“If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand.”

̴ Milton Friedman

Early Life and Academic Career
Milton Friedman in 1988, the year he was honored with the Presidential Medal of Freedom.

Born on July 31, 1912 in Brooklyn, N.Y., Milton Friedman was the fourth child and only son of Sarah Ethel and Jeno Saul Friedman, two Jewish immigrants from Carpatho-Ruthenia (present day Ukraine). His family moved to Rahway, N.J. a few months after his birth. The household income was small, however enough to keep them above the poverty standard. Friedman was known as a very brilliant, inquisitive, and vocal student and, despite his father’s death in 1927, he graduated from High School in 1928 just before his 16th birthday. With the support of his mother and sisters, he attended Rutgers University, financing his expenses with scholarship money and some part-time job earnings.

Before graduating from Rutgers University in 1932 with a bachelor degree in Mathematics, Friedman was considering graduate studies in mathematics intending to become an actuary. Under the influence of Arthur Burns and Homer Jones, two outstanding economics professors at Rutgers who had introduced him to rigorous economic theories, he decided to pursue a career in Economics, which was very relevant to the dismal economic actualities of the 1930s. He accepted a scholarship from the Chicago Economics Department where he earned his master’s in a single year. During that year at the University of Chicago, he took Jacob Viner’s price theory course and met Rose Director, a fellow Economics student whom he married six years later.

In 1937, Friedman moved to New York City to join the research staff of the National Bureau of Economic Research. During World War II, he interrupted his economics studies to work first in the Treasury Department where he helped create a wartime withholding tax system, then at the Division of War Research of Columbia University where, as a mathematical statistician, he concentrated on problems of weapons design and military tactics. After the war, he finally published his dissertation and earned his Ph.D. from Columbia University. After one year at the University of Minnesota, he accepted a position at the University of Chicago while continuing his studies at the Bureau of Economic Research. In April 1947, Friedman attended the opening meeting of the Mont Pèlerin Society organized by Friedrich Hayek. His participation in this international organization dedicated to the preservation of freedom of expression and free market economic policies led to Friedman’s active involvement in politics. In 1951, Friedman received the John Bates Clark Medal honoring economists under the age of forty for outstanding achievement. He served as an advisor to President Richard Nixon and was president of the American Economic Association in 1967.

Milton Friedman was awarded the 1976 Nobel Memorial Prize in Economics "for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy." The year after, he retired from the University of Chicago to become a senior research fellow at the Hoover Institution at Stanford University. In 1988, after joining President Ronald Reagan’s Economic Policy Advisory Board, he was awarded the National Medal of Science and the Presidential Medal of Freedom. In later years, Friedman moved with his wife Rose to San Francisco, where he died in 2006 at the age of 96.

Scholarly Contributions

In their Monetary History of the United States, Milton Friedman and fellow economist Anna Schwartz claimed that the Federal Reserve could have prevented the Great Depression with a more aggressive monetary policy. They completely refuted the Keynesian construct of the liquidity trap. Friedman believed that the primary cause of the Great Depression was a large decline in the money supply. In fact, between 1929 and 1933, the M1 measure of the money supply fell by 26.5% and M2 the broader measure fell by 33.3%. Unlike the Keynesians who justified the drop in real GDP with a spending hypothesis – decline in the autonomous components of aggregate demand, the Monetarists proposed the money hypothesis.
Friedman-Phelps Phillips Curve

The Natural Rate of Unemployment & Output
Milton Friedman believed that expansionary monetary supply would have a dominant influence on output and employment in the short-run but would only affect prices and other nominal variables in the long-run. The foundation of this proposition is the concept of the natural rate of unemployment and output developed in the 1960s by Friedman and a nonmonetarist economist Edmund Phelps independently. According to Friedman, natural rates are determined by real supply factors such as labor force, human capital, physical capital, natural resources, and technology, and reveal the true limitations of monetary policy.

The Phillips Curve
Just when the Phillips curve has established itself as guide for policymakers, Phelps and Friedman began to question its foundation. The Phillips curve represents the inverse relationships between unemployment and inflation rates. It was developed by W.H. Phillips through studies of wage inflation and unemployment in the United Kingdom form 1861 to 1957. In 1967, in his presidential address before the American Economic Association, Friedman argued against the idea that government had to face a permanent tradeoff between inflation and unemployment by distinguishing between a short-run Phillips curve and a long run Phillips curve, in other words, between temporary changes in rates and persistent changes in rates. In the short run when the average rate of inflation is fairly stable, higher inflation means lower unemployment. However, rather than pushing the unemployment rate down, persistent changes in the average rate of inflation will cause the unemployment rate to adjust so that the natural rate of unemployment as defined by Friedman would always be compatible with the higher price level. The stagflation of the 1970s was seen by many economists as a confirmation of Friedman’s hypothesis since the Keynesian framework provided no explanation for simultaneous economic stagnation and inflation.

Public Policy Positions

Friedman was a vocal opponent of many forms of government intervention and supported various libertarian policies. When interviewed by Peter Jaworski in 2002, he declared, "I am a libertarian with a small 'l' and a Republican with a capital 'R.' And I am a Republican with a capital 'R' on grounds of expediency, not on principle." His public policy positions include the following:

  1. Flexible exchange rates
  2. A monetary growth rule: Behind the monetary growth rule is Friedman’s opposition to discretion
    At a meeting of White House economic advisers.
    ary monetary actions. Friedman believed that money was so powerful that instability in money supply would lead to significant fluctuations in nominal income. He distrusted any monetary authority and even favored the abolition of the Federal Reserve System. As an alternative, he proposed a money-supply rule which required the Federal Reserve Board to increase the money supply at the same rate as Real GDP increased.
  3. The promotion of school vouchers: Friedman argued that school vouchers (certificates issued by the government which can be applied toward tuition at private school versus a public school) would allow the lower class to have the same educational opportunities as the upper class. More competition would simply only improve the public schools. As an advocate of educational freedom, Friedman distinguished between government financing the education and government providing the education.
  4. A balance budget amendment
  5. The decriminalization of drugs

Friedman objected to various forms of government price controls including rent controls, minimum wage laws, and ceilings on interest rates. Known today as the father of monetarism, he remains the most influential critic of fiscal policy and keynesianism. Although he regarded himself as a libertarian, Friedman showed little interest in whether he was labeled neo-conservative, conservative, neo-liberal, or classical liberal.

Selected Works

Milton Friedman main publishing works include the following:
One of the most influential economics books of the twentieth century

Taxing to Prevent Inflation (1943)
Essays in Positive Economics (1953)
A Theory of the Consumption Function (1957)
A Monetary History of the United States 1867-1960 (1963) with Anna J. Schwartz
Capitalism and Freedom (1962)
The Optimum Quantity of Money (1969)
(1998) with Rose Friedman

"Milton Friedman - Autobiography". Nobelprize.org. 30 Nov 2010

"Milton Friedman." Encyclopædia Britannica. 2010. Encyclopædia Britannica Online. 29 Nov. 2010 http://www.britannica.com/EBchecked/topic/220152/Milton-Friedman

"Milton Friedman." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. 29 November 2010. http://www.econlib.org/library/Enc/bios/Friedman.html

Milton Friedman. Champion of Economic Freedom. 2010. Academy of Achievement. 12 Jul. 2010 http://www.achievement.org/autodoc/page/fri0bio-1

"Friedman and Freedom". Queen's Journal. Archived from the original on August 11, 2006. http://web.archive.org/web/20060811115145/http:queensjournal.ca/article.php?point=vol129/issue37/features/lead1. Retrieved February 20, 2008. , Interview with Peter Jaworski. The Journal, Queen's University, March 15, 2002 – Issue 37, Volume 129

Kevin D. Hoover, "Phillips Curve." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. 29 November 2010. http://www.econlib.org/library/Enc/PhillipsCurve.htm

Friedman, Milton and Anna Schwartz . The Great Contraction. Princeton, N.J.: Princeton University Press, 1965.

Doherty, Brian. The Life and Times of Milton Friedman. 2007. reason.com. issue March 2007

Bennett T. McCallum, "Monetarism." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. 30 November 2010. http://www.econlib.org/library/Enc/Monetarism.html

Friedman, Milton. “The Role of Monetary Policy.” American Economic Review 58 (March 1968): 1–17

Kevin D. Hoover, "Phillips Curve." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. 29 November 2010. http://www.econlib.org/library/Enc/PhillipsCurve.html