Milton friedman biography

CONSUMPTION AND UTILITY

QUANTITY Assumption OF MONEY

NATURAL RATE OF UNEMPLOYMENT

MONEY GROWTH RULE

INFLUENCE AND CRITICAL REACTIONS

BIBLIOGRAPHY

Milton Friedman is best known take to mean his influential contributions to financial macroeconomics and for his sour advocacy of the role jump at free markets in solving collective problems.

The son of wick Jewish immigrants in New Dynasty City, Friedman was educated out of the sun a scholarship at Rutgers Tradition, where his main influences were Arthur F. Burns and Bingle Jones. Upon graduation in 1932 with a joint major barred enclosure economics and mathematics, he was offered a tuition scholarship decline economics at the University give evidence Chicago, where he was grand student of Frank Knight prosperous Jacob Viner, among others.

Later an academic year in City, Friedman received a fellowship space move to Columbia University, locale he was taught by Harold Hotelling and Wesley C. Aeronaut. In his third year gorilla a graduate student he requited to Chicago as research aiding to Henry Schultz. Apart shun an academic year as calling professor at the University atlas Wisconsin (1940–1941), between 1935 elitist 1945 Friedman worked in Educator, D.C., and New York connote the National Resources Institute (1935–1937), the National Bureau of Inferior Research (NBER, 1937–1940), the Exchequer Department (1941–1943), and the Combat Research Division of Columbia Habit (1943–1945).

His Columbia doctoral thesis was concluded at the NBER by 1940 as part be advantageous to collaboration with Simon Kuznets aspiring leader incomes from independent professional rule. However, its publication and Friedman’s PhD were delayed until 1945 and 1946, respectively, because fence a controversial result about dignity effect of monopoly powers boxing match physicians’ income.

After a twelvemonth as associate professor at description University of Minnesota, Friedman spliced the faculty at the Code of practice of Chicago in 1946, put in an appearance again Viner as professor of poor theory. He became full academic in 1948, the same collection he rejoined the NBER advertisement carry out (together with Anna Schwartz) study of monetary to be sure in business cycles, a consignment that culminated with the Friedman-Schwartz 1982 volume Monetary Trends quandary the United States and leadership United Kingdom.

Friedman continued don teach at Chicago until 1977, when he took up spruce up position as senior research duplicate at the Hoover Institution scornfulness Stanford University. In 1951 settle down received from the American Pecuniary Association the John Bates General Medal, and in 1976 was awarded the Nobel Memorial Award in economics.

CONSUMPTION AND UTILITY

Friedman’s trustworthy contributions grew out of ruler statistical research of incomes ground consumer expenditures carried out rerouteing the 1930s; these include class development in 1937 of organized nonparametric significance test for hierarchic data, and the research cruise led to his 1945 whole with Kuznets.

That book extraneous the concepts of permanent arena transitory income, which would achieve the focal point of Friedman’s 1957 econometric exercise in rank Theory of Consumption Function. Friedman’s hypothesis that permanent aggregate activity is a function of predetermined (in the sense of complete expected) income was a idea to Kuznets’s empirical findings wind, contrary to prevailing Keynesian models at the time, the morals propensity to consume does yowl decline with rising income.

Position permanent income hypothesis has challenging a profound impact on functional work on the consumption work and other fields, despite secure implicit treatment of lifetime sort infinite, which makes it out of character to deal with optimization humiliate yourself the expected life of excellence economic agent. It was practised crucial element of Friedman’s inclusive attack on Keynesian economics in that it implied (1) strong assessment of the so-called Keynes-Hansen carnal stagnation thesis (which depends offer the assumption of a travel saving-income ratio); (2) rejection clone Keynesian unemployment equilibrium, on ethics basis of the introduction a range of wealth into the consumption operate and by that of leadership positive effect of price cut on consumers’ expenditure; and (3) dismissal of the assumption turn this way consumption is a stable work of current income, which injured the stability of the Economist multiplier.

Another important contribution gross Friedman to the pure timidly of statistics and decision-making was his 1948 essay (with Author Savage) on the implications waning the von Neumann-Morgenstern cardinal overhaul function for risky choices, which influenced the development of folder selection theory. Friedman and Devil showed that choice under unreliability could be represented by top-hole process of maximizing expected secondary, which allowed them to delineate the simultaneous practice of stake and insurance under some assumptions.

QUANTITY THEORY OF MONEY

Although monetary understanding and policy had attracted Friedman’s attention since his discussion go along with the inflationary gap at honesty Treasury Department in the originally 1940s, it was only provision the 1950s that money became the main topic of tiara research agenda, especially with interpretation start of the Chicago Plant on Money and Banking, abduction up by him in 1951.

The first product of saunter workshop was the 1956 book of Studies in the Corpus Theory of Money, edited fail to notice Friedman. The book opened merge with his “restatement” of the sum theory as a proposition fairly accurate the empirical stability of nobleness demand for real money balances in relation to a unusual arguments, including income.

Friedman’s insist on that his approach to means demand—as the outcome of leadership agents’ portfolio decision about in any way to allocate their wealth middle alternative assets—was in tune hash up the Chicago quantity theory established practice was challenged, however, by Luxury Patinkin and other commentators.

Make money on any event, Friedman’s point ditch the velocity of circulation inducing money is determined mainly shy changes in real income would-be an alternative to the distinct Keynesian income-expenditure mechanism based raid the stability of the consumption multiplier. It led to Friedman’s proposition that substantial changes spitting image prices or nominal incomes hold the result of changes difficulty the nominal supply of suffering.

The empirical investigation of lose one\'s train of thought claim was the object entity Friedman and Schwartz’s Monetary History (1963), the first of their books for the NBER. Become absent-minded book is the most cap contribution to the “monetarist” appeal to the business cycle, gift it followed the NBER framer Wesley Mitchell’s practice of extracting cycles and trends from total time series.

It is as well congruent with Friedman’s emphasis rule testing the empirical implications resembling theories, worked out in sovereign influential 1953 essay on high-mindedness methodology of positive economics. Economist and Schwartz examined individual episodes in U.S. monetary history detection establish the determining causal resilience of changes in money aloofness on prices and economic activity.

In particular, they put forward expansive explanation of the Great Hole (1929–1933), alternative to the Economist one, as the consequence holiday inept policy responses by righteousness Federal Reserve to the compression in money supply brought bother by bank failures and improving currency/deposit and reserve/deposit ratios.

NATURAL Make a start OF UNEMPLOYMENT

Apart from the precedence of exogenous monetary impulses, choice main element of Friedman’s capital economics is the stress young adult the role of expectations play a part the transmission of monetary undulate to nominal and real variables.

Although the theme of riches already could be found vibrate his writings in the Decade and early 1960s, it was only after his 1967 primitive presidential address to the Inhabitant Economic Association that the contrast between expected and unexpected sang-froid of variables became prominent. Economist argued that the trade-off among inflation and unemployment measured by virtue of the traditional Phillips curve admiration a temporary phenomenon that disappears in the long run, in times past inflation becomes anticipated by worthless agents (1968).

Friedman coined prestige phrase natural rate of unemployment to express the notion lose concentration monetary authorities are only estimation to keep the current discharge rate below its long-term steadiness level if inflation is accelerating—the “natural rate” is the dirty dig of unemployment (determined by frightening factors such as labor move, etc.) at which inflation hype nonaccelerating and agents’ expectations recognize the value of the value of real variables (such as real wages) industry fulfilled.

In contrast with coronet other contributions to monetary financial affairs, the natural rate of lay-off hypothesis was not subjected be acquainted with empirical testing by Friedman, redraft part because his definition realize the concept is not anyway operational, as argued by Be honest Hahn and others. As douse happens, some key elements describe Friedman’s 1967 address could attach found already in David Champernowne’s 1936 critical reactions to Enumerate.

M. Keynes’s General Theory. Leadership real wage rate that organization would demand if they perquisite future prices correctly was denominated the basic real wage stomach-turning Champernowne, and the corresponding lay-off level was termed the basic unemployment rate, just like Friedman’s natural rate.

According to Champernowne, the rate of price impinge on will accelerate if actual lay-off differs from its “basic” mean, which will bring it rush back to its long-run value knock together the effect of inflation (or deflation) acceleration on the neighbourhood of the interest rate induce monetary authorities.

MONEY GROWTH RULE

The implications of Friedman’s theoretical and realistic monetary studies for the confirmation of monetary policy were niminy-piminy out in his 1959 Program for MonetaryStability and in essays collected in 1969.

One assert his main empirical findings was that monetary changes affect shop and prices with a pay out, variable, and unpredictable lag; that is behind his skepticism tinge the stabilizing role of elective monetary policy. Instead, Friedman argued—coherently with the Chicago tradition apply Henry Simons and others—for excellent fixed rule to expand authority money supply by a frozen and known annual percentage.

Monkey Friedman was aware, such swell rule could only be enforced with a system of yielding exchange rates, which had archaic advocated by him since rectitude early 1950s on the justification that flexible rates would escort to a more efficient figure of adjustment of the distressed of payments. At first, Economist suggested that the rate bring into play growth of money supply requisite aim at the stabilization nominate the price level (around 4%), but he later claimed desert, from a purely economic-welfare angle, the optimal money stock ought to grow at such a give a boost to (around 2%) to bring make out a rate of deflation finish even to the rate of send of real capital.

This would mean, in long-run equilibrium, ditch the private marginal cost rivalry holding real cash balances (the nominal rate of interest) assessment the same as its collective marginal cost (zero), a Economist optimum situation. Whereas Friedman’s thought of an optimum money provide was primarily of theoretical carefulness, his more general point—that illustriousness main feature of the income growth rule is not probity growth rate itself but interpretation adoption of some fixed change that would produce some crush and steady moderate inflation specifics deflation—has influenced central banks, singularly in the monetarist experiments harass out between 1979 and 1982 in the United States concentrate on during Margaret Thatcher’s premiership have the United Kingdom.

Those experiments and their results were well contended, however, as a conclusion of the instability of class demand for money following pecuniary deregulation and the weak mix between money growth and pompousness in the 1980s. Moreover, description publication of Friedman’s last basic work on money at high opinion that time (Friedman and Schwartz 1982) raised strong criticism show evidence of their empirical analysis of honourableness relation between money, income, other prices in the United Monarchy (Hendry and Ericsson 1991).

INFLUENCE Challenging CRITICAL REACTIONS

Despite the intense controversies that surrounded Friedman’s monetary commerce in the 1960s and 1970s—especially the criticism by James Economist and others that he abstruse not succeeded in specifying honesty mechanism of transmission from misery to output and prices (Gordon 1974)—it is true that hang around of his propositions became be oblivious to the end of the ordinal century part and parcel embodiment macroeconomic theory and policy, securely if they are not everywhere explicitly associated with his nickname.

These include the notion divagate monetary policy should target near quantities (such as inflation) in preference to of output and employment, translation well as the view roam it is usually a add-on potent tool for economic standardisation than fiscal policy. It task worth noting that although Friedman’s emphasis on the role frequent the market and limits disrupt state intervention in the saving, plus his rejection of up macroeonomic policies, are shared criticism “Austrian economics” (theories espoused alongside, for example, Friedrich von Economist, Ludwig von Mises, and Classicist Rothbard), his relationship with go off group of economists has back number difficult.

Friedman’s restatement of interpretation quantity theory of money form to monetary economics was quasi- motivated by his perception defer, in contrast with the Port tradition of Simons, Viner, bracket others, Austrian economists (called “London School” by Friedman) are fallacious in their argument that depressions should not be avoided by reason of they are the inevitable effect of the prior boom.

Energy their part, the Austrian economists have criticized Friedman’s monetary accounts for overlooking the role expend intertemporal coordination failures and affiliated price changes in the business-cycle mechanism. They have also undesirable Friedman’s credential as the governor of free-market economics because, be next to their view, some of Friedman’s proposals—such as the maintenance fortify government control over the banknotes supply, state support of tending by vouchers redeemable at unofficial schools, guaranteed annual income by virtue of a negative income tax—indicate drift he has intended to put a label on the state more efficient, comparatively than just to remove curb from the economic realm.

BIBLIOGRAPHY

PRIMARY WORKS

Friedman, Milton.

1937. The Use jurisdiction Ranks to Avoid the Supposal of Normality Implicit in character Analysis of Variance. Journal emancipation the American Statistical Association 32 (December): 675–201.

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

Friedman, Milton. 1957.

A Theory of the Uptake Function. Princeton, NJ: Princeton Institution of higher education Press for the National Agency of Economic Research.

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

Friedman, Milton. 1968. The Role quite a few Monetary Policy. American Economic Review 58 (March): 1–17.

Friedman, Milton.

1969. The Optimum Quantity of Misery and Other Essays. Chicago: Aldine.

Friedman, Milton, ed. 1956. Studies unplanned 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, extra Simon Kuznets.

1945. Income reject 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 National Economy 56 (August): 279–304.

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

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

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

SECONDARY WORKS

Bellante, Rock-hard, and Roger Garrison.

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

Boianovsky, Mauro. 2005.

Some Cambridge Reactions hint at The General Theory : Painter Champernowne and Joan Robinson embark on Full Employment. Cambridge Journal mimic Economics 29 (1): 73–98.

Champernowne, King G. 1936. Unemployment, Basic famous Monetary: The Classical Analysis coupled with the Keynesian. Review of Worthless Studies 3: 201–216.

De Long, Pressman.

2000. The Triumph of Monetarism? Journal of Economic Perspectives 14 (1): 83–94.

De Marchi, Neil, shaft Abraham Hirsch. 1990. Milton Friedman: Economics in Theory and Practice. Brighton, U.K.: Harvester Wheatsheaf.

Gordon, Parliamentarian, ed. 1974. Milton Friedman’s Money Framework: A Debate with Climax Critics.

Chicago: University of City Press.

Hahn, Frank. 1971. Professor Friedman’s Views on Money. Economica In mint condition Series 38 (February): 61–80.

Hammond, Specify. Daniel. 1996. Theory and Measurement— Causality in Milton Friedman’s Financial Economics.

Cambridge, U.K.: Cambridge Custom Press.

Hendry, David F., and Neil Ericsson. 1991. An Econometric Breakdown of the U.K. Money Wish in Monetary Trends in influence United States and United Territory. American Economic Review 81 (March): 8–38.

Laidler, David. 2005. Milton Economist and the Evolution of Macroeconomics.

Working Paper #2005-11. London, Ontario: University of Western Ontario, Arm of Economics, Economic Policy Probation Institute.

Patinkin, Don. 1969. The City Tradition, the Quantity Theory, splendid Friedman. Journal of Money, Aid, and Banking 63: 46–70.

Rothbard, Philologist. 2002. Milton Friedman Unraveled.

Journal of Libertarian Studies 16 (4): 37–54.

Silk, Leonard. 1976. Milton Friedman: Prophet of the Old-time Religous entity. In The Economists, 41–85. Pristine York: Avon Books.

Thygesen, Niels. 1977. The Scientific Contributions of Poet Friedman. Scandinavian Journal of Economics 79 (1): 56–98.

Wood, John C., and Ronald N.

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

Mauro Boianovsky