Milton Friedman

Milton Friedman

Overview
Milton Friedman was an American economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...

, statistician
Statistician
A statistician is someone who works with theoretical or applied statistics. The profession exists in both the private and public sectors. The core of that work is to measure, interpret, and describe the world and human activity patterns within it...

, academic, and author who taught at the University of Chicago
University of Chicago
The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...

 for more than three decades. He was a recipient of the Nobel Memorial Prize in Economic Sciences
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel , is an award for outstanding contributions to the field of economics, generally regarded as one of the...

.
Among scholars, he is best known for his theoretical and empirical research, especially consumption
Consumption (economics)
Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally, consumption is defined in part by comparison to production. But the precise definition can vary because different schools of economists define production quite differently...

 analysis, monetary
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...

 history and theory, and for his demonstration of the complexity of stabilization policy.

Friedman was an economic advisor to conservative President Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....

.
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Quotations

So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no they do not.

Interview "Milton Friedman Responds" in Chemtech (February 1974) p. 72.

I say thank God for government waste. If government is doing bad things, it's only the waste that prevents the harm from being greater.

Interview with Richard Heffner on The Open Mind (7 December 1975)

One of the great mistakes is to judge policies and programs by their intentions rather than their results.

Interview with Richard Heffner on The Open Mind (7 December 1975)

There is no place for government to prohibit consumers from buying products the effect of which will be to harm themselves.

Free to Choose (1980), segment Who protects the consumer?

With some notable exceptions, businessmen favor free enterprise in general but are opposed to it when it comes to themselves.

Lecture "The Suicidal Impulse of the Business Community" (1983); cited in Filters Against Folly (1985) by Garrett Hardin|Garrett Hardin ISBN 067080410X
Encyclopedia
Milton Friedman was an American economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...

, statistician
Statistician
A statistician is someone who works with theoretical or applied statistics. The profession exists in both the private and public sectors. The core of that work is to measure, interpret, and describe the world and human activity patterns within it...

, academic, and author who taught at the University of Chicago
University of Chicago
The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...

 for more than three decades. He was a recipient of the Nobel Memorial Prize in Economic Sciences
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel , is an award for outstanding contributions to the field of economics, generally regarded as one of the...

.
Among scholars, he is best known for his theoretical and empirical research, especially consumption
Consumption (economics)
Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally, consumption is defined in part by comparison to production. But the precise definition can vary because different schools of economists define production quite differently...

 analysis, monetary
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...

 history and theory, and for his demonstration of the complexity of stabilization policy.

Friedman was an economic advisor to conservative President Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....

. Over time, many governments practiced his restatement of a political philosophy that extolled the virtues of a free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...

 economic system with little intervention by government. As a leader of the Chicago school of economics
Chicago school (economics)
The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of The University of Chicago, some of whom have constructed and popularized its principles...

, based at the University of Chicago
University of Chicago
The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...

, he had great influence in determining the research agenda of the entire profession. Milton Friedman's works
Works of Milton Friedman
A list of works by the prominent American economist Milton Friedman follows:-Books and articles for general audiences:* Wall Street Journal, Nov. 17, 2006, p. A20...

, which include many monographs, books, scholarly articles, papers, magazine columns, television programs, videos, and lectures, cover a broad range of topics of microeconomics
Microeconomics
Microeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...

, macroeconomics
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...

, economic history, and public policy issues. The Economist
The Economist
The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...

described him as "the most influential economist of the second half of the 20th century…possibly of all of it."

Friedman was a Keynesian in the 1930s and 1940s, and always said he favored some aspects of the New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...

 such as "providing relief for the unemployed, providing jobs for the unemployed, and motivating the economy to expand... an expansive monetary policy"; however, he never advocated wage and price controls. His challenges to what he later called "naive Keynesian" (as opposed to New Keynesian) theory began with his 1950s reinterpretation of the consumption function
Consumption function
In economics, the consumption function is a single mathematical function used to express consumer spending. It was developed by John Maynard Keynes and detailed most famously in his book The General Theory of Employment, Interest, and Money. The function is used to calculate the amount of total...

. At the University of Chicago
University of Chicago
The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...

, Friedman became the main advocate opposing activist Keynesian government policies; he has been characterized as "the leader of the first recognized counterrevolution against Keynesianism", although even in the late-1960s he described his own approach (along with all of mainstream economics) as still wedded to the "Keynesian language and apparatus" albeit rejecting its "initial" conclusions.
During the 1960s he promoted an alternative macroeconomic policy known as "monetarism
Monetarism
Monetarism is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over...

". He theorized there existed a "natural" rate of unemployment
Natural rate of unemployment
The natural rate of unemployment is a concept of economic activity developed in particular by Milton Friedman and Edmund Phelps in the 1960s, both recipients of the Nobel prize in economics...

, and argued that governments could increase employment above this rate (e.g., by increasing aggregate demand
Aggregate demand
In macroeconomics, aggregate demand is the total demand for final goods and services in the economy at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a...

) only at the risk of causing inflation to accelerate. He argued that the Phillips Curve
Phillips curve
In economics, the Phillips curve is a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. Stated simply, the lower the unemployment in an economy, the higher the rate of inflation...

 was not stable and predicted what would come to be known as stagflation
Stagflation
In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high...

. Though opposed to the existence of the Federal Reserve, Friedman argued that, given that it does exist, a steady, small expansion of the money supply
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...

 was the only wise policy.

Influenced by his close friend George Stigler
George Stigler
George Joseph Stigler was a U.S. economist. He won the Nobel Memorial Prize in Economic Sciences in 1982, and was a key leader of the Chicago School of Economics, along with his close friend Milton Friedman....

, Friedman opposed government regulation of many types. He once stated that his role in eliminating U.S. conscription
Conscription in the United States
Conscription in the United States has been employed several times, usually during war but also during the nominal peace of the Cold War...

 was his proudest accomplishment, and his support for school choice
School choice
School choice is a term used to describe a wide array of programs aimed at giving families the opportunity to choose the school their children will attend. As a matter of form, school choice does not give preference to one form of schooling or another, rather manifests itself whenever a student...

 led him to found The Friedman Foundation for Educational Choice. Friedman's political philosophy, which he considered classically liberal
Classical liberalism
Classical liberalism is the philosophy committed to the ideal of limited government, constitutionalism, rule of law, due process, and liberty of individuals including freedom of religion, speech, press, assembly, and free markets....

 and libertarian
Libertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...

, emphasized the advantages of free market economics and the disadvantages of government intervention and regulation, strongly influencing the opinions of American conservatives and libertarians. In his 1962 book Capitalism and Freedom
Capitalism and Freedom
Capitalism and Freedom is a book by Milton Friedman originally published in 1962 by the University of Chicago Press which discusses the role of economic capitalism in liberal society. It sold over 400,000 copies in the first 18 years and more than half a million since 1962. It has been translated...

, Friedman advocated policies such as a volunteer military
Volunteer military
A volunteer military or all-volunteer military is one which derives its manpower from volunteers rather than conscription or mandatory service. A country may offer attractive pay and benefits through military recruitment to attract volunteers...

, freely floating exchange rate
Floating exchange rate
A floating exchange rate or fluctuating exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency....

s, abolition of medical licenses, a negative income tax
Negative income tax
In economics, a negative income tax is a progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government. Such a system has been discussed by economists but never fully implemented...

, and education voucher
Education voucher
A school voucher, also called an education voucher, is a certificate issued by the government, which parents can apply toward tuition at a private school , rather than at the state school to which their child is assigned...

s.
His books and essays were widely read, and his words had both underground
Samizdat
Samizdat was a key form of dissident activity across the Soviet bloc in which individuals reproduced censored publications by hand and passed the documents from reader to reader...

 and overt influence in Communist countries. Friedman's economic theories had an international influence in era since 1970. Some of his laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

 ideas concerning monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

, taxation, privatization and deregulation
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...

 were used by governments, especially during the 1980s. A combination of his monetary theory
Monetarism
Monetarism is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over...

 in regard to credit and Keynes's belief in deficit spending to stimulate growth has influenced economists such as Ben Bernanke
Ben Bernanke
Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....

 and the Federal Reserve's response to the financial crisis of 2007–10.

Early life


Friedman was born in Brooklyn, New York, to recent Jewish immigrants Jenő Friedman and Sára Landau from Beregszász in Hungary (now Berehove
Berehove
Berehove is a city located in the Zakarpattia Oblast in western Ukraine, near the border with Hungary.Serving as the administrative center of the Berehove Raion , the city itself is also designated as a separate raion within the oblast...

 in Ukraine
Ukraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...

), both of whom worked as dry goods
Dry goods
Dry goods are products such as textiles, ready-to-wear clothing, and sundries. In U.S. retailing, a dry goods store carries consumer goods that are distinct from those carried by hardware stores and grocery stores, though "dry goods" as a term for textiles has been dated back to 1742 in England or...

 merchants. Shortly after Milton's birth, the family relocated to Rahway, New Jersey
Rahway, New Jersey
Rahway is a city in southern Union County, New Jersey, United States. It is part of the New York metropolitan area, being 15 miles southwest of Manhattan and five miles west of Staten Island...

. A talented student, Friedman graduated from Rahway High School
Rahway High School
Rahway High School is a four-year public high school that serves students in ninth through twelfth grades from Rahway, in Union County, New Jersey, United States, operating as part of the Rahway Public Schools. The high school's present location was built in 1941...

 in 1928, just before his 16th birthday.

Friedman graduated from Rutgers University
Rutgers University
Rutgers, The State University of New Jersey , is the largest institution for higher education in New Jersey, United States. It was originally chartered as Queen's College in 1766. It is the eighth-oldest college in the United States and one of the nine Colonial colleges founded before the American...

 in New Jersey
New Jersey
New Jersey is a state in the Northeastern and Middle Atlantic regions of the United States. , its population was 8,791,894. It is bordered on the north and east by the state of New York, on the southeast and south by the Atlantic Ocean, on the west by Pennsylvania and on the southwest by Delaware...

, where he specialized in mathematics
Mathematics
Mathematics is the study of quantity, space, structure, and change. Mathematicians seek out patterns and formulate new conjectures. Mathematicians resolve the truth or falsity of conjectures by mathematical proofs, which are arguments sufficient to convince other mathematicians of their validity...

 and initially intended to become an actuary
Actuary
An actuary is a business professional who deals with the financial impact of risk and uncertainty. Actuaries provide expert assessments of financial security systems, with a focus on their complexity, their mathematics, and their mechanisms ....

. During his time at Rutgers, Friedman became influenced by two economics professors, Arthur F. Burns
Arthur F. Burns
Arthur Frank Burns was an American economist. He served as Chairman of the Federal Reserve from 1970 to 1978.- Career :...

 and Homer Jones
Homer Jones (economist)
Homer Jones was a prominent American economist.In the course of his career, Jones spent time at Rutgers University, the University of Chicago, The Brookings Institution and the Federal Deposit Insurance Corporation. He is best known for serving as research director, and later senior...

, who convinced him that modern economics could help end the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

.
Friedman did graduate work at the University of Chicago, earning an M.A.
Master of Arts (postgraduate)
A Master of Arts from the Latin Magister Artium, is a type of Master's degree awarded by universities in many countries. The M.A. is usually contrasted with the M.S. or M.Sc. degrees...

 in 1933. He was strongly influenced by Jacob Viner
Jacob Viner
Jacob Viner was a Canadian economist and is considered with Frank Knight and Henry Simons one of the "inspiring" mentors of the early Chicago School of Economics in the 1930s: he was one of the leading figures of the Chicago faculty.- Biography :Viner was born in 1892 in Montreal, Quebec to...

, Frank Knight
Frank Knight
Frank Hyneman Knight was an American economist who spent most of his career at the University of Chicago, where he became one of the founders of the Chicago school. Nobel laureates James M. Buchanan, Milton Friedman and George Stigler were all students of Knight at Chicago. Knight supervised...

, and Henry Simons
Henry Calvert Simons
Henry Calvert Simons was an American economist at the University of Chicago. His anti-trust and monetarist models influenced the Chicago school of economics....

. It was at Chicago that Friedman met his future wife, economist Rose Director
Rose Friedman
Rose Director Friedman , also known as Rose D. Friedman and Rose Director was a professor at the University of Chicago Law School. She was the wife of Milton Friedman , the winner of the 1976 Nobel Prize in Economics, and sister of Aaron Director...

. During 1933–34 he had a fellowship at Columbia University
Columbia University
Columbia University in the City of New York is a private, Ivy League university in Manhattan, New York City. Columbia is the oldest institution of higher learning in the state of New York, the fifth oldest in the United States, and one of the country's nine Colonial Colleges founded before the...

, where he studied statistics
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....

 with renowned statistician and economist Harold Hotelling
Harold Hotelling
Harold Hotelling was a mathematical statistician and an influential economic theorist.He was Associate Professor of Mathematics at Stanford University from 1927 until 1931, a member of the faculty of Columbia University from 1931 until 1946, and a Professor of Mathematical Statistics at the...

. He was back in Chicago for 1934–35, spending the year working as a research assistant
Research assistant
A research assistant is a researcher employed, often on a temporary contract, by a university or a research institute, for the purpose of assisting in academic research...

 for Henry Schultz
Henry Schultz
Henry Schultz was an American economist and statistician, one of the founders of econometrics.-Life:Henry Schultz was born on September 4, 1893 in a Polish family in Szarkowszczyzna, the Russian Empire...

, who was then working on Theory and Measurement of Demand. That year, Friedman formed what would prove to be lifelong friendships with George Stigler
George Stigler
George Joseph Stigler was a U.S. economist. He won the Nobel Memorial Prize in Economic Sciences in 1982, and was a key leader of the Chicago School of Economics, along with his close friend Milton Friedman....

 and W. Allen Wallis.

Public service


Friedman was initially unable to find academic employment, so during 1935, he followed his friend W. Allen Wallis to Washington, where Franklin D. Roosevelt
Franklin D. Roosevelt
Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...

's New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...

 was "a lifesaver" for many young economists.
At this stage, Friedman said that he and his wife "regarded the job-creation programs such as the WPA
Works Progress Administration
The Works Progress Administration was the largest and most ambitious New Deal agency, employing millions of unskilled workers to carry out public works projects, including the construction of public buildings and roads, and operated large arts, drama, media, and literacy projects...

, CCC
Civilian Conservation Corps
The Civilian Conservation Corps was a public work relief program that operated from 1933 to 1942 in the United States for unemployed, unmarried men from relief families, ages 18–25. A part of the New Deal of President Franklin D...

, and PWA
Public Works Administration
The Public Works Administration , part of the New Deal of 1933, was a large-scale public works construction agency in the United States headed by Secretary of the Interior Harold L. Ickes. It was created by the National Industrial Recovery Act in June 1933 in response to the Great Depression...

 appropriate responses to the critical situation," but not "the price- and wage-fixing measures of the National Recovery Administration
National Recovery Administration
The National Recovery Administration was the primary New Deal agency established by U.S. president Franklin D. Roosevelt in 1933. The goal was to eliminate "cut-throat competition" by bringing industry, labor and government together to create codes of "fair practices" and set prices...

 and the Agricultural Adjustment Administration."
Foreshadowing his later ideas, he believed price controls
Price controls
Price controls are governmental impositions on the prices charged for goods and services in a market, usually intended to maintain the affordability of staple foods and goods, and to prevent price gouging during shortages, or, alternatively, to insure an income for providers of certain goods...

 interfered with an essential signaling mechanism to help resources be used where they were most valued. Indeed, Friedman later concluded that all government intervention associated with the New Deal was "the wrong cure for the wrong disease," arguing that the money supply should simply have been expanded, instead of contracted.
In the publication Monetary History of the United States
Monetary History of the United States
A Monetary History of the United States, 1867-1960 is a book written in 1963 by Nobel prize winning economist Milton Friedman and Anna J. Schwartz...

by Friedman and Anna Schwartz, they argue that the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 was caused by monetary contraction
Contractionary monetary policy
Contractionary monetary policy is monetary policy that seeks to reduce the size of the money supply. In most nations, monetary policy is controlled by either a central bank or a finance ministry....

, which was the consequence of poor policymaking by the Federal reserve and the continuous crises of the banking system.

During 1935, he began work for the National Resources Committee, which was then working on a large consumer budget survey. Ideas from this project later became a part of his Theory of the Consumption Function. Friedman began employment with the National Bureau of Economic Research
National Bureau of Economic Research
The National Bureau of Economic Research is an American private nonprofit research organization "committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community." The NBER is well known for providing start and end...

 during autumn 1937 to assist Simon Kuznets
Simon Kuznets
Simon Smith Kuznets was a Russian American economist at the Wharton School of the University of Pennsylvania who won the 1971 Nobel Memorial Prize in Economic Sciences "for his empirically founded interpretation of economic growth which has led to new and deepened insight into the economic and...

 in his work on professional income. This work resulted in their jointly authored publication Incomes from Independent Professional Practice, which introduced the concepts of permanent and transitory income, a major component of the Permanent Income Hypothesis
Permanent income hypothesis
The permanent income hypothesis is a theory of consumption that was developed by the American economist Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term...

 that Friedman worked out in greater detail in the 1950s. The book hypothesizes that professional licensing artificially restricts the supply of services and raises prices.

During 1940, Friedman was appointed an assistant professor teaching Economics at the University of Wisconsin–Madison
University of Wisconsin–Madison
The University of Wisconsin–Madison is a public research university located in Madison, Wisconsin, United States. Founded in 1848, UW–Madison is the flagship campus of the University of Wisconsin System. It became a land-grant institution in 1866...

, but encountered antisemitism in the Economics department and decided to return to government service. Friedman spent 1941–43 working on wartime tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

 policy for the Federal Government, as an advisor to senior officials of the United States Department of the Treasury
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...

. As a Treasury spokesman during 1942 he advocated a Keynesian
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...

 policy of taxation
Taxation in the United States
The United States is a federal republic with autonomous state and local governments. Taxes are imposed in the United States at each of these levels. These include taxes on income, property, sales, imports, payroll, estates and gifts, as well as various fees.Taxes are imposed on net income of...

, and during this time he helped to invent the payroll withholding tax
Withholding tax
Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...

 system. He later said in an interview, "I have no apologies for it, but I really wish we hadn't found it necessary and I wish there were some way of abolishing withholding now." As Friedman grew older he reversed himself; during 2006 he observed, "You know, it's a mystery as to why people think Roosevelt's
Franklin D. Roosevelt
Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...

 policies pulled us out of the Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

. The problem was that you had unemployed machines and unemployed people. How do you get them together by forming industrial cartels and keeping prices and wages up?"

Early years


During 1943, Friedman joined the Division of War Research at Columbia University
Columbia University
Columbia University in the City of New York is a private, Ivy League university in Manhattan, New York City. Columbia is the oldest institution of higher learning in the state of New York, the fifth oldest in the United States, and one of the country's nine Colonial Colleges founded before the...

 (headed by W. Allen Wallis and Harold Hotelling
Harold Hotelling
Harold Hotelling was a mathematical statistician and an influential economic theorist.He was Associate Professor of Mathematics at Stanford University from 1927 until 1931, a member of the faculty of Columbia University from 1931 until 1946, and a Professor of Mathematical Statistics at the...

), where he spent the rest of the war years working as a mathematical statistician, focusing on problems of weapon
Weapon
A weapon, arm, or armament is a tool or instrument used with the aim of causing damage or harm to living beings or artificial structures or systems...

s design, military tactics
Military tactics
Military tactics, the science and art of organizing an army or an air force, are the techniques for using weapons or military units in combination for engaging and defeating an enemy in battle. Changes in philosophy and technology over time have been reflected in changes to military tactics. In...

, and metallurgical experiments. Then during 1945, Friedman submitted Incomes from Independent Professional Practice (co-authored with Kuznets and completed during 1940) to Columbia as his doctoral dissertation. The university awarded him a Ph.D.
Doctor of Philosophy
Doctor of Philosophy, abbreviated as Ph.D., PhD, D.Phil., or DPhil , in English-speaking countries, is a postgraduate academic degree awarded by universities...

 during 1946. Friedman spent the 1945–46 academic year teaching at the University of Minnesota
University of Minnesota
The University of Minnesota, Twin Cities is a public research university located in Minneapolis and St. Paul, Minnesota, United States. It is the oldest and largest part of the University of Minnesota system and has the fourth-largest main campus student body in the United States, with 52,557...

 (where his friend George Stigler was employed). On February 12, 1945, his son, David D. Friedman
David D. Friedman
David Director Friedman is an American economist, author, and Right-libertarian theorist. He is known as a leader in anarcho-capitalist political theory, which is the subject of his most popular book, The Machinery of Freedom...

 was born.

University of Chicago



During 1946, Friedman accepted an offer to teach economic theory at the University of Chicago (a position opened by departure of his former professor Jacob Viner
Jacob Viner
Jacob Viner was a Canadian economist and is considered with Frank Knight and Henry Simons one of the "inspiring" mentors of the early Chicago School of Economics in the 1930s: he was one of the leading figures of the Chicago faculty.- Biography :Viner was born in 1892 in Montreal, Quebec to...

 to Princeton University). Friedman would work for the University of Chicago for the next 30 years. There he helped build an intellectual community that produced a number of Nobel Prize winners, known collectively as the Chicago School of Economics
Chicago school (economics)
The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of The University of Chicago, some of whom have constructed and popularized its principles...

.

At that time, Arthur Burns, who was then the head of the National Bureau of Economic Research
National Bureau of Economic Research
The National Bureau of Economic Research is an American private nonprofit research organization "committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community." The NBER is well known for providing start and end...

, asked Friedman to rejoin the Bureau's staff. He accepted the invitation, and assumed responsibility for the Bureau's inquiry into the role of money in the business cycle
Business cycle
The term business cycle refers to economy-wide fluctuations in production or economic activity over several months or years...

.
As a result, he initiated the "Workshop in Money and Banking" (the "Chicago Workshop"), which promoted a revival of monetary studies. During the latter half of the 1940s, Friedman began a collaboration with Anna Schwartz
Anna Schwartz
Anna Jacobson Schwartz is an economist at the National Bureau of Economic Research in New York City, and according to Paul Krugman "one of the world's greatest monetary scholars"...

, an economic historian
Economic history
Economic history is the study of economies or economic phenomena in the past. Analysis in economic history is undertaken using a combination of historical methods, statistical methods and by applying economic theory to historical situations and institutions...

 at the Bureau, that would ultimately result in the 1963 publication of a book co-authored by Friedman and Schwartz, A Monetary History of the United States, 1867–1960.

Friedman spent the 1954–55 academic year as a Fulbright Visiting Fellow at Gonville and Caius College, Cambridge
Gonville and Caius College, Cambridge
Gonville and Caius College is a constituent college of the University of Cambridge in Cambridge, England. The college is often referred to simply as "Caius" , after its second founder, John Keys, who fashionably latinised the spelling of his name after studying in Italy.- Outline :Gonville and...

. At the time, the Cambridge economics faculty was divided into a Keynesian majority (including Joan Robinson
Joan Robinson
Joan Violet Robinson FBA was a post-Keynesian economist who was well known for her knowledge of monetary economics and wide-ranging contributions to economic theory...

 and Richard Kahn
Richard Kahn, Baron Kahn
Richard Ferdinand Kahn, Baron Kahn, CBE, FBA was a British economist.Kahn was born in Hampstead to Augustus Kahn, a German schoolmaster and an orthodox Jew, and Regina Schoyer. He raised in England and was educated on St Paul's School, London...

) and an anti-Keynesian minority (headed by Dennis Robertson). Friedman speculates that he was invited to the fellowship because his views were unacceptable to both of the Cambridge factions. Later his weekly columns for Newsweek magazine (1966–84) were well read and increasingly influential among political and business people.

Friedman was an economic adviser to Republican presidential candidate Barry Goldwater
Barry Goldwater
Barry Morris Goldwater was a five-term United States Senator from Arizona and the Republican Party's nominee for President in the 1964 election. An articulate and charismatic figure during the first half of the 1960s, he was known as "Mr...

 during 1964.

Nobel memorial prize and retirement


In 1976 Friedman won the Nobel Memorial Prize in Economics "for his achievements in the fields of consumption analysis, monetary
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...

 history and theory and for his demonstration of the complexity of stabilization policy." During the banquet speech he made a reference to “the Prize in Economic Sciences in Memory of Alfred Nobel”. In that he was the first recipient to do so, and it wasn’t until 2006 that a recipient of the prize called it by its proper name.
During 1977, at age 65, Friedman retired from the University of Chicago after teaching there for 30 years. He and his wife moved to San Francisco. From 1977 on, he was affiliated with the Hoover Institution
Hoover Institution
The Hoover Institution on War, Revolution and Peace is a public policy think tank and library founded in 1919 by then future U.S. president, Herbert Hoover, an early alumnus of Stanford....

 at Stanford University
Stanford University
The Leland Stanford Junior University, commonly referred to as Stanford University or Stanford, is a private research university on an campus located near Palo Alto, California. It is situated in the northwestern Santa Clara Valley on the San Francisco Peninsula, approximately northwest of San...

. During the same year, Friedman was approached by the Free To Choose Network and asked to create a television program presenting his economic and social philosophy.
The Friedmans worked on this project for the next three years, and during 1980, the ten-part series, titled Free to Choose
Free to Choose
Free to Choose is a book and a ten-part television series broadcast on public television by economists Milton and Rose D...

, was broadcast by the Public Broadcasting Service
Public Broadcasting Service
The Public Broadcasting Service is an American non-profit public broadcasting television network with 354 member TV stations in the United States which hold collective ownership. Its headquarters is in Arlington, Virginia....

 (PBS). The companion book to the series (co-authored by Milton and his wife, Rose Friedman
Rose Friedman
Rose Director Friedman , also known as Rose D. Friedman and Rose Director was a professor at the University of Chicago Law School. She was the wife of Milton Friedman , the winner of the 1976 Nobel Prize in Economics, and sister of Aaron Director...

), also titled Free To Choose, was the bestselling nonfiction book of 1980 and has since been translated into 14 foreign languages.

Friedman served as an unofficial adviser to Ronald Reagan during his 1980 presidential campaign, and then served on the President's Economic Policy Advisory Board for the rest of the Reagan Administration
Reagan Administration
The United States presidency of Ronald Reagan, also known as the Reagan administration, was a Republican administration headed by Ronald Reagan from January 20, 1981, to January 20, 1989....

. During 1988, he received the National Medal of Science
National Medal of Science
The National Medal of Science is an honor bestowed by the President of the United States to individuals in science and engineering who have made important contributions to the advancement of knowledge in the fields of behavioral and social sciences, biology, chemistry, engineering, mathematics and...

 and Reagan honored him with the Presidential Medal of Freedom
Presidential Medal of Freedom
The Presidential Medal of Freedom is an award bestowed by the President of the United States and is—along with thecomparable Congressional Gold Medal bestowed by an act of U.S. Congress—the highest civilian award in the United States...

.
Milton Friedman is known now as one of the most influential economists of the 20th century. Throughout the 1980s and 1990s, Friedman continued to write editorials
Op-ed
An op-ed, abbreviated from opposite the editorial page , is a newspaper article that expresses the opinions of a named writer who is usually unaffiliated with the newspaper's editorial board...

 and appear on television. He made several visits to Eastern Europe
Eastern Europe
Eastern Europe is the eastern part of Europe. The term has widely disparate geopolitical, geographical, cultural and socioeconomic readings, which makes it highly context-dependent and even volatile, and there are "almost as many definitions of Eastern Europe as there are scholars of the region"...

 and to China, where he also advised governments.

Scholarly contributions



Economics


Friedman was best known for reviving interest in the money supply as a determinant of the nominal value of output, that is, the quantity theory of money
Quantity theory of money
In monetary economics, the quantity theory of money is the theory that money supply has a direct, proportional relationship with the price level....

. Monetarism
Monetarism
Monetarism is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over...

 is the set of views associated with modern quantity theory. Its origins can be traced back to the 16th-century School of Salamanca or even further but Friedman's contribution is largely responsible for its modern popularization. He co-authored, with Anna Schwartz
Anna Schwartz
Anna Jacobson Schwartz is an economist at the National Bureau of Economic Research in New York City, and according to Paul Krugman "one of the world's greatest monetary scholars"...

, A Monetary History of the United States (1963), which was an examination of the role of the money supply and economic activity
Economy of the United States
The economy of the United States is the world's largest national economy. Its nominal GDP was estimated to be nearly $14.5 trillion in 2010, approximately a quarter of nominal global GDP. The European Union has a larger collective economy, but is not a single nation...

 in U.S. history. A striking conclusion of their research was one regarding the role of money supply fluctuations as contributing to economic fluctuations. Several regression studies with David Meiselman during the 1960s suggested the primacy of the money supply over investment and government spending in determining consumption and output. These challenged a prevailing but largely untested view on their relative importance. Friedman's empirical research and some theory supported the conclusion that the short-run effect of a change of the money supply was primarily on output but that the longer-run effect was primarily on the price level.

Friedman was the main proponent of the monetarist
Monetarism
Monetarism is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over...

 school of economics. He maintained that there is a close and stable association between price inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

 and the money supply, mainly that price inflation should be regulated with monetary deflation and price deflation with monetary inflation
Monetary inflation
Monetary inflation is a sustained increase in the money supply of a country. It usually results in price inflation, which is a rise in the general level of prices of goods and services . Originally the term "inflation" was used to refer only to monetary inflation, whereas in present usage it...

. He famously quipped that price deflation can be fought by "dropping money out of a helicopter."

Friedman's arguments were designed to counter popular claims that price inflation at the time was the result of increases in the price of oil, or increases in wages: as he wrote,

Friedman rejected the use of fiscal policy
Fiscal policy
In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....

 as a tool of demand
Demand
- Economics :*Demand , the desire to own something and the ability to pay for it*Demand curve, a graphic representation of a demand schedule*Demand deposit, the money in checking accounts...

 management; and he held that the government's role in the guidance of the economy should be restricted severely. Friedman wrote extensively on the Great Depression, which he termed the Great Contraction
Great Contraction
The Great Contraction is Milton Friedman's term for the recession which led to the Great Depression.The term served as the title for the relevant chapter in Friedman and Schwartz's 1963 work A Monetary History of the United States...

, arguing that it had been caused by an ordinary financial shock
Shock (economics)
In economics a shock is an unexpected or unpredictable event that affects an economy, either positively or negatively. Technically, it refers to an unpredictable change in exogenous factors—that is, factors unexplained by economics—which may have an impact on endogenous economic variables.The...

 whose duration and seriousness were greatly increased by the subsequent contraction of the money supply caused by the misguided policies of the directors of the Federal Reserve.
Friedman also argued for the cessation of government intervention in currency markets
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...

, thereby spawning an enormous literature on the subject, as well as promoting the practice of freely floating exchange rate
Exchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...

s. His close friend George Stigler
George Stigler
George Joseph Stigler was a U.S. economist. He won the Nobel Memorial Prize in Economic Sciences in 1982, and was a key leader of the Chicago School of Economics, along with his close friend Milton Friedman....

 explained, "As is customary in science, he did not win a full victory, in part because research was directed along different lines by the theory of rational expectations
Rational expectations
Rational expectations is a hypothesis in economics which states that agents' predictions of the future value of economically relevant variables are not systematically wrong in that all errors are random. An alternative formulation is that rational expectations are model-consistent expectations, in...

, a newer approach developed by Robert Lucas
Robert Lucas, Jr.
Robert Emerson Lucas, Jr. is an American economist at the University of Chicago. He received the Nobel Prize in Economics in 1995 and is consistently indexed among the top 10 economists in the Research Papers in Economics rankings. He is married to economist Nancy Stokey.He received his B.A. in...

, also at the University of Chicago."

Friedman was also known for his work on the consumption function, the permanent income hypothesis
Permanent income hypothesis
The permanent income hypothesis is a theory of consumption that was developed by the American economist Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term...

 (1957), which Friedman himself referred to as his best scientific work.
This work contended that rational consumers would spend a proportional amount of what they perceived to be their permanent income. Windfall gains would mostly be saved. Tax reductions likewise, as rational consumers would predict that taxes would have to increase later to balance public finances. Other important contributions include his critique of the Phillips curve
Phillips curve
In economics, the Phillips curve is a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. Stated simply, the lower the unemployment in an economy, the higher the rate of inflation...

 and the concept of the natural rate of unemployment
Natural rate of unemployment
The natural rate of unemployment is a concept of economic activity developed in particular by Milton Friedman and Edmund Phelps in the 1960s, both recipients of the Nobel prize in economics...

 (1968). This critique associated his name, together with that of Edmund Phelps
Edmund Phelps
Edmund Strother Phelps, Jr. is an American economist and the winner of the 2006 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel. Early in his career he became renowned for his research at Yale's Cowles Foundation in the first half of the 1960s on the sources of economic growth...

, with the insight that a government that brings about greater inflation cannot permanently reduce unemployment by doing so. Unemployment may be temporarily lower, if the inflation is a surprise, but in the long run unemployment will be determined by the frictions and imperfections of the labor market.

Friedman's essay "The Methodology of Positive Economics" (1953) provided the epistemological pattern for his own subsequent research and to a degree that of the Chicago School of Economics
Chicago school (economics)
The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of The University of Chicago, some of whom have constructed and popularized its principles...

. There he argued that economics as science should be free of value judgments for it to be objective. Moreover, a useful economic theory should be judged not by its descriptive realism but by its simplicity and fruitfulness as an engine of prediction.

Statistics


One of his most famous contributions to statistics
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....

 is sequential sampling. "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
Sequential analysis
In statistics, sequential analysis or sequential hypothesis testing is statistical analysis where the sample size is not fixed in advance. Instead data are evaluated as they are collected, and further sampling is stopped in accordance with a pre-defined stopping rule as soon as significant results...

, which became, in the words of The New Palgrave Dictionary of Economics
The New Palgrave Dictionary of Economics
The New Palgrave Dictionary of Economics , 2nd Edition, is an eight-volume reference work, edited by Steven N. Durlauf and Lawrence E. Blume. It contains 5.8 million words and spans 7,680 pages with 1,872 articles. Included are 1057 new articles and, from earlier, 80 essays that are designated as...

, '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.'"

Other work


Friedman was an important member of the team during World War II that developed a new proximity fuse for anti-aircraft projectiles, which prevented shells from exploding unless they were near the object they are meant to destroy.

Federal reserve


Friedman believed that if the money supply was to be centrally controlled (as by the Federal Reserve) that the preferable way to do it would be with a mechanical system that would keep the quantity of money increasing at a steady rate. However, instead of government involvement at all, he was open to a "real," non-government, gold standard where money is produced by the private market: "A real gold standard is thoroughly consistent with [classical] liberal principles and I, for one, am entirely in favor of measures promoting its development." He did however add this caveat, "Let me emphasize that this note is not a plea for a return to a gold standard.... I regard a return to a gold standard as neither desirable nor feasible—with the one exception that it might become feasible if the doomsday predictions of hyperinflation under our present system should prove correct." He said the reason that it was not feasible was because "there is essentially no government in the world that is willing to surrender control over its domestic monetary policy," however it could be done if "you could re-establish a world in which government's budget accounted for 10 percent of the national income, in which laissez-faire reigned, in which governments did not interfere with economic activities and in which full employment policies had been relegated to the dustbin..."

He was critical of the Federal Reserve's influence on the economics profession. In a 1993 letter to University of Texas
University of Texas at Austin
The University of Texas at Austin is a state research university located in Austin, Texas, USA, and is the flagship institution of the The University of Texas System. Founded in 1883, its campus is located approximately from the Texas State Capitol in Austin...

 economics professor and former House Banking Committee
United States House Committee on Financial Services
The United States House Committee on Financial Services is the committee of the United States House of Representatives that oversees the entire financial services industry, including the securities, insurance, banking, and housing industries...

 investigator Robert Auerbach, Friedman wrote:


I cannot disagree with you that having something like 500 economists is extremely unhealthy. As you say, it is not conducive to independent, objective research. You and I know there has been censorship of the material published. Equally important, the location of the economists in the Federal Reserve has had a significant influence on the kind of research they do, biasing that research toward noncontroversial technical papers on method as opposed to substantive papers on policy and results.

School choice


In his 1955 article "The Role of Government in Education" Friedman proposed supplementing publicly operated schools with privately run but publicly funded schools through a system of school vouchers. Reforms similar to those proposed in the article were implemented in, for example, Chile in 1981 and Sweden in 1992. In 1996 Friedman, together with his wife, founded the The Foundation for Educational Choice
The Foundation for Educational Choice
The Foundation for Educational Choice is an Indianapolis-based non-profit organization dedicated to the issue of school choice and committed to assisting education reform efforts. The Foundation was founded in 1996 by Nobel laureate Milton Friedman and his wife, economist Rose Director Friedman,...

 to advocate school choice
School choice
School choice is a term used to describe a wide array of programs aimed at giving families the opportunity to choose the school their children will attend. As a matter of form, school choice does not give preference to one form of schooling or another, rather manifests itself whenever a student...

 and vouchers.

Conscription


Milton Friedman was a major proponent of a volunteer military
Volunteer military
A volunteer military or all-volunteer military is one which derives its manpower from volunteers rather than conscription or mandatory service. A country may offer attractive pay and benefits through military recruitment to attract volunteers...

, stating that the draft
Conscription
Conscription is the compulsory enlistment of people in some sort of national service, most often military service. Conscription dates back to antiquity and continues in some countries to the present day under various names...

 was "inconsistent with a free society."
In Capitalism and Freedom
Capitalism and Freedom
Capitalism and Freedom is a book by Milton Friedman originally published in 1962 by the University of Chicago Press which discusses the role of economic capitalism in liberal society. It sold over 400,000 copies in the first 18 years and more than half a million since 1962. It has been translated...

, he argued that conscription is inequitable and arbitrary, preventing young men to shape their lives as they see fit. During the Nixon administration he headed the committee to research a conversion to paid/volunteer armed force. He would later state that his role in eliminating the conscription in the United States
Conscription in the United States
Conscription in the United States has been employed several times, usually during war but also during the nominal peace of the Cold War...

 was his proudest accomplishment. Friedman did, however, believe a nation could compel military training as a reserve in case of war time.

Libertarianism and the Republican party


He served as a member of President Reagan's Economic Policy Advisory Board during 1981. During 1988, he received the Presidential Medal of Freedom
Presidential Medal of Freedom
The Presidential Medal of Freedom is an award bestowed by the President of the United States and is—along with thecomparable Congressional Gold Medal bestowed by an act of U.S. Congress—the highest civilian award in the United States...

 and the National Medal of Science
National Medal of Science
The National Medal of Science is an honor bestowed by the President of the United States to individuals in science and engineering who have made important contributions to the advancement of knowledge in the fields of behavioral and social sciences, biology, chemistry, engineering, mathematics and...

. He said that he was a libertarian philosophically, but a member of the U.S. Republican Party
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...

 for the sake of "expediency" ("I am a libertarian with a small 'l' and a Republican with a capital 'R.' And I am a Republican with a capital 'R' on grounds of expediency, not on principle.") But, he said, "I think the term classical liberal
Classical liberalism
Classical liberalism is the philosophy committed to the ideal of limited government, constitutionalism, rule of law, due process, and liberty of individuals including freedom of religion, speech, press, assembly, and free markets....

 is also equally applicable. I don't really care very much what I'm called. I'm much more interested in having people thinking about the ideas, rather than the person."

Public goods and monopoly


Friedman was supportive of the state provision of some public good
Public good
In economics, a public good is a good that is non-rival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good...

s that private businesses are not considered as being able to provide. However, he argued that many of the services performed by government could be performed better by the private sector. Above all, if some public goods are provided by the state, he believed that they should not be a legal monopoly
Legal monopoly
A legal monopoly, statutory monopoly, or de jure monopoly is a monopoly that is protected by law from competition. A statutory monopoly may take the form of a government monopoly where the state owns the particular means of production or government-granted monopoly where a private interest is...

 where private competition is prohibited; for example, he wrote:

Welfare


Friedman made newspaper headlines by proposing a negative income tax
Negative income tax
In economics, a negative income tax is a progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government. Such a system has been discussed by economists but never fully implemented...

 to replace the existing welfare system, and then opposing a bill to implement it because the bill merely proposed to supplement the existing system rather than replace it.

Drugs


Friedman also supported libertarian
Libertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...

 policies such as legalization of drugs and prostitution
Prostitution
Prostitution is the act or practice of providing sexual services to another person in return for payment. The person who receives payment for sexual services is called a prostitute and the person who receives such services is known by a multitude of terms, including a "john". Prostitution is one of...

. During 2005, Friedman and more than 500 other economists advocated discussions regarding the economic benefits of the legalization of marijuana
Legal issues of cannabis
The legality of cannabis has been the subject of debate and controversy for decades. Cannabis is illegal to consume, use, possess, cultivate, transfer or trade in most countries...

.

Economic freedom


Michael Walker
Michael Walker (economist)
Michael Walker, Ph.D is a Canadian economist. He is best known as the founder of The Fraser Institute....

 of the Fraser Institute
Fraser Institute
The Fraser Institute is a Canadian think tank. It has been described as politically conservative and right-wing libertarian and espouses free market principles...

 and Friedman hosted a series of conferences from 1986 to 1994. The goal was to create a clear definition of economic freedom
Economic freedom
Economic freedom is a term used in economic and policy debates. As with freedom generally, there are various definitions, but no universally accepted concept of economic freedom...

 and a method for measuring it. Eventually this resulted in the first report on worldwide economic freedom, Economic Freedom in the World. This annual report has since provided data for numerous peer-reviewed studies and has influenced policy in several nations.

Along with sixteen other distinguished economists he opposed the Copyright Term Extension Act
Copyright Term Extension Act
The Copyright Term Extension Act of 1998 extended copyright terms in the United States by 20 years. Since the Copyright Act of 1976, copyright would last for the life of the author plus 50 years, or 75 years for a work of corporate authorship...

 and filed an amicus brief in Eldred v. Ashcroft
Eldred v. Ashcroft
Eldred v. Ashcroft, was a court case in the United States challenging the constitutionality of the 1998 Sonny Bono Copyright Term Extension Act...

. He supported the inclusion of the word "no-brainer" in the brief.

Friedman argued for stronger basic legal (constitutional) protection of economic rights and freedoms in order to further promote industrial-commercial growth and prosperity and buttress democracy and freedom and the rule of law generally in society.

Honors, recognition, and influence


Friedman allowed the Cato Institute to use his name for its biannual Milton Friedman Prize for Advancing Liberty beginning in 2001. A Friedman Prize was given to the late British economist Peter Bauer during 2002, Peruvian economist Hernando de Soto
Hernando de Soto (economist)
Hernando de Soto is a Peruvian economist known for his work on the informal economy and on the importance of business and property rights. He is the president of the Institute for Liberty and Democracy , located in Lima, Peru.-Childhood and education:Hernando de Soto was born in 1941 in Arequipa,...

 during 2004, Mart Laar
Mart Laar
Mart Laar is an Estonian statesman, historian and a founding member of the Foundation for the Investigation of Communist Crimes. He was the Prime Minister of Estonia from 1992 to 1994 and from 1999 to 2002, and is the leader of the conservative party Union of Pro Patria and Res Publica...

, former Estonian Prime Minister during 2006 and a young Venezuelan student Yon Goicoechea
Yon Goicoechea
Yon Goicoechea is a Venezuelan lawyer, graduated from the Universidad Católica Andrés Bello and active in the opposition to the government of Venezuelan president Hugo Chávez...

 during 2008. His wife Rose, sister of Aaron Director
Aaron Director
Aaron Director , a celebrated professor at the University of Chicago Law School, played a central role in the development of the Chicago school of economics...

, with whom he initiated the Friedman Foundation for Educational Choice, served on the international selection committee. Friedman was also a recipient of the Nobel Prize in Economics
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel , is an award for outstanding contributions to the field of economics, generally regarded as one of the...

.

Hong Kong


Friedman once said, "If you want to see capitalism in action, go to Hong Kong." He wrote in 1990 that the Hong Kong economy
Economy of Hong Kong
As one of the world's leading international financial centres, Hong Kong has a major capitalist service economy characterised by low taxation and free trade, and the currency, Hong Kong dollar, is the ninth most traded currency in the world. Hong Kong has remained as the world's freest economy,...

 was perhaps the best example of a free market economy.

One month before his death, he wrote the article "Hong Kong Wrong – What would Cowperthwaite
John James Cowperthwaite
Sir John James Cowperthwaite KBE CMG , was a British civil servant and the Financial Secretary of Hong Kong from 1961 to 1971...

 say?" in the Wall Street Journal, criticizing Donald Tsang
Donald Tsang
Sir Donald Tsang Yam-kuen, GBM, KBE is the current Chief Executive and President of the Executive Council of the Government of Hong Kong....

, Chief Executive of Hong Kong, for abandoning "positive noninterventionism."
Tsang later said he was merely changing the slogan to "big market, small government," where small government is defined as less than 20% of GDP. In a debate between Tsang and Alan Leong
Alan Leong
Kah Kit Alan Leong , SC is a member of the Hong Kong Legislative Council, representing the Kowloon East geographical constituency and leader of the Civic Party. He is also vice-chairperson of the Independent Police Complaints Council.-Early career:...

, rivals for the job of Chief Executive, Leong introduced the topic and jokingly accused Tsang of angering Friedman to death.

Chile



During 1975, two years after the military coup that ended the government of Salvador Allende
Salvador Allende
Salvador Allende Gossens was a Chilean physician and politician who is generally considered the first democratically elected Marxist to become president of a country in Latin America....

, the economy of Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...

 experienced a crisis. Friedman accepted the invitation of a private foundation to visit Chile and speak on principles of economic freedom
Economic freedom
Economic freedom is a term used in economic and policy debates. As with freedom generally, there are various definitions, but no universally accepted concept of economic freedom...

. He spent seven days in Chile giving a series of lectures. One of the lectures was entitled "The Fragility of Freedom," and according to Friedman, "dealt with precisely the threat to freedom from a centralized military government." Friedman encapsulated his philosophy in a lecture at Universidad Católica de Chile, saying: "free markets would undermine political centralization and political control."

Friedman also met with military dictator President Augusto Pinochet
Augusto Pinochet
Augusto José Ramón Pinochet Ugarte, more commonly known as Augusto Pinochet , was a Chilean army general and dictator who assumed power in a coup d'état on 11 September 1973...

 during his visit. He never served as an adviser to the Chilean government, but did write a letter to Pinochet outlining what Friedman considered the two key economic problems of Chile. The letter listed a series of monetary
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

 and fiscal
Fiscal policy
In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....

 measures deemed a "shock program" to end hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...

 and promote a market economy
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...

. His letter suggested (among other, more specific prescriptions) that a brief period of cutting government spending would reduce its fiscal deficit and thus reduce the rate of increase of the quantity of money in the country that was driving inflation. The economist did however admit his knowledge of Chile was "too limited to enable [him] to be precise or comprehensive" and that the measures he outlined were "to be taken as illustrative." Friedman felt that there might be a brief period ("measured in months") of higher unemployment, followed by recovery once inflation was tamed. His letter also suggested that cutting spending to reduce the fiscal deficit would result in less transitional unemployment than raising taxes to do so. Later, Friedman said he believed that market reforms would undermine Pinochet.
Chilean graduates of the Chicago School of Economics and its new local chapters had been appointed to important positions in the new government soon after the coup, which allowed them to advise Pinochet on economic policies in accord with the School's economic doctrine.

According to his critics, Friedman did not criticize Pinochet's dictatorship at the time, nor the assassinations, illegal imprisonments, torture, or other atrocities that were well known by then. In his 1980 documentary Free to Choose
Free to Choose
Free to Choose is a book and a ten-part television series broadcast on public television by economists Milton and Rose D...

, he said the following: "Chile is not a politically free system, and I do not condone the system. But the people there are freer than the people in Communist societies because government plays a smaller role. ... The conditions of the people in the past few years has been getting better and not worse. They would be still better to get rid of the junta and to be able to have a free democratic system." In 1984 Friedman proclaimed he has "never refrained from criticizing the political system in Chile."

Friedman defended his activity in Chile on the grounds that, in his opinion, the adoption of free market policies not only improved the economic situation of Chile but also contributed to the amelioration of Pinochet's rule
Chile under Pinochet
Chile was ruled by a military dictatorship headed by Augusto Pinochet from 1973 when Salvador Allende was overthrown in a coup d'etat until 1990 when the Chilean transition to democracy began. The authoritarian military government was characterized by systematic suppression of political parties and...

 and to the eventual transition to a democratic government
Chilean transition to democracy
The Chilean transition to democracy began when a Constitution establishing a transition itinerary was approved in a plebiscite. From March 11, 1981 to March 11, 1990, several organic constitutional laws were approved leading to the final restoration of democracy...

 during 1990. That idea is included in Capitalism and Freedom
Capitalism and Freedom
Capitalism and Freedom is a book by Milton Friedman originally published in 1962 by the University of Chicago Press which discusses the role of economic capitalism in liberal society. It sold over 400,000 copies in the first 18 years and more than half a million since 1962. It has been translated...

, in which he declared that economic freedom is not only desirable in itself but is also a necessary condition for political freedom. He stressed that the lectures he gave in Chile were the same lectures he later gave in China and other socialist
Socialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...

 states. During the 2000 PBS documentary The Commanding Heights (based on the book), Friedman continued to argue that criticism over his role in Chile missed his main contention that freer markets resulted in freer people, and that Chile's unfree economy had caused the military government. Friedman suggested that the economic liberalization he advocated caused the end of military rule and a free Chile.

Iceland


Friedman visited Iceland
Iceland
Iceland , described as the Republic of Iceland, is a Nordic and European island country in the North Atlantic Ocean, on the Mid-Atlantic Ridge. Iceland also refers to the main island of the country, which contains almost all the population and almost all the land area. The country has a population...

 during the autumn
Autumn
Autumn is one of the four temperate seasons. Autumn marks the transition from summer into winter usually in September or March when the arrival of night becomes noticeably earlier....

 of 1984, met with important Icelanders and gave a lecture at the University of Iceland on the "tyranny of the status quo
Status quo
Statu quo, a commonly used form of the original Latin "statu quo" – literally "the state in which" – is a Latin term meaning the current or existing state of affairs. To maintain the status quo is to keep the things the way they presently are...

." He participated in a lively television debate on August 31, 1984 with socialist intellectuals, including Ólafur Ragnar Grímsson
Ólafur Ragnar Grímsson
Ólafur Ragnar Grímsson is the fifth and current President of Iceland. He has served as President since 1996; he was unopposed in 2000, re-elected for a third term in 2004, and re-elected unopposed for a fourth term in 2008. He is the longest-serving left-wing president in the history of...

, who later became the president of Iceland. When they complained that a fee was charged for attending his lecture at the University and that hitherto, lectures by visiting scholars had been free-of-charge, Friedman replied that previous lectures had not been free-of-charge in a meaningful sense: Lectures always have related costs. What mattered was whether attendees or non-attendees covered those costs. Friedman thought that it was fairer that only those who attended paid. In this discussion Friedman also stated that he did not receive any money for delivering that lecture.

Estonia


Although Friedman never visited Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...

, his book Free to Choose
Free to Choose
Free to Choose is a book and a ten-part television series broadcast on public television by economists Milton and Rose D...

exercised a great influence on that nation's then 32-year-old prime minister, Mart Laar
Mart Laar
Mart Laar is an Estonian statesman, historian and a founding member of the Foundation for the Investigation of Communist Crimes. He was the Prime Minister of Estonia from 1992 to 1994 and from 1999 to 2002, and is the leader of the conservative party Union of Pro Patria and Res Publica...

, who has claimed that it was the only book on economics he had read before taking office. Laar's reforms are often credited with responsibility for transforming Estonia from an impoverished Soviet Republic to the "Baltic Tiger
Baltic Tiger
Baltic Tiger is a term used to refer to any of the three Baltic states of Estonia, Latvia, and Lithuania during their periods of economic boom, which started after the year 2000 and continued until 2006–2007...

." A prime element of Laar's program was introduction of the flat tax
Flat tax
A flat tax is a tax system with a constant marginal tax rate. Typically the term flat tax is applied in the context of an individual or corporate income that will be taxed at one marginal rate...

. Laar won the 2006 Milton Friedman Prize for Advancing Liberty, awarded by the Cato Institute
Cato Institute
The Cato Institute is a libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Edward H. Crane, who remains president and CEO, and Charles Koch, chairman of the board and chief executive officer of the conglomerate Koch Industries, Inc., the largest privately held...

.

United Kingdom


Milton Friedman influenced the thinking of Alan Walters and Patrick Minford, two of Margaret Thatcher's main macroeconomic advisers. See the book Margaret Thatcher's Revolution: How it Happened and What it Meant, edited by Subroto Roy & John Clarke, Continuum 2005

Keynesian criticism


During the financial crisis of 2007–2010, several Keynesian economists such as James Galbraith
James K. Galbraith
James Kenneth Galbraith is an American economist who writes frequently for mainstream and liberal publications on economic topics. He is currently a professor at the Lyndon B. Johnson School of Public Affairs and at the Department of Government, University of Texas at Austin. He is also a Senior...

 and Joseph Stiglitz blamed the free market philosophy of Friedman and the Chicago school
Chicago school (economics)
The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of The University of Chicago, some of whom have constructed and popularized its principles...

 for the economic turmoil.

After Friedman's death in 2007, Keynesian
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...

 Nobel laureate
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel , is an award for outstanding contributions to the field of economics, generally regarded as one of the...

 Paul Krugman
Paul Krugman
Paul Robin Krugman is an American economist, professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times...

, praised Friedman as a "great economist and a great man," but criticized him by writing that "he slipped all too easily into claiming both that markets always work and that only markets work. It's extremely hard to find cases in which Friedman acknowledged the possibility that markets could go wrong, or that government intervention could serve a useful purpose."

Austrian school criticism


During 1971, libertarian economist Murray Rothbard
Murray Rothbard
Murray Newton Rothbard was an American author and economist of the Austrian School who helped define capitalist libertarianism and popularized a form of free-market anarchism he termed "anarcho-capitalism." Rothbard wrote over twenty books and is considered a centrally important figure in the...

 criticized Friedman's efforts to make the government more efficient as detrimental to individual liberty. He concluded that "And so, as we examine Milton Friedman’s credentials to be the leader of free-market economics, we arrive at the chilling conclusion that it is difficult to consider him a free-market economist at all." Friedman's position on governmental control of money changed since 1971 when this criticism was made. In a 1995 interview in Reason
Reason (magazine)
Reason is a libertarian monthly magazine published by the Reason Foundation. The magazine has a circulation of around 60,000 and was named one of the 50 best magazines in 2003 and 2004 by the Chicago Tribune.- History :...

magazine he said the "difference between me and people like Murray Rothbard is that, though I want to know what my ideal is, I think I also have to be willing to discuss changes that are less than ideal so long as they point me in that direction." He said he actually would "like to abolish the Fed," and points out that when he has written about the Fed it is simply his recommendations of how it should be run given that it exists.

Other criticism


In her book The Shock Doctrine: The Rise of Disaster Capitalism, journalist and author Naomi Klein
Naomi Klein
Naomi Klein is a Canadian author and social activist known for her political analyses and criticism of corporate globalization.-Family:...

 criticized Friedman's ideology and the principles that guided the economic restructuring that followed the military coups in countries such as Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...

 and Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...

, drawing analogies between the way that Friedman proposed using the social "shock" of the coups to create an economic "blank slate" with Ewen Cameron
Donald Ewen Cameron
Donald Ewen Cameron , commonly referred to as "D. Ewen Cameron" or "Ewen Cameron," was a twentieth-century Scottish-born psychiatrist who was involved in the United States Central Intelligence Agency's research on mind control and served as President of the Canadian, American and World Psychiatric...

's controversial medical experiments that used electroshock therapy to create a mental "blank slate" in patients with mental disorders. Based on the extent to which the application of neoliberal
Neoliberalism
Neoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...

 policies has contributed to income disparities and inequality, both Klein and Noam Chomsky
Noam Chomsky
Avram Noam Chomsky is an American linguist, philosopher, cognitive scientist, and activist. He is an Institute Professor and Professor in the Department of Linguistics & Philosophy at MIT, where he has worked for over 50 years. Chomsky has been described as the "father of modern linguistics" and...

 have suggested that the primary role of neoliberalism was as an ideological cover for capital accumulation by multinational corporation
Multinational corporation
A multi national corporation or enterprise , is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation...

s. Chilean economist Orlando Letelier
Orlando Letelier
Marcos Orlando Letelier del Solar was a Chilean economist, Socialist politician and diplomat during the presidency of Socialist President Salvador Allende...

 asserted that Pinochet's dictatorship resorted to repression because of popular opposition to Chicago School policies in Chile.

Personal life


According to a 2007 article in Commentary
Commentary (magazine)
Commentary is a monthly American magazine on politics, Judaism, social and cultural issues. It was founded by the American Jewish Committee in 1945. By 1960 its editor was Norman Podhoretz, a liberal at the time who moved sharply to the right in the 1970s and 1980s becoming a strong voice for the...

magazine, his "parents were moderately observant [Jews], but Friedman, after an intense burst of childhood piety, rejected religion altogether." He described himself as an agnostic.

Friedman wrote extensively of his life and experiences, especially in 1998 in his memoirs with his wife Rose
Rose Friedman
Rose Director Friedman , also known as Rose D. Friedman and Rose Director was a professor at the University of Chicago Law School. She was the wife of Milton Friedman , the winner of the 1976 Nobel Prize in Economics, and sister of Aaron Director...

, titled Two Lucky People. He died of heart failure at the age of 94 years in San Francisco on November 16, 2006.
He was survived by his wife (who died on August 18, 2009) and their two children, David
David D. Friedman
David Director Friedman is an American economist, author, and Right-libertarian theorist. He is known as a leader in anarcho-capitalist political theory, which is the subject of his most popular book, The Machinery of Freedom...

, who is a philosopher and anarcho-capitalist economist, and Janet. David's son, Patri Friedman
Patri Friedman
Patri Friedman is an American activist and theorist of political economy.- Background :Friedman grew up in King of Prussia, Pennsylvania, and is a graduate of Upper Merion Area High School, class of 1994, where he went by the name Patri Forwalter-Friedman. He graduated from Harvey Mudd College in...

, is the executive director of the Seasteading Institute.

See also

  • Works of Milton Friedman
    Works of Milton Friedman
    A list of works by the prominent American economist Milton Friedman follows:-Books and articles for general audiences:* Wall Street Journal, Nov. 17, 2006, p. A20...

  • Friedman–Savage utility function
  • Friedman rule
    Friedman rule
    The Friedman rule is a monetary policy rule proposed by Milton Friedman. Essentially, Friedman advocated setting the nominal interest rate at zero. According to the logic of the Friedman rule, the opportunity cost of holding money faced by private agents should equal the social cost of creating...

  • Friedman's k-percent rule
    Friedman's k-percent rule
    Friedman's k-percent rule is the monetarist proposal that the money supply should be increased by the central bank by a constant percentage rate every year, irrespective of business cycles....

  • Friedman test
    Friedman test
    The Friedman test is a non-parametric statistical test developed by the U.S. economist Milton Friedman. Similar to the parametric repeated measures ANOVA, it is used to detect differences in treatments across multiple test attempts. The procedure involves ranking each row together, then...

  • List of economists
  • List of Jewish Nobel laureates
  • List of notable Presidential Medal of Freedom recipients
  • History of economic thought
    History of economic thought
    The history of economic thought deals with different thinkers and theories in the subject that became political economy and economics from the ancient world to the present day...


Further reading

  • Friedman, Milton (1948). "A Monetary and Fiscal Framework for Economic Stability," American Economic Review, 38(3), pp. 245-264. Also in Friedman (1953), pp. 133–56.
  • Friedman, Milton (1953). Essays in Positive Economics
    Essays in Positive Economics
    Milton Friedman's book Essays in Positive Economics is a collection of earlier articles by the author with as its lead an original essay "The Methodology of Positive Economics," on which this article focuses.-The Methodology of Positive Economics:...

    , University of Chicago Press. Chapter- preview links.
  • Friedman, Milton (1959). A Program for Monetary Stability. Fordham University Press. New York. TOC chapter-preview links.
  • "The Role of Monetary Policy." American Economic Review, Vol. 58, No. 1 (Mar., 1968), pp. 1–17 JSTOR presidential address to American Economics Association

External links