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Milton Friedman proved to be one of the leading proponents of monetarism. He stood as opposition to the dominant thought of the day Keynesian economics. Today’s supporters of the ideas of free markets owe Friedman and his followers the Chicago School economists a great debt of gratitude for their successful efforts.
Friedman opposed Keynes from the very beginning. Keynes had argued that shorter term solutions could fix economies. He believed that consumers would alter their spending habits if given a stimulus check from the government. This way the state would not have to relinquish future taxes to help the economy.
Friedman used empirical studies to attack this premise as he did with all Keynesian ideas. He demonstrated that individuals would only change yearly spending patterns if significant changes came to their lifetime income. A raise in a job would cause a more meaningful spending change than would a one time stimulus.
Friedman argued that economies could be better improved by reducing the involvement of the government. He proposed stopping policies that caused inflation and reducing taxes. Milton demonstrated that inflation tricked consumers into believing they earned more. In reality higher costs of living cancelled any gains they made in income.
The Keynesian multiplier represented another area that Friedman and the Chicago School economists constantly attacked. Keynes had assigned a higher spending multiplier to even government debt spending over private investment. Milton showed that such spending by the government only crowded out private investors who hold their money while the government is footing the bill.
Friedman published several influential economic books as part of his work in developing monetarism. Among these was A Monetary History of the United States. Here he demonstrated that misguided monetary policies led to the Great Depression. It had not been any free market form of capitalism that failed.
After he studied about a century of government monetary policy in response to recessions, depressions, booms, and crashes, he concluded that the Federal Reserve had created the Great Depression by massively reducing the money supply by more than one third from 1929 to 1933. These actions transformed a fairly common stock market crash into a long term depression.
Friedman’s concentration on money’s role within the economy only grew with time. Though he started out as a fan of the gold standard he changed his views to those of a hard monetarist. With this he argued that the amount of money circulated should grow apace with the economic growth of the country. This would still act as a check on governments printing limitless money.
It would also permit the national money supply to expand enough to continue the country’s economic growth. He became a controversial figure for defending free market capitalism in the 1960’s with his book Capitalism and Freedom. Some of the ideas in the book included a negative income tax for those who earned less and school vouchers. These received attention and eventually became main stream.
Finally in the 1970’s the Keynesian system began to collapse thanks to the weight of stagflation. The powerful academics gave Milton Friedman and his hard money anti-inflation ideas another serious look then. His monetarism began to surpass the influence of the old Keynesian proposals at first in academic circles.
In the next decades Friedman and his fellow Chicago School of thought economists rose to the posts of economic advisors in not only the U.S government but others around the world. They argued for and promoted smaller government and hard money policies. In this way, they were pushing for a return to the ideas and policies of Adam Smith and his Wealth of Nations masterpiece.
Milton’s work and ideas were honored by Nobel Prizes in economics. Both he and his Chicago School of thought won several of these awards for their efforts in taking apart the worse ideas of Keynesian economics. Friedman went to his death feeling that they had become accepted for their ideas which were not fully implemented. He and his monetarists argued governments loved Keynesian practices because they pardoned excess inherent in big government. They also allowed for the projects that were the most wasteful.