Milton Friedman, 1912 – 2006

1. There’s no such thing as a free lunch. Born in Brooklyn, 1912 Immigrant parents BA, Rutgers, 1932 Arthur Burns, Homer Jones MA, Chicago, 1933 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, 1977-2006 Milton Friedman, 1912 – 2006

2. 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 : • "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 TheoryISBN 0-202-06074-8 (1962), • A Monetary History of the United States, 1867-1960, with Anna J. Schwartz, 1963; part 3 reprinted as The Great Contraction • “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

3. 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.

4. 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

5. 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) • 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)