Economics
Milton Friedman
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Milton Friedman
Milton Friedman was the most renowned proponent of free markets in the 20th century. Born in New York City in 1912, he studied at Rutgers University and graduated with a B.A. at the age of 20. In 1976, he received the economics Nobel Prize for “his contributions to consumption analysis, monetary policy and theories, and for his illustration of the intricacy of stabilization policy.”
In his seminal 1957 article, A Theory of the Consumption Function, he argued against Maynard Keynes? concept that consumers and households change their consumer spending in proportion to their current income (Friedman, 1957). Milton established that yearly consumption is, in fact, a function of individuals’ “permanent income,” a word he devised to refer to the average income they anticipate to earn over a few years.
Friedman authored the most influential economics text of the 1960s in Capitalism and Freedom, arguing for relatively open markets to the broad public. He called for a volunteer military, free-floating currency rates, the termination of medical licensure, and education vouchers, among other things. Most young individuals who read it were motivated to pursue careers in economics.
Although most of Friedman’s seminal work focused on price theory, study of how prices are decided in particular markets, he is best known for his theory of monetarism (Hetzel, 2007). Friedman provided arguments that resuscitated the quantity theory of money?the assertion that prices of goods and services are determined by money supply?contrary to Keynes and the majority of the scholarly community at the time. In 1956’s Studies in the Quantity Theory of Money, Friedman said that higher monetary growth raises the price of goods but barely has any influence on output in the long run. However, in the short run, he said, a rise in money supply growth leads to an increase in employment and output, whereas a drop in money supply growth results in the inverse result.
Friedman proposed the money-supply rule as a remedy to the issues of inflation and short-run fluctuations in employment levels and real GDP. He said that if the Federal Reserve Board were obliged to expand the money supply at a similar rate to the increase in real GDP, there would be no inflation.
Friedman’s work had a considerable impact on the field of economics. In the 1970s, Keynesians?and more broadly, leading economists?argued that the government faced a steady long-run inverse relationship between unemployment and inflation?the Phillips curve. According to their theory, the government could effectively decrease unemployment rates by raising the demand for goods and services and embracing a higher inflation rate. However, in the late 1970s, Friedman questioned this notion. After consumers adjusted to the greater inflation rates, Friedman believed that unemployment would return to previous levels (Hetzel, 2017). To maintain continuously low unemployment, he argued, would need a higher and ever-accelerating inflation rate.
Milton Friedman would view Bitcoin as more of a store of value and less of a currency. Milton would hail Cryptocurrency as a bold free-market experiment but would never argue for it becoming a major form of currency. Since many people will prefer to hold on to U.S. dollars, Milton would probably believe that Cryptocurrency would fail due to the cost of converting this currency to U.S. dollars in order to transact with others. Despite the current currency being unstable, Milton would argue that consumers would choose it over Cryptocurrency due to its high transaction and exchange cost.
References
Friedman, M. (1957). The permanent income hypothesis. In A theory of the consumption function (pp. 20-37). Princeton University Press.
Hetzel, R. L. (2007). The contributions of Milton Friedman to economics. FRB Richmond Economic Quarterly, 93(1), 1-30.
Hetzel, R. (2017). What remains of Milton Friedman’s monetarism? Federal Reserve Bank of Richmond Working Papers, 17(09), 1-30. https://doi.org/10.21144/wp17-09
