Friedman, Milton (1912–2006)

US economist, best known for his advocacy of monetarism – the control of aggregate demand solely by control of the money supply – and his unflinching support of the market in virtually all areas of economic life. He was awarded the Nobel Prize for Economics in 1976.

Friedman's contributions to economics consist of three closely interrelated ideas in consumption theory, monetary theory, and stabilization policy. First, he denied that consumption is a function of current income, as English economist John Maynard Keynes believed, but rather of expected lifetime income. Secondly, he argued that the price level in an economy depends essentially on the supply of coins, notes, and checking deposits in banks. Since the ability of governments to achieve ‘fine tuning’ is severely limited, Friedman recommended replacing discretionary monetary policy by a legislative rule, linking the rate of growth of the money supply automatically to the rate of growth of real GNP.

Thirdly, he denied that there is a permanent trade-off between inflation and unemployment, as suggested by the so-called Phillips curve. He argued that there is a ‘natural rate of employment’, determined by structural and institutional forces in the labour market, such as trade unions, unemployment compensation, and the costs of moving house, which governments are powerless to alter solely by monetary and fiscal policies.

In his book Capitalisation and Freedom (1962) and his book and television series Free to Choose (1980), Friedman also revealed a remarkable talent for popularizing economic ideas, which has made him perhaps the best-known economist in the world. Among his recommendations in those books are a voluntary army, educational vouchers, and a negative income tax to replace social security payments, to be paid automatically when household incomes fall below a minimum acceptable level. All these prescriptions are designed to reduce government intervention and to enhance self-reliance in a private enterprise economy.

Friedman was born in New York City, earned his BA at Rutgers University at the age of 20, his MA from the University of Chicago in 1933, and his PhD from Columbia University. After wartime service at the US Treasury, he joined the University of Chicago in 1948, where he remained until retirement in 1979. He was an adviser to Barry Goldwater in his unsuccessful presidential campaign in 1964, and subsequently advised President Richard Nixon in 1968 and President Ronald Reagan in 1988. He was awarded the John Bates Clark Medal of the American Economic Association in 1951, served as its president in 1967, and was president of the Mont Pèlerin Society 1970–72.

His works include Essays in Positive Economics (1953), Studies in the Quantity Theory of Money (1956), A Theory of Consumption Function (1957), Monetary History of the United States (1963; with A J Schwartz), A Framework for Monetary Analysis (1971), There Is No Such Thing as a Free Lunch (1983), and Monetary Mischief: Episodes in Monetary History (1992).