Sucheta Dalal :Milton Friedman: Free Market Thinker
Sucheta Dalal

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Milton Friedman: Free Market Thinker  

November 17, 2006

The American economist, Professor Milton Friedman, who was awarded the Nobel Prize for Economics in 1976, has been called the high priest of monetarism.

His death marks the passing of a giant in the world of economics whose approach to deregulation and free markets have become the centrepiece of economic policy across the world.

He was a major influence on the economic thinking of the governments of both Mrs Thatcher and President Reagan, and has influenced the thinking of most central banks today.

His economic theories are still the subject of fierce debate, but he has been enormously influential in the economics profession as well.

Mr Friedman's central message was that markets work, but that governments could undermine markets by excessive spending and fuelling inflation.

His theory - that an increase in the money supply was the cause of inflation - was controversial, and most banks today target the rate of inflation instead.

The Chicago School

But his belief in markets, and his critique of the attempts by governments to control unemployment by spending more money, have endured.

He was a leading exponent of the Chicago school which held that the supply of money was the key factor in determining economic growth and the rate of inflation.

He argued that the money supply should be kept strictly under control, as should government spending.

Professor Friedman became widely known as a broadcaster and as a kind of instant oracle on the economic ills of many countries.

He presented a BBC television series in 1980, and wrote several popular books on economics, as well as a column in Newsweek magazine.


Living the American dream

Milton Friedman was born in Brooklyn in New York, the son of Jewish immigrants from a region in Carpathia, now part of the Ukraine.

He was 15 when his father died, and worked his way through university by earning his keep as a waiter and shop assistant.

He took an economics degree in 1932, and spent three years on a graduate scholarship at the University of Chicago.

He was already attracting attention with his contributions to economic journals.

Just after World War II, he joined the Faculty of the University of Chicago, and spent more than 30 years there as Professor of Economics.

After his retirement, he became senior research fellow in the Hoover Institution at Stanford University in California.

From 1948 until 1981 Professor Friedman was also a member of the staff of the National Bureau of Economic Research, and in the late 1960s he became one of President Nixon's economic advisers.

His popular reputation as an economic wizard at that time rested largely on his predictions about the rate of economic growth and activity in the United States, where he attacked Keynesian economic policies.

His approach was adopted by Ronald Reagan in the 1980s, who also believed in reducing the role of government - and in cutting taxes.



In Britain, he attracted a following by attacking the 1960s Labour government's failed attempt to preserve the value of the pound.

Inflation, he insisted, came from one place only - the government.

He called for an end to nationalisation, to government intervention in things such as tariffs and import quotas, and to frequent tampering with the course of economic policy.

Instead he wanted a regular growth of 4% to 5% a year in the money supply.

When she came to power in 1979, Mrs Thatcher adopted many of his approaches.

But the government found it harder to control the money supply that it had thought it would be.


Free market radical

Milton Friedman described himself as a free-enterprise radical, and was an unswerving champion of competitive markets.

Professor Friedman held that there was a natural rate of unemployment and that attempts to bring it below that level by stimulating demand caused only an ephemeral reduction and added permanently to prices.

The International Monetary Fund came to accept his insistence on the importance of steadiness in monetary growth, and by the 1980s his approach had become popular in many developing countries, especially in Latin America.

However, a series of economic crises in the region in the 1990s led to an attack on the approach of the "Chicago School", especially towards privatisation.


Polished performer

Professor Friedman was an impressive television performer.

He could speak off the cuff for an hour at a stretch with devastating fluency.

It was said that he never lost an argument.

His great talent was in seeming to make a complicated theory simple, and the conviction he showed could be very persuasive.

At the same time, his theories seemed too simplistic to many, and often aroused controversy.

He produced about 20 books, many of them with collaborators, and a seemingly endless flow of scholarly papers and articles.

His most influential book (written with a co-author, Anna Schwartz, and first published in 1963) is the massive Monetary History of the United States 1867-1960.

In 1979, he published Free to Choose, co-authored with his wife, Rose, who was also an economist.

The two were married in 1938, and lived for many years in Chicago. They also had a summer house in Vermont overlooking the valley of the Connecticut River and later lived in Northern California.

Their son is an economist, their daughter a lawyer.


-- Sucheta Dalal