1912 ā 2006
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. With George Stigler, Friedman was among the intellectual leaders of the Chicago school of economics, a neoclassical school of economic thought associated with the faculty at the University of Chicago that rejected Keynesianism in favor of monetarism before shifting their focus to new classical macroeconomics in the mid-1970s. Several students, young professors and academics who were recruited or mentored by Friedman at Chicago went on to become leading economists, including Nobel laureates Gary Becker (1992), Robert Fogel and Robert Lucas Jr.
Friedman's challenges to what he called "naive Keynesian theory" began with his interpretation of consumption, which tracks how consumers spend. He introduced the permanent income hypothesis, 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, he became the main advocate opposing both Marxist and Keynesian government and economic policies, and described his approach (along with mainstream economics) as using "Keynesian language and apparatus" yet rejecting its initial conclusions. He theorized that there existed a natural rate of unemployment and argued that unemployment below this rate would cause inflation to accelerate. He argued that the Phillips curve was in the long run vertical at the "natural rate" and predicted what would come to be known as stagflation. 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 influenced government policies, especially during the 1980s. His monetary theory influenced the Federal Reserve's monetary policy in response to the 2008 financial crisis.
After retiring from the University of Chicago in 1977, and becoming emeritus professor in economics in 1983,[20] Friedman served as an advisor to Republican U.S. president Ronald Reagan and Conservative British prime minister Margaret Thatcher.[21] 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 policies such as a volunteer military, freely floating exchange rates, abolition of medical licenses, a negative income tax, school vouchers, and opposition to the war on drugs and support for drug liberalization policies. His support for school choice led him to found the Friedman Foundation for Educational Choice, later renamed EdChoice
Friedman's works cover a broad range of economic topics and public policy issues.[20] His books and essays have had global influence, including in former communist states. A 2011 survey of economists commissioned by the EJW ranked Friedman as the second-most popular economist of the 20th century, following only John Maynard Keynes. Upon his death, The Economist described him as "the most influential economist of the second half of the 20th century ...possibly of all of it".
Friedman published his famous book in 1962. It stands as one of the most influential political and economic manifestos of the twentieth century. At a time when the post-war consensus heavily favored Keynesian intervention and the expansion of the welfare state, Friedman presented a radical challenge to the status quo. His central thesis is that economic freedom is not only a desirable end in itself but an indispensable means toward achieving political freedom. He argues that a society which puts equality before freedom will get neither, while a society that puts freedom before equality will get a high degree of both.
The book begins by redefining the role of government in a free society. Friedman posits that the great threat to freedom is the concentration of power. By separating economic power from political power, the market acts as a check and balance against the state. If the government controls the means of production, political dissent becomes nearly impossible because the state is also the employer, the landlord, and the sole provider of goods. In a competitive capitalist system, an individual who disagrees with the prevailing political winds can still find work, buy products, and lead a life independent of government approval.
One of the most enduring contributions of the book is Friedmanās analysis of monetary policy. He famously critiques the Federal Reserve for its role in the Great Depression, arguing that it was not a failure of the free market, but a failure of government management of the money supply. He advocates for a steady, predictable growth in the money supply to provide a stable environment for economic activity, a school of thought that became known as Monetarism. This was a direct strike at the "fine-tuning" fiscal policies of the era, suggesting that government attempts to manage the economy often do more harm than good due to lags in data and political pressure.
Friedman applies his "freedom-first" logic to a wide array of social institutions, most notably education. He introduced the concept of school vouchers, arguing that the governmentās role should be to fund education, not necessarily to run the schools. By allowing parents to choose where to spend their educational dollars, competition would force schools to improve and innovate, much like any other service in a market economy. This idea, once considered fringe, has become a cornerstone of modern educational reform debates. The book also tackles the issue of occupational licensure and the minimum wage. Friedman argues that requirements for professional licensesāfor everything from doctors to barbers āare often used as a tool by established practitioners to limit competition and keep prices high, rather than to protect the consumer. Similarly, he views the minimum wage as a law that effectively prohibits low-skilled workers from selling their labor at a price the market is willing to pay, thereby increasing unemployment among the very groups the law is intended to help.
Perhaps the most surprising element for modern readers is Friedmanās proposal for a negative income tax. He was a sharp critic of the existing welfare bureaucracy, which he saw as inefficient, paternalistic, and destructive to individual incentives. Instead, he proposed a simple, direct cash transfer to those below a certain income threshold. This would provide a floor for the poor without the massive administrative overhead of traditional social programs, while maintaining the incentive to work because every dollar earned would still result in an increase in total take-home pay.
Friedman concludes by addressing the responsibility of the individual and the corporation. He famously argues that the "social responsibility of business is to increase its profits, " provided it stays within the rules of the game. For Friedman, a corporate executive who spends company money on social causes is effectively imposing a tax on the shareholders, employees, or customers without their consent. He believes that true social progress comes not from the top-down mandates of committees, but from the voluntary cooperation of individuals pursuing their own goals in a free market.