Milton Friedman

Milton Friedman
Born	Milton Friedman July 31, 1912
Birthplace	New York City, U.S.
Died	November 16, 2006 San Francisco, California, U.S.
Nationality	American
Occupation	Economist, statistician, author, public intellectual
Known for	Monetarism, permanent income hypothesis, natural rate of unemployment, Capitalism and Freedom, Free to Choose
Education	Ph.D. (Columbia University)
Spouse(s)	Rose Friedman
Children	2
Awards	Nobel Memorial Prize in Economic Sciences (1976), Presidential Medal of Freedom (1988), National Medal of Science (1988)

Milton Friedman (July 31, 1912 – November 16, 2006) was an American economist and statistician whose intellectual contributions reshaped economic thought in the twentieth century and whose policy advocacy influenced governments around the world. He received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory, and the complexity of stabilization policy. A leading figure of the Chicago school of economics, Friedman challenged the prevailing Keynesian orthodoxy of the mid-twentieth century and became the foremost proponent of monetarism—the theory that changes in the money supply are the primary driver of economic fluctuations. His academic work introduced the permanent income hypothesis, contributed to the theory of the natural rate of unemployment, and predicted the phenomenon of stagflation before it materialized in the 1970s. Beyond the academy, Friedman was a prolific public intellectual who argued for free markets, limited government, and individual liberty in books such as Capitalism and Freedom (1962) and the bestselling Free to Choose (1980), the latter co-authored with his wife, Rose Friedman. He served as an advisor to U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher, and his ideas on monetary policy, taxation, privatization, and deregulation shaped government policies in the United States and abroad, particularly during the 1980s. His advocacy for school choice led him to establish the Friedman Foundation for Educational Choice, later renamed EdChoice, which continues to promote educational reform.

Early Life

Milton Friedman was born on July 31, 1912, in Brooklyn, New York City, to Jenő Saul Friedman and Sára Ethel Landau, Jewish immigrants from Beregszász in the Kingdom of Hungary (present-day Berehove, Ukraine). The family was of modest means; his parents worked as dry-goods merchants and struggled financially throughout much of Friedman's childhood. Shortly after his birth, the family moved to Rahway, New Jersey, where Friedman grew up. His father died during Friedman's senior year of high school, leaving the family in difficult financial circumstances.

Despite these hardships, Friedman excelled academically. He graduated from Rahway High School before his sixteenth birthday and earned a scholarship to Rutgers University. At Rutgers, Friedman initially planned to study mathematics and intended to become an actuary, but he became drawn to economics during the Great Depression—an experience that shaped his lifelong interest in monetary policy and the causes of economic downturns. Among his influential professors at Rutgers were Arthur Burns, who later served as chairman of the Federal Reserve, and Homer Jones, who introduced Friedman to rigorous economic analysis. Friedman graduated from Rutgers in 1932 with a Bachelor of Arts degree in economics and mathematics.

Education

After completing his undergraduate studies at Rutgers University in 1932, Friedman received a scholarship to the University of Chicago, where he earned a Master of Arts degree in 1933. At Chicago, he studied under leading economists including Jacob Viner, Frank Knight, and Henry Simons, whose emphasis on price theory and free-market principles left a lasting impression. He also spent the 1933–1934 academic year at Columbia University on a fellowship, studying statistics with Harold Hotelling and economics with Wesley Clair Mitchell.

Friedman later returned to Columbia University to complete his doctoral studies. His dissertation, supervised by Simon Kuznets, examined the income of independent professional practitioners. The work, which analyzed the distribution of income among professionals such as physicians and lawyers, proved controversial because it suggested that licensing restrictions—particularly in medicine—artificially raised incomes by limiting the supply of practitioners. In part because of this controversy, the dissertation was not published until 1945, and Friedman did not receive his Ph.D. from Columbia until 1946.

Career

Early Government and Academic Work

During the 1930s and early 1940s, Friedman held a series of positions in government and academia. In 1935, he joined the National Resources Committee in Washington, D.C., where he worked on a large consumer budget study. He then moved to the National Bureau of Economic Research (NBER), where he began his collaboration with Simon Kuznets on the study of professional incomes. During World War II, Friedman worked at the U.S. Treasury Department's Division of Tax Research from 1941 to 1943, where he contributed to wartime tax policy. He then served as a statistician at the Statistical Research Group at Columbia University, which applied statistical analysis to military problems.

In 1946, Friedman accepted a position as associate professor of economics at the University of Chicago, beginning what would become a three-decade tenure at the institution. He was promoted to full professor and became one of the most influential members of the economics department, helping to establish the intellectual character of what became known as the Chicago school of economics. Along with George Stigler, who would later win the Nobel Prize in 1982, Friedman led a movement that emphasized the efficiency of free markets, the importance of monetary policy, and skepticism toward government intervention in economic affairs.

The Permanent Income Hypothesis

One of Friedman's most significant theoretical contributions was the permanent income hypothesis, set forth in his 1957 book A Theory of the Consumption Function. The hypothesis challenged the prevailing Keynesian view, derived from John Maynard Keynes's General Theory, that current consumption was primarily determined by current income. Friedman argued instead that individuals base their consumption decisions not on their current income but on their expected long-term average income—what he termed "permanent income." Temporary fluctuations in income, such as a one-time bonus or a brief period of unemployment, would have relatively little effect on consumption patterns, because rational consumers would smooth their spending over time.

This insight had profound implications for macroeconomic policy. If consumption was based on permanent rather than transitory income, then temporary tax cuts or one-time government transfers would be less effective as fiscal stimulus than Keynesian models predicted. The permanent income hypothesis became a foundational concept in modern consumption theory and was cited as one of the principal contributions recognized by the Nobel committee when it awarded Friedman the prize in 1976. Friedman was also among the first economists to propagate the theory of consumption smoothing, which became integral to mainstream economics.

Monetarism and Monetary History

Friedman's most famous contribution to macroeconomics was the development and advocacy of monetarism—the school of thought holding that variations in the money supply are the most important determinant of economic output and inflation in the short run, and of the price level in the long run. This view stood in stark contrast to the Keynesian emphasis on fiscal policy (government spending and taxation) as the primary tool for managing the economy.

The intellectual foundation of Friedman's monetarism was laid in his landmark 1963 work A Monetary History of the United States, 1867–1960, co-authored with Anna Schwartz and published by the NBER. The book presented a comprehensive analysis of the role of money supply in American economic history and offered a reinterpretation of the Great Depression. Friedman and Schwartz argued that the Depression was not an inevitable failure of capitalism, as many Keynesians contended, but was caused primarily by catastrophic errors in monetary policy by the Federal Reserve, which allowed the money supply to contract by roughly one-third between 1929 and 1933. This argument proved influential and gradually reshaped the understanding of the Depression among economists and central bankers. Decades later, Friedman's monetary analysis influenced the Federal Reserve's response to the 2008 financial crisis, when policymakers sought to avoid repeating the contractionary mistakes of the 1930s.

Friedman promoted the view that a steady, small, and predictable expansion of the money supply was the preferred monetary policy, as opposed to the discretionary interventions favored by Keynesian policymakers. He advocated what became known as a "monetary rule"—a fixed rate of growth in the money supply—arguing that attempts by central bankers to fine-tune the economy through active monetary policy often did more harm than good, given the long and variable lags between policy changes and their economic effects.

The Natural Rate of Unemployment and Stagflation

In his 1967 presidential address to the American Economic Association, Friedman introduced the concept of the "natural rate of unemployment"—the level of unemployment that prevails when the labor market is in equilibrium, determined by structural and institutional factors rather than by monetary policy. He argued that attempts by governments to push unemployment below this natural rate through expansionary monetary or fiscal policy would succeed only temporarily, and at the cost of accelerating inflation.

This analysis constituted a direct challenge to the Phillips curve, which had suggested a stable trade-off between inflation and unemployment. Friedman argued that the Phillips curve was vertical in the long run at the natural rate: any attempt to maintain unemployment below the natural rate would simply produce ever-higher inflation without lasting reductions in unemployment. He predicted that the simultaneous occurrence of high inflation and high unemployment—a condition that would come to be known as stagflation—was not only possible but likely if governments pursued overly expansionary policies. When stagflation materialized in the 1970s, Friedman's prediction was widely viewed as vindicated, dealing a significant blow to Keynesian economics and enhancing the prestige of the monetarist school.

Capitalism and Freedom and Free to Choose

Beyond his technical academic contributions, Friedman was a forceful advocate for free-market policies and limited government. His 1962 book Capitalism and Freedom articulated a comprehensive political philosophy rooted in classical liberalism. In it, Friedman argued that economic freedom was a necessary condition for political freedom and advocated a wide range of specific policy proposals, many of which were considered radical at the time. These included a volunteer military (to replace the draft), freely floating exchange rates, the abolition of medical licenses, a negative income tax (as a replacement for existing welfare programs), and school vouchers to promote educational choice. He also expressed opposition to the war on drugs and supported drug liberalization policies.

In 1980, Friedman and his wife Rose published Free to Choose: A Personal Statement, which became a bestseller. The book was accompanied by a ten-part television series of the same name on PBS, which brought Friedman's ideas to a broad public audience. The series featured Friedman traveling to locations around the world, explaining economic principles in accessible terms and debating prominent intellectuals, policymakers, and business leaders. The programs covered topics including the power of the market, the anatomy of crisis, the tyranny of control, and the relationship between freedom and equality.

Friedman's writings and public appearances made him one of the most recognizable economists in the world and helped shift public discourse toward greater skepticism of government intervention in economic affairs.

Policy Influence and Advisory Roles

After retiring from the University of Chicago in 1977 and becoming emeritus professor of economics in 1983, Friedman became a senior research fellow at the Hoover Institution at Stanford University. During the 1980s, he served as an informal advisor to President Ronald Reagan and Prime Minister Margaret Thatcher, both of whom pursued economic policies influenced by Friedman's thought—including tax reduction, deregulation, privatization of state-owned enterprises, and efforts to control inflation through monetary discipline rather than wage and price controls.

Friedman's influence extended beyond the Anglo-American world. He advised governments in various countries on economic reform, and his ideas were cited by reformers in Eastern Europe during the transition from communism to market economies in the late 1980s and early 1990s. Mart Laar, the former prime minister of Estonia, credited Friedman's work as an influence on Estonia's free-market reforms.

Friedman was also a prominent voice on the issue of immigration. He argued that free immigration was desirable in a system without a welfare state, noting that Mexican illegal immigration had historically been beneficial because it consisted largely of willing workers entering a labor market without claiming government benefits. This observation has continued to generate discussion in contemporary policy debates.

On the subject of international trade, Friedman was a consistent advocate of free trade and opponent of protectionism. He argued that tariffs harmed consumers by raising prices and reducing economic efficiency, a position that has continued to be cited in trade policy debates.

School Choice and EdChoice

Friedman first proposed the concept of school vouchers in his 1955 essay "The Role of Government in Education," which argued that government funding for education could be separated from government operation of schools. Under his proposal, parents would receive vouchers from the government that could be used to pay tuition at the school of their choice, whether public or private, thereby introducing market competition into education. Friedman argued that competition would improve the quality of education by forcing schools to attract students through better performance.

This idea was initially considered radical, but over the following decades it gained increasing support. Friedman's advocacy for school choice led him and Rose Friedman to establish the Milton and Rose D. Friedman Foundation for Educational Choice in 1996. The organization, later renamed EdChoice, has continued to promote school-choice policies, including voucher programs, tax-credit scholarships, and education savings accounts.

Personal Life

Milton Friedman married Rose Director in 1938. Rose Friedman, an economist in her own right, was his frequent intellectual collaborator. The two co-authored Free to Choose and its sequel, Free to Choose: A Personal Statement, as well as their joint memoir, Two Lucky People (1998). They had two children: Janet and David. Their son David D. Friedman became an economist and legal scholar associated with anarcho-capitalism.

Friedman was known for his sharp debating style and his willingness to engage opponents across the political spectrum. He wrote a regular column for Newsweek magazine from 1966 to 1984, alternating with the Keynesian economist Paul Samuelson, and was a frequent participant in public debates and television interviews.

Milton Friedman died of heart failure on November 16, 2006, in San Francisco, California, at the age of 94.

Recognition

Friedman received the Nobel Memorial Prize in Economic Sciences in 1976 "for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy." The award recognized his academic contributions across multiple areas of economic theory and policy.

In 1988, Friedman received both the Presidential Medal of Freedom and the National Medal of Science from President Reagan, reflecting his contributions to both public policy and scholarship. He was also a recipient of the John Bates Clark Medal, awarded to the most distinguished American economist under the age of forty, in 1951.

Friedman was a fellow of the American Academy of Arts and Sciences, a member of the American Philosophical Society, and president of the American Economic Association in 1967. He was a member of the Mont Pelerin Society, an international organization of classical liberal intellectuals founded by Friedrich Hayek in 1947.

Several of Friedman's students and protégés at the University of Chicago went on to distinguished academic careers. Among his doctoral students were Harry Markowitz, who received the Nobel Prize in 1990 for his work on portfolio theory; Thomas Sowell, who became a prominent economist and social theorist; and Phillip Cagan, David I. Meiselman, Neil Wallace, Miguel Sidrauski, Edgar L. Feige, and Lester G. Telser. Other economists associated with the Chicago school whom Friedman recruited or mentored included Nobel laureates Gary Becker (1992), Robert Fogel (1993), and Robert Lucas Jr. (1995).

Legacy

Milton Friedman's influence on economics and public policy has been substantial and enduring. His theoretical contributions—particularly the permanent income hypothesis, the natural rate of unemployment, and the monetarist framework—became integral parts of mainstream economic analysis by the late twentieth century. Even economists who disagreed with his policy conclusions adopted elements of his analytical framework, and Friedman himself noted that his approach used "Keynesian language and apparatus" while rejecting its initial conclusions.

Friedman's influence on monetary policy has been particularly notable. Central banks around the world, including the Federal Reserve, adopted many of his insights about the importance of controlling the money supply and maintaining price stability. During the 2008 financial crisis, Federal Reserve Chairman Ben Bernanke—a scholar of the Great Depression—explicitly acknowledged the influence of Friedman and Schwartz's A Monetary History on the Fed's aggressive response to the crisis, in which policymakers expanded the money supply dramatically to prevent a repeat of the monetary contraction of the 1930s.

In public policy, many of Friedman's once-radical proposals gradually entered the mainstream. The United States transitioned to an all-volunteer military in 1973, partly influenced by Friedman's advocacy. Freely floating exchange rates became the norm among major economies after the collapse of the Bretton Woods system in 1971. School voucher programs, while still debated, have been implemented in various forms in numerous states and countries. The negative income tax concept influenced the design of the Earned Income Tax Credit in the United States.

Friedman's work continues to be cited in contemporary economic and political debates. His arguments on free trade, immigration, monetary policy, and the role of government remain reference points for policymakers and commentators across the political spectrum. His observation that "inflation is always and everywhere a monetary phenomenon" remains one of the most frequently quoted statements in economics.

The Cato Institute, a libertarian think tank, maintains an extensive archive of Friedman's writings and speeches, reflecting his ongoing relevance to debates about economic freedom and limited government.