Transcript Milton Friedman: Major Scientific Books and Articles "Professor

Milton Friedman, 1912 – 2006
• Born in Brooklyn, 1912
– Immigrant parents
• BA, Rutgers, 1932
– Arthur Burns, Homer Jones
• MA, Chicago, 1933
• There’s no such
thing as a free
lunch.
– Viner, Knight, Simons
• Columbia: Statistics
• Washington, NBER
– Consumer Budgets
– Professional Income
• War Research
– Sequential Sampling
• PhD, Columbia, 1946
• U. of Chicago, 1946–1977
– Clark Medal, 1951
– Nobel Memorial Prize, 1976
• Hoover Institution, 19772006
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Milton Friedman (1912 - 2006): Major Works
"Professor Pigou's Method for Measuring Elasticities of Demand From
Budgetary Data" Quarterly Journal of Economics Vol. 50, No. 1 (Nov.,
1935), pp. 151-163
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"Utility Analysis of Choices Involving Risk" with Leonard Savage,
1948, Journal of Political Economy Vol. 56, No. 4 (Aug., 1948), pp.
279-304
"The Expected-Utility Hypothesis and the Measurability of Utility", with
Leonard Savage, 1952, Journal of Political Economy Vol. 60, No. 6
(Dec., 1952), pp. 463-474 JSTOR
The Methodology of Positive Economics (1953)
Essays in Positive Economics (1953)
"The Quantity Theory of Money: A restatement", 1956, in
Friedman, editor, Studies in the Quantity Theory of Money.
A Theory of the Consumption Function (1957)
A Program for Monetary Stability (Fordham University Press, 1960)
110 pp online version
Price Theory ISBN 0-202-06074-8 (1962),
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A Monetary History of the United States, 1867-1960, with
Anna J. Schwartz, 1963; part 3 reprinted as The Great
Contraction
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“The Relative Stability of Monetary Velocity and the Investment
Multiplier in the United States, 1897-1958” with David Meiselman
"The Role of Monetary Policy." American Economic Review, Vol.
58, No. 1 (Mar., 1968), pp. 1-17
The Optimum Quantity of Money: And Other Essays (1976)
Milton Friedman's Monetary Framework: A Debate with His
Critics (1975)
"Inflation and Unemployment: Nobel lecture", 1977, Journal of
Political Economy. Vol. 85, pp. 451-72.
Monetary Trends in the United States and the United Kingdom: Their
relations to income, prices and interest rates, 1876-1975. with Anna J.
Schwartz, 1982
"Quantity Theory of Money", in J. Eatwell, M. Milgate, P. Newman,
eds., The New Palgrave (1998)
"Franklin D. Roosevelt, Silver, and China," Journal of Political
Economy Vol. 100, No. 1 (Feb., 1992), pp. 62-83
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Ideas of Milton Friedman
• Positive economics is in principle independent
of any particular ethical position or normative
judgments … it deals with “what is,” not with “what
ought to be.”
• The ultimate goal of a positive science is … a theory
or hypothesis that yields valid and meaningful
predictions about phenomena not yet observed …
[T]heory is to be judged for its predictive power ...
The choice among alternative hypotheses equally
consistent with the available evidence … [is]
suggested by the criteria of “simplicity” and
“fruitfulness” … within a given field of phenomena.
• Truly important and significant hypotheses will have
“assumptions” that are wildly inaccurate descriptive
representations of reality … A hypothesis is
important if it “explains” much by little …
[T]he relevant question is not whether
[“assumptions”] are descriptively realistic … but
whether they are sufficiently good approximations
for the purpose in hand.
• Economics is a “dismal” science because it
assumes man to be selfish and money-grubbing …
it assumes markets to be perfect, competition to be
pure, and commodities, labor, and capital to be
homogeneous … [C]riticism of this type is largely
beside the point unless supplemented by evidence
that a [different] hypothesis yields better
predictions.
More Ideas of Milton Friedman
• A Monetary and Fiscal Framework for Economic
Stability, AER 1948
– Eliminate private creation of money and discretionary
control of Ms by central bank 100% reserve banking
– Base G on community’s desire, need, and willingness
to pay for public services
– A predetermined program of transfer payments
– A progressive personal income tax system
 Rely on automatic stabilizers
… countercyclical action … [can] do too much as well as
too little. (1951)
• The Case for Flexible Exchange Rates (1950)
• Instability of exchange rates is a symptom of instability
in the underlying economic structure. Elimination of this
symptom by administrative freezing cures none of the
underlying difficulties and only makes adjustment to
them more painful.
• Studies in the Quantity Theory of Money (1956)
– The Quantity Theory of Money: A Restatement
• There is perhaps no other empirical relation in
economics that has been observed to recur so uniformly
under so wide a variety of circumstances as the relation
between substantial changes over short periods in the
stock of money and in prices …
– Phillip Cagan, Monetary Dynamics of Hyperinflation
• Adaptive expectations and stable money demand
– John Klein, German Money and Prices, l932-44
– Eugene Lerner, Inflation in the Confederacy, 1861-65
– Richard Seldon, Velocity in the United States
Yet More Ideas of Milton Friedman
• A Theory of the Consumption Function (1957)
– “Errors” are in income, not in consumption
Permanent income hypothesis
• A Monetary History of the United States (1963)
• … inflation is always and everywhere a monetary
phenomenon.
• …small events at times have large consequences. A
liquidity crisis in a fractional reserve banking system is
precisely the kind of event that can trigger – and often
has triggered – a chain reaction. And economic collapse
often has the character of a cumulative process. Let it
go beyond a certain point, and it will tend for a time to
gain strength from its own development as its effects
spread and return to intensify the process of collapse.
Because no great strength would be required to hold
back the rock that starts a landslide, it does not follow
that the landslide will not be of major proportions.
• The Role of Monetary Policy (1968)
– Adaptive Expectations
Vertical Long-run Phillips Curve
 Accelerationist Hypothesis
• Capitalism and Freedom (1962)
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Money growth rule (3 – 5% per year)
Floating exchange rates
Negative income tax
School vouchers
End occupational licensure
“Why Not a Volunteer Army?” (1967) / Gates Commission
(1968)