Milton Friedman

Milton Friedman

Overview

Milton Friedman (1912–2006) was a leading 20th-century economist known for championing free-market capitalism and developing monetarism. He reshaped macroeconomic thought by arguing that controlling the money supply, rather than active fiscal intervention, was the principal tool for managing inflation and stabilizing the economy. His work influenced policy debates worldwide and left a durable intellectual legacy—both praised for analytical clarity and criticized for political implications.

Early life and education

• Born to immigrant parents in Brooklyn, raised in New Jersey; family income was uncertain.
• Studied mathematics and economics at Rutgers University (B.A., 1932).
• Attended graduate programs at the University of Chicago and later Columbia University, earning a Ph.D. in 1946.
• Early government work (National Resources Committee, NBER, U.S. Treasury) informed his research on consumption, income, tax policy, and statistical methods.

Academic and institutional roles

• Longtime faculty member at the University of Chicago, where he helped build the Chicago School of Economics and a money-and-banking research workshop.
• Awarded the Nobel Prize in Economic Sciences in 1976 for work on consumption analysis, monetary history and theory, and stabilization policy.
• After retiring from teaching in 1977, he was a senior fellow at Stanford’s Hoover Institution until his death.

Major theoretical contributions

Monetarism

• Core idea: changes in the money supply are the primary determinant of inflation and have major effects on economic activity.
• Advocated steady, predictable growth of the money supply as a way to promote price stability and reduce the need for discretionary government intervention.
• Influential book: A Monetary History of the United States, 1867–1960 (with Anna Schwartz), which argued that Federal Reserve policy failures deepened the Great Depression by allowing the money supply to contract sharply.

Permanent Income Hypothesis and consumption theory

• In A Theory of the Consumption Function (1957), Friedman proposed the permanent income hypothesis: consumers base spending on expected long-run income rather than short-term fluctuations.
• This framed saving and consumption as forward-looking and rational, shifting analysis away from purely psychological explanations.

Expectations, Phillips curve, and stagflation

• Challenged the interpretation of the Phillips curve as a stable tradeoff between inflation and unemployment.
• Argued that people form expectations about inflation; once expectations adjust, attempts to exploit a tradeoff fail and can lead to both high inflation and high unemployment.
• Predicted stagflation (simultaneous high inflation and unemployment), a phenomenon that materialized in the 1970s and strengthened his reputation.

Monetarism in practice and critiques

• Monetarism became a major policy influence from the 1960s through the 1970s, informing policymakers who prioritized monetary tools over fiscal stimulus.
• Real-world attempts to implement strict monetarist rules encountered practical challenges: deviations in execution, measurement difficulties of monetary aggregates, and mixed macroeconomic outcomes (e.g., high inflation episodes and painful recessions in some countries).
• By the early 1980s many governments and central banks moved away from strict monetarist policies, though elements of Friedman’s thinking—particularly on inflation and monetary importance—remained influential.
• Critics argue Friedman’s policy preferences sometimes reflected an ideological preference for limiting government rather than purely empirical conclusions; others note that implementation failures do not wholly discredit the theory.

Public intellectual and policy influence

• Friedman was an effective communicator who reached broad audiences through books, television (notably the Free to Choose series), columns, and public debates.
• He promoted limited government, deregulation, school choice, free trade, and individual liberty. He famously stated: “One of the great mistakes is to judge policies by their intentions rather than their results.”
• Notable positions: opposition to minimum wage increases (arguing they harm low-skilled workers), support for school vouchers, and—later in life—advocacy for decriminalizing drugs based on unintended harms from prohibition.
• His aphorism “Inflation is always and everywhere a monetary phenomenon” became central to modern views on inflation control.

Criticisms and controversies

• Some critics contend his policy prescriptions prioritized low inflation at the cost of higher unemployment and social hardship.
• Others say his broad skepticism of government glossed over cases where public action produced substantial benefits.
• Interpretations of his historical claims—particularly about the Federal Reserve’s role in the Great Depression—have been debated among economists.

Legacy

Milton Friedman transformed economic analysis by emphasizing rigorous empirical work, clear policy implications, and the role of expectations and money in macroeconomics. While parts of his monetarist program were modified or abandoned in practice, his insistence that monetary factors matter for inflation, and his broader defense of market mechanisms and individual liberty, continue to shape economic thinking and public policy debates.