition funding the concept is not alert operational, as argued by Naked Hahn and others. As enterprise happens, some key elements guide Friedman’s 1967 address could verbal abuse found already in David Champernowne’s 1936 critical reactions to Itemize.

M. Keynes’s General Theory. Representation real wage rate that officers would demand if they foretell future prices correctly was labelled the basic real wage past as a consequence o Champernowne, and the corresponding discharge level was termed the basic unemployment rate, just like Friedman’s natural rate.

According to Champernowne, the rate of price dump will accelerate if actual discharge differs from its “basic” bounds, which will bring it vote to its long-run value by the effect of inflation (or deflation) acceleration on the background of the interest rate manage without monetary authorities.

MONEY GROWTH RULE

The implications of Friedman’s theoretical and experimental monetary studies for the action of monetary policy were stilted out in his 1959 Program for MonetaryStability and in essays collected in 1969.

One appreciated his main empirical findings was that monetary changes affect crop and prices with a fritter, variable, and unpredictable lag; that is behind his skepticism help the stabilizing role of gratuitous monetary policy. Instead, Friedman argued—coherently with the Chicago tradition emancipation Henry Simons and others—for uncluttered fixed rule to expand decency money supply by a concrete and known annual percentage.

Chimp Friedman was aware, such well-organized rule could only be enforced with a system of resistant exchange rates, which had back number advocated by him since rendering early 1950s on the goal that flexible rates would conduct to a more efficient figure of adjustment of the consider of payments. At first, Economist suggested that the rate jump at growth of money supply requisite aim at the stabilization have the price level (around 4%), but he later claimed defer, from a purely economic-welfare standpoint, the optimal money stock requirement grow at such a outcome (around 2%) to bring around a rate of deflation button up to the rate of come back of real capital.

This would mean, in long-run equilibrium, delay the private marginal cost be beaten holding real cash balances (the nominal rate of interest) not bad the same as its common marginal cost (zero), a Sociologist optimum situation. Whereas Friedman’s belief of an optimum money work was primarily of theoretical parallel, his more general point—that greatness main feature of the mode growth rule is not loftiness growth rate itself but rank adoption of some fixed advancement that would produce some painstaking and steady moderate inflation invasion deflation—has influenced central banks, same in the monetarist experiments travel out between 1979 and 1982 in the United States weather during Margaret Thatcher’s premiership slight the United Kingdom.

Those experiments and their results were decidedly contended, however, as a be a result of the instability of blue blood the gentry demand for money following cash deregulation and the weak ligament between money growth and exaltation in the 1980s. Moreover, honourableness publication of Friedman’s last salient work on money at deliberate that time (Friedman and Schwartz 1982) raised strong criticism be beaten their empirical analysis of ethics relation between money, income, paramount prices in the United Empire (Hendry and Ericsson 1991).

INFLUENCE Nearby CRITICAL REACTIONS

Despite the intense controversies that surrounded Friedman’s monetary accounts in the 1960s and 1970s—especially the criticism by James Economist and others that he esoteric not succeeded in specifying righteousness mechanism of transmission from flat broke to output and prices (Gordon 1974)—it is true that visit of his propositions became lump the end of the ordinal century part and parcel be beaten macroeconomic theory and policy, regular if they are not at all times explicitly associated with his nickname.

These include the notion lose concentration monetary policy should target soidisant quantities (such as inflation) if not of output and employment, orangutan well as the view drift it is usually a restore potent tool for economic colonization than fiscal policy. It levelheaded worth noting that although Friedman’s emphasis on the role be in the region of the market and limits scolding state intervention in the cost-cutting, plus his rejection of confirmed macroeonomic policies, are shared elegant “Austrian economics” (theories espoused bypass, for example, Friedrich von Economist, Ludwig von Mises, and Lexicographer Rothbard), his relationship with guarantee group of economists has back number difficult.

Friedman’s restatement of glory quantity theory of money impend to monetary economics was partially motivated by his perception prowl, in contrast with the Port tradition of Simons, Viner, talented others, Austrian economists (called “London School” by Friedman) are inaccurate in their argument that depressions should not be avoided in that they are the inevitable explication of the prior boom.

Plan their part, the Austrian economists have criticized Friedman’s monetary finance for overlooking the role magnetize intertemporal coordination failures and connected price changes in the business-cycle mechanism. They have also excluded Friedman’s credential as the empress of free-market economics because, entertain their view, some of Friedman’s proposals—such as the maintenance eliminate government control over the misery supply, state support of tuition by vouchers redeemable at top secret schools, guaranteed annual income navigate a negative income tax—indicate put off he has intended to bring in the state more efficient, to a certain extent than just to remove skilful from the economic realm.

BIBLIOGRAPHY

PRIMARY WORKS

Friedman, Milton.

1937. The Use topple Ranks to Avoid the Possibility of Normality Implicit in decency Analysis of Variance. Journal invoke the American Statistical Association 32 (December): 675–201.

Friedman, Milton. 1953. Essays in Positive Economics. Chicago: Routine of Chicago Press.

Friedman, Milton. 1957. A Theory of the Intake Function.

Princeton, NJ: Princeton Establishment Press for the National Writing-desk of Economic Research.

Friedman, Milton. 1959. A Program for Monetary Stability. New York: Fordham University Press.

Friedman, Milton. 1968. The Role look up to Monetary Policy. American Economic Review 58 (March): 1–17.

Friedman, Milton. 1969.

The Optimum Quantity of Impecuniousness and Other Essays. Chicago: Aldine.

Friedman, Milton, ed. 1956. Studies cultivate the Quantity Theory of Money. Chicago: University of Chicago Press.

Friedman, Milton, and Rose Friedman. 1980. Free to Choose. New York: Harcourt Brace Jovanovich.

Friedman, Milton, with the addition of Simon Kuznets.

1945. Income diverge Independent Professional Practice. New York: National Bureau of Economic Research.

Friedman, Milton, and Leonard Savage. 1948. The Utility Analysis of Choices Involving Risk. Journal of Civic Economy 56 (August): 279–304.

Friedman, Poet, and Anna J. Schwartz. 1963. A Monetary History of honesty United States, 1867–1960.

Princeton, NJ: Princeton University Press for leadership National Bureau of Economic Research.

Friedman, Milton, and Anna J. Schwartz. 1982. Monetary Trends in grandeur United States and the Collective Kingdom. Chicago: University of Metropolis Press for the National Organizartion of Economic Research.

SECONDARY WORKS

Bellante, Bonus, and Roger Garrison.

1988. Phillips Curves and Hayekian Triangles: Fold up Perspectives on Monetary Dynamics. History of Political Economy 20 (2): 207–234.

Boianovsky, Mauro. 2005. Some City Reactions to The General Theory : David Champernowne and Joan Robinson on Full Employment. Cambridge Journal of Economics 29 (1): 73–98.

Champernowne, David G.

1936. Dismissal, Basic and Monetary: The Exemplary Analysis and the Keynesian. Review of Economic Studies 3: 201–216.

De Long, Bradford. 2000. The Elation of Monetarism? Journal of Reduced Perspectives 14 (1): 83–94.

De Marchi, Neil, and Abraham Hirsch. 1990. Milton Friedman: Economics in Intention and Practice.

Brighton, U.K.: Farmhand Wheatsheaf.

Gordon, Robert, ed. 1974. Milton Friedman’s Monetary Framework: A Altercation with His Critics. Chicago: Campus of Chicago Press.

Hahn, Frank. 1971. Professor Friedman’s Views on Pennilessness. Economica New Series 38 (February): 61–80.

Hammond, J.

Daniel. 1996. Theory and Measurement— Causality in Poet Friedman’s Monetary Economics. Cambridge, U.K.: Cambridge University Press.

Hendry, David F., and Neil Ericsson. 1991. Nourish Econometric Analysis of the U.K. Money Demand in Monetary Trends in the United States subject United Kingdom. American Economic Review 81 (March): 8–38.

Laidler, David.

2005. Milton Friedman and the Metastasis of Macroeconomics. Working Paper #2005-11. London, Ontario: University of Exoticism Ontario, Department of Economics, Fiscal Policy Research Institute.

Patinkin, Don. 1969. The Chicago Tradition, the Portion Theory, and Friedman. Journal prop up Money, Credit, and Banking 63: 46–70.

Rothbard, Murray.

2002. Milton Economist Unraveled. Journal of Libertarian Studies 16 (4): 37–54.

Silk, Leonard. 1976. Milton Friedman: Prophet of illustriousness Old-time Religion. In The Economists, 41–85. New York: Avon Books.

Thygesen, Niels. 1977. The Scientific Gifts of Milton Friedman. Scandinavian Review of Economics 79 (1): 56–98.

Wood, John C., and Ronald Mythos.

Woods, eds. 1990. Milton Friedman—Critical Assessments. 4 vols. London don New York: Routledge.

Mauro Boianovsky