Milton Friedman, the maverick economist who revolutionized free-market capitalism, was born on July 31, 1912, in Brooklyn, New York. He grew up in a lower-middle-class family and attended public schools in New Jersey.
Friedman was a brilliant student, and he was accepted into Rutgers University, where he studied mathematics and economics. He graduated in 1932, during the height of the Great Depression, and went on to earn a Ph.D. in economics from Columbia University in 1946.
After completing his studies, Friedman worked as an economist for the federal government and the United Nations. However, he grew disillusioned with what he saw as the government’s heavy-handed approach to economic policy, and he began to advocate for free-market principles.
Friedman’s seminal work, “Capitalism and Freedom,” published in 1962, argued that government intervention in the economy was not only unnecessary but also harmful. He believed that individuals should be free to pursue their own economic interests without interference from the government, which he saw as inefficient, wasteful, and prone to corruption.
Friedman’s ideas were controversial at the time, but they gained traction in the 1970s, as governments around the world struggled to cope with stagflation, a combination of high inflation and stagnant economic growth. Friedman argued that the root cause of stagflation was government interference in the economy, and he called for a return to the free-market principles that had made the United States a prosperous nation.
Friedman’s ideas found a receptive audience in countries such as Chile, where his former student, Augusto Pinochet, implemented a series of free-market reforms that transformed the Chilean economy. However, Friedman’s association with Pinochet and other right-wing authoritarian leaders made him a controversial figure, and he was often vilified by the left as a defender of the status quo and an apologist for corporate greed.
In his later years, Friedman remained an outspoken advocate of free-market capitalism, and he continued to inspire a new generation of economists and political leaders who sought to emulate his vision for a more prosperous and free society. He died on November 16, 2006, at the age of 94, but his legacy lives on as an inspiration and guide to the defenders of economic freedom and individual rights around the world.
Friedman’s Contributions to Economics
Friedman was one of the most influential economists of the 20th century, and his contributions to the field of economics are numerous and profound. Here are some of his most significant contributions:
Friedman is perhaps best known for his theory of monetarism, which he developed in the 1950s and 1960s. According to monetarism, the rate of inflation is determined by the growth rate of the money supply. Friedman argued that the government could control inflation by controlling the growth rate of the money supply, and he called for a monetary policy that focused on the steady growth of the money supply at a rate that matched the growth of the economy.
2. The Permanent Income Hypothesis
Friedman also developed the permanent income hypothesis, which argues that people’s consumption and saving decisions are based on their expected long-term income rather than their short-term income. According to this theory, people will adjust their spending and saving habits in response to short-term changes in their income, but their long-term consumption and saving habits will remain relatively stable.
3. The Consumption Function
Another of Friedman’s contributions to economics is the consumption function, which he developed with his colleague, David Meiselman. The consumption function is a mathematical model that shows how changes in disposable income affect consumption. According to the consumption function, people tend to save a certain percentage of their disposable income, regardless of its level, and they use the rest for consumption.
4. The Natural Rate of Unemployment
Friedman also developed the concept of the natural rate of unemployment, which refers to the level of unemployment that exists in the absence of any government intervention in the labor market. According to this theory, attempts to reduce unemployment through government intervention are likely to be unsuccessful in the long run, as they will only result in higher inflation.
5. The Laffer Curve
Finally, Friedman popularized the Laffer curve, which shows the relationship between tax rates and government revenue. According to the Laffer curve, there is a point at which increasing tax rates will actually decrease government revenue, as people will become less motivated to work and invest as their tax burden increases.
Despite the controversy that often surrounded him, Milton Friedman left a lasting legacy in the field of economics and the world of politics. His ideas continue to influence policymakers and academics alike, and his influence can be seen in the policies of governments around the world.
Friedman’s message was a simple one: that free markets, limited government, and personal freedom are the keys to economic prosperity and human flourishing. This message resonated with millions of people around the world, who saw in Friedman a champion of individual rights and an opponent of government tyranny.
In the years since his death, Friedman’s ideas have continued to inspire a new generation of economists and political leaders who seek to promote economic freedom and individual rights. And while his critics may continue to vilify him as the archetypal free-market ideologue, there can be no doubting the profound impact that Milton Friedman had on economics, politics, and the world at large.