Awards and landmarks

Milton Friedman was the twentieth century’s most prominent advocate of free markets. In 1951 Friedman received the John Bates Clark Medal, honoring economists under age forty for outstanding achievement.
In 1976 he was awarded the Nobel Prize in economics for “his achievements in the field of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy".

His landmark 1957 work, A Theory of the Consumption Function, took on the Keynesian view that individuals and households adjust their expenditures on consumption to reflect their current income. Friedman showed that, instead, people’s annual consumption is a function of their “permanent income", a term he introduced as a measure of the average income people expect over a few years.

Source: http://www.econlib.org/library/Enc/bios/Friedman.html

Su-Min Yuen

Unemployment and inflation

Throughout the 1960s, Keynesians and mainstream economists had believed that the government faced a stable long-run trade-off between unemployment and inflation: the so-called phillips curve. In this view the government could, by increasing the demand for goods and services, permanently reduce unemployment by accepting a higher inflation rate.

But in the late 1960s, Friedman (and Columbia University’s Edmund Phelps) challenged this view. Friedman argued that once people adjusted to the higher inflation rate, unemployment would creep back up. To keep unemployment permanently lower, he said, would require not just a higher, but a permanently accelerating inflation rate.

Source: http://www.econlib.org/library/Enc/bios/Friedman.html

Su-Min Yuen

Statistics

Although less popularly known for these advances, Friedman was also widely agreed to be a brilliant statistician. Friedman did statistical work at the Division of War Research at Columbia. He and his colleagues came up with a sampling technique, known as sequential sampling, which became, in the words of The New Palgrave Dictionary of Economics: “The standard analysis of quality control inspection.”
The dictionary adds: “Like many of Friedman’s contributions, in retrospect it seems remarkably simple and obvious to apply basic economic ideas to quality control; that however is a measure of his genius.”

Source: http://www.econlib.org/library/Enc/bios/Friedman.html

Su-Min Yuen

Friedman's point of view on the Great Depression

Friedman wrote extensively on the Great Depression. He called this depression, which began in the late 1920s and peaked in early 1933, the Great Contraction.

He argued that the depression was far from a failure of the free-enterprise system or due to a lack of investment, but a tragic failure of the government. He believed that the depression lasted so long due to the Federal Reserve's mismanagement. The FED declines the quantity of money by one-third from 1929 to 1933. It attributed deflationary spirals to the reverse effect of a failure of a central bank to support the money supply during a liquidity crunch.

Source: http://www.cato.org/pubs/journal/cj28n2/cj28n2-13.pdf

Gerbrand Vidts

Negative income tax

Milton Friedman supported a negative income tax. This is a kind of a progressive income tax system, where people who are earning below a certain amount of money, will receive a supplemental pay from the government instead of paying taxes.

Typically, such a tax system is implemented as a flat tax, combined with a fixed government payment. For example, if the flat tax rate is 25% and a government payment of €10.000, then:
- A person earning € 1.000.000 would pay close to the full 25% tax, as the government payment would be negligible compared to the € 250.000 in tax payments.
- A person earning only € 4.000 per year would pay € 1.000 in taxes but receive € 10.000 in payment. Thus this person has a net income of € 13.000, € 9.000 in net government payments.


Source: http://economistsview.typepad.com/economistsview/2006/11/milton_friedman_1.html

Gerbrand Vidts

Monetarism

In the 1960s, Milton Friedman promoted a macroeconomic policy called “Monetarism”.

Monetarism focuses on the supply of money in an economy as the primary means by which the rate of inflation is determined. It stipulates that the supply of money does affect the amount of spending in an economy. Thus, where the money supply expands, people would not simply wish to hold the extra money. These excess funds would be spent and hence aggregate demand would rise. Similarly, if the money supply were reduced, people would want to replenish their holdings of money by reducing their spending.

Excessive expansion of the money supply is inherently inflationary and monetary authorities should therefore focus on maintaining price stability.

Source: http://en.wikipedia.org/wiki/Milton_Friedman

Gerbrand Vidts

The liberal way of thinking

Milton Friedman, who called himself a liberal, was against government action in general and Social Security particular.

Although the objectives of the government are well-meant, they only receive the opposite of it. Like the minimum wage law, formed to help the poor people, caused a rise of the unemployment among the incompetent citizens. How can it be reasonable when you are obliged to give your money away in exchange for a system of welfare payments? No, let them invest that money in a project with bigger benefits.

An elimination of the government isn’t the solution, only an avoiding of the totalitarian society we’re moving toward.

Source: http://www.theopenmind.tv/tom/searcharchive_episode_transcript.asp?id=494

Vandierendonck Tine