Milton Friedman, the world's famous economist was born in 1912, in a poor Jewish Immigrant family who shifted to Brooklyn in the late 1980s. After completing his public school studies, he joined Rutgers University in 1928 (Friedman and Friedman 1998, p.25-27).
During his early study in the field of economics, he was continuously in contact with the theorists like Mitchell, Burns and Kuznets; therefore he started taking interest on the macroeconomic issues like the business cycles and the monetary theory and was less concerned about the microeconomic issues.
Friedman was a passionate advocate of the free market economy. He made great contribution to the field of economics by writing books, journals, articles in which he presented his own theories and ideas. His theories and writings played an important role in shaping the economy. He played a role of a public intellectual; and conveyed his thoughts in his popular books like, Capitalism and Freedom (1962) and Free to Choose (1980), which he wrote along with lovings wife Rose who always helped him in exposing his ideas.
In 1976, Friedman was given a Nobel Prize in the field of Economics, which was appreciated by many since he had already become very famous personality by that time and people really liked his ideas of improving the economy.76. However, this award also helped him in getting further fame and importance from public and highlighted his role of a policy advocate (Cole 2007, p.115-128).
He was a fine man, who made his life useful and productive and passed away on 16th November 2006. He did a lot of work for improving the economy and his name will always be taken in the field of economics. Milton Friedman was a great economist whose theories and ideas played an important role in changing the economy of the world.
Principles and Theories of Milton Friedman
Milton Friedman defined economics in his own way. He defined economics as "the way of understanding behavior that starts from the assumption that people have objectives and tend to choose the correct way to achieve them (Friedman 1986, p.6)."
During 1930s, Friedman started collecting and analyzing data about the size of income and its distribution in 1930s, which he later presented in his work "A Theory of the Consumption Function" which according to him is his great achievment. This book was published in 1957, in which first time Friedman presented his famous permanent income hypothesis. This publication was Friedman's first and direct attack on the Keynesian thought and his model
In this theory, Friedman took Keynesian view according to which households and individuals manage their expenditures and expenses on consumption in order to reflect their current income. Friedman proposed an alternative to this idea and stated that the annual consumption of people is a function of their "permanent income," which is a term he used for the average income that individuals expect in next few years.
As stated above, this theory of consumption behaviour was an alternative to the Maynard Keynes idea of "The General Theory of Employment, Interest, and Money." According to Friedman, the predictable consumption function given by Keynes is actually not an accurate estimator of short run aggregate consumption. Therefore, Friedman come up with his alternative permanent income function and also explained its theory to justify that his concept is better than Keynes' Theory.
Friedman was friend of investors and savers. He was of the opinion that government should not boost economy by cheating with the consumers. He believed that economy can also be improved by minimizing the role of government. This can be done by decreasing the tax rates in the long-term and freezing the inflation policies. He further claimed that consumers are fooled by an idea that they are earning more, but actually the cost of living is correspondingly increasing which takes away the profits. He along with his other colleague economists did attack after attack on the Keynesian concept of saving.
Friedman also gave the famous price theory, which explains that the prices of the goods are determined in the individual markets. According to this theory Price = Value = Cost, which means that the price of anything is actually the value it gets from its user and its cost of production. Although Friedman did detail worked on price theory but he is more popular for his Monetarism. He challenged Keynes and provided evidence for bringing back the quantity theory of money, according to which the price level is dependent on the supply of money.
His study "Quantity Theory of Money" was published in 1956, in which he stated that an increase in the monetary growth will increase the prices in the long run but has very little or almost negligible effect on the output. On the contrary, if money supply growth is increased in short run; it results in the increase of output and enhances the rate of employment. Similarly the decrease in the money supply growth brings the opposite results.
Following are some of the important points highlights by Milton Friedman in his work:
Inflation is a drug and always present in the monetary phenomenon. Therefore it is necessary to control money supply for controlling inflation.
The annual consumption is function of the expected life time earnings of people and not only their income of the present time.
The exchange rates should always change freely and should be affected by any other activity.
The minimum wage laws cut jobs. This affects badly the youth who has low skills and is not well experienced. Moreover, minorities also suffer because employers throw them out due their worth less than minimum rate.
The rules of state licensing limit the entry of professionals into this field, therefore the professionals in the field charge higher fees from their clients. This is the reason that professionals also like the licensing policy.
Education and other public services should be financed through a system of vouchers, so that everyone has access to important services but service users
Significance of Friedman's Theories
Friedman's theories and ideas have played an important role in shaping the economy. He was a diminutive man, who became famous due to his combative style. In 1962, he published a book "Capitalism and Freedom" which was based on the series of lectures and was co-written by his wife Rose. This book became so famous that half a million copies of it with 18 different languages were sold in the market. This book gave a shape to Friedman's career, and people started considering him as one of the America's policy intellectual.
He formulated the fundamentals of the anti-inflation, antigovernment and policies for tax-cutting, which was made by President Ronald Reagan and Margaret Thatcher, the British Prime Minister. His ideas played a significant role in ending the military draft in the 1970s. He highlighted the basic needs and issues of people like education, training and made the foundation for the new economic views about the Inflation, Great Depression, exchange rates and unemployment.
His views have helped to shape the modern capitalism. However, his some ideas are still controversial and are considered impractical by many economists; central banks also do not follow Friedman's prescription for inflation fighting because they find his monetary policies not practicable at all.
Milton Friedman "An Important and Famous Personality"
Most of the Americans will name "Milton Friedman" as the most famous economist. Economists most of the time come up with theories and ideas for the government, agencies and universities. Friedman also followed this way but at the same time he also shared his thoughts and ideas with the citizens by writing in books, newspapers, magazines and also through television. These attempts of Friedman made him closer to the common people which most of the economist don't try to do. They convey their thoughts to limited people and do not try to approach the common man.
There is no doubt in saying that Friedman has played role of the most powerful American economist of the 19th century. He was an effective advocate who encouraged the concept of free enterprise and monetarist policies for more than fifty years. His theories changed the policies not only in America but also in several other countries and the economics of the world moved from the economic control towards the economic freedom.
Looking at his great contributions, he was honored with a life time achievement award in 2002, by former President George W. Bush who said following words during the ceremony:
"He has used a brilliant mind to advance a moral vision - the vision of a society where men and women are free, free to choose, but where government is not as free to override their decisions. That vision has changed America, and it is changing the world (Bush 2002)."
The chairman of the Federal Reserve, Alan Greenspan, who was also invited for ceremony also added: "There are many Nobel Prize winners in economics, but few have achieved the mythical status of Milton Friedman."
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