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

The economic revolution

Milton Friedman was the founder of monetarism that promotes the quantity theory of money. This theory describes the link between inflation and money supply and involves the rejection of government intervention, who only has to provide public goods when the market is not able to offer them.

Furthermore, M.F. was a supporter of the ‘laissez-faire’ idea, which emphasizes the advantages of the marketplace.

However, his biggest realization was his Permanent Income Hypothesis (spending a proportional amount of your permanent income), which contrasts sharply with the generally received consumption analysis (link between consumption and current income).

Thanks to all these accomplishments, M.F. received the Nobel Memorial Prize in Economic Sciences in 1976.

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

Vandierendonck Tine

Milton Friedman: a legend

Milton Friedman, who first intended to become an actuary, was one of the most influential economists.

He was involved in a lot of projects, such as a consumer budget study, where he introduced the concepts of permanent and transitory income, but also a study of the Schuman Plan, which laid the foundation of his preference for floating exchange rates. Nevertheless, most people knew him from ‘Free to Choose’, a one-hour program (and the companion volume), which dealt with the economic philosophy of M.F. and was shown in a lot of countries.

He didn’t only received the Nobel Prize for Economics, but also the Presidential Medal of Freedom (thanks to President Reagan) and the National Medal of Science.

Source: http://nobelprize.org/nobel_prizes/economics/laureates/1976/friedman-autobio.html

Vandierendonck Tine

Friedman’s answer to economic crises

Only in the seventies people paid really attention to Milton Friedman’s ideas. This was because the world saw for the first time stagflation in the seventies. This is the combination of recession and inflation. Stagflation couldn’t be explained by the theories of Keynes that were dominant from the great depression in the thirties till the seventies. Friedman especially paid attention to, and explained economic crises by, money supply. In 1976 he won the Nobel prize for economics for his monetary theories. The core of all his theories is that controlling money supply is a major key to economic health.

Source: http://www.washingtonpost.com/wp-dyn/content/article/2006/11/16/AR2006111600592.html

Frederik Verplancke

Milton Friedman’s legacy

Milton Friedman thinks the government shouldn’t play a very important role in the economy. He once said in an interview that “he would rather have a $1 trillion budget with a deficit of $1 trillion than have a $2 trillion budget that is completely balanced with taxes.” This doesn’t mean that he is in favour of a budgetary deficit, it means that he is against high taxes. The government shouldn’t take money from the people, because people must have the freedom to spend their money on the goods and services they want, so governments may not become too big. Moreover freedom is one of the key values you find in the theories of Milton Friedman.

Source: http://www.examiner.com/a-413909~Jay_Ambrose__Milton_Friedman_s_legacy.html

Frederik Verplancke

Milton Friedman and freedom

For Milton Friedman, freedom is very important, as well as on the economic as on the politic domain. He thinks India will have a better economy than China in the future because in India there is political and economical freedom, whereas in China there is only economical freedom. On the other hand monetary policy is very important. He even thinks that a computer run monetary policy is very good, if the computer is well programmed. The computer should control the growth of the quantity of money. He thinks a grow rate between 3% and 5% each year is perfect.

Source: http://opinionjournal.com/extra/?id=110009561

Frederik Verplancke