Milton Friedman, hugely influential economist and one of my personal heroes, passed away today at the age of 94.
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Cato Institute:
"Prominent free-market economist Milton Friedman, recipient of the 1976 Nobel Prize for Economic Science, passed away today at the age of 94. Friedman was widely regarded as the leader of the Chicago School of monetary economics, which stresses the importance of the quantity of money as an instrument of government policy and as a determinant of business cycles and inflation. In addition to his scientific work, Friedman also wrote extensively on public policy, always with primary emphasis on the preservation and extension of individual freedom. Friedman's ideas hugely influenced both the Reagan administration and the Thatcher government in the early 1980s, revolutionized establishment economic thinking across the globe, and have been employed extensively by emerging economies for decades."
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Milton Friedman quotations:
"Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government."
"Nobody spends somebody else's money as carefully as he spends his own. Nobody uses somebody else's resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property."
"I'm in favor of legalizing drugs. According to my values system, if people want to kill themselves, they have every right to do so. Most of the harm that comes from drugs is because they are illegal."
"The most important single central fact about a free market is that no exchange takes place unless both parties benefit."
"Concentrated power is not rendered harmless by the good intentions of those who create it."
5 comments:
Nice Post on Friedman by my current favourite blogger, Chris Dillow:
Milton Friedman: A question
He claimed that his most important accomplishment was ending the draft in the Vietnam war, thus saving the lives of many poor black Americans.
He promoted the idea of a negative income tax which - in the form of the EITC - helped lift millions out of poverty.
He developed the permanent income hypothesis, which argued that ordinary people were at least as rational and forward-looking as experts and rulers.
He was a lifelong advocate of school choice, so that the poor would not be trapped in bad schools.
So, what does it say about our politics that he is regarded as a right-winger?
Also worth reading is this piece on why protectionism is popular despite economists agreeing it is a bad idea.
I'll start with a confession, that I haven't read any Freidman, so my experience is all secondhand, via critiques and proponents,
Well you really should read Friedman himself rather than the critiques that tend to badly misrepresent his position. 'Freedom to Choose' is a good place to start.
There are a couple of things I want to come back to on Wembley's comments when I get a moment (pesky work). One very quick point though, he says that 'State Monopolies' have been largely replaced with 'monopoly capitalism'. Not sure about that. Let's take BT and British Airways, two of the industries that were privatised under Thatcher, there is no question that after privatisation we have a far more diversified and competitive market place in airtravel and telecommunications than before. The same is true of gas and electricity. In fact, the only industries that, arguably, have remained monopolistic are Rail and Water where the system of delivery restricts a competive market.
it was the monetarist enphasis on restricing money supply, using mass unemployment as a systematic tool for lowering wages and wage inflation, regardless of the social consequense
Really, I can't let you get away with that wembley. It's a very low trick to subtly attribute to Friedman an underlying sinister intention (e.g using mass unemployment as a systematic tool for lowering wages and wage inflation).
It might surprise you but Milton Friedman never advocated using 'mass unemployment as a systematic tool' Friedman's theory of Monetarism was based on the principle that "Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output." e.g if the Government increase the money supply so that they can spend their way to full employment eventually prices will rise and the money will lose it's value.
Friedman's policy advocated targeting the supply of money and keeping it at an equilibrium. Now, it's true that it is a highly contested policy and not really followed by central bankers and politicians any more. Anti-monetarists argue that the relationship between monetary growth and inflation has broken down. Inflation is low almost everywhere.
Yet consumer inflation might be a misleading indicator precisely because of what it doesn't include - e.g property prices.
As Naill Ferguson argues in the Telegraph:
"In our time, unlike in the 1970s, oil price pressures have been countered by the entry of low-cost Asian labour into the global workforce. Not only are the things Asians make cheap and getting cheaper, competition from Asia also means that Western labour has lost the bargaining power it had 30 years ago. Stuff is cheap. Wages are pretty flat.
As a result, monetary expansion in our time does not translate into significantly higher prices in shopping malls. We don't expect it to. Rather, it translates into significantly higher prices for capital assets, particularly real estate and equities. The people who find it easiest to borrow money these days are hedge funds and private equity firms. Through leveraged buy outs, the latter can easily acquire companies and, by improving their cashflow, boost their valuations. These guys then buy houses in Chelsea with the millions they make."
Very interesting piece on Friedman and Hayek in Prospect magazine:
'So Friedman, Keynes and Hayek all identify the problem. It is in their prescriptions of what should be done that they part company.
Here, Keynes and Friedman are bedfellows. Both believed that suitably empowered clever chaps could work out rules of behaviour that would smooth the fluctuations of the business cycle. Friedman came up with the rule of an independent central bank controlling the expansion of money at a fixed rate. Keynes essentially thought that if he and other old Etonians were put in charge, everything would be fine. At the end of the General Theory, he writes, “I conclude that the duty of ordering the current volume of investment cannot safely be left in private hands." But Hayek sharply disagreed. He believed that there are inherent limits to knowledge in human social and economic systems which no amount of intellect can overcome.
Developments in economics are taking the subject in the direction of Hayek rather than Friedman and Keynes. The burgeoning areas of behavioural and experimental economics confirm that, for the most part, decision-makers reason poorly and act intuitively rather than rationally. Theoretical models in which actors have very limited, or even zero, understanding of how their environment operates are having striking success in explaining a wide range of phenomena.
Friedman was a brilliant polemicist. He had several highly original ideas about how economies work. Most have proved to be wrong, but at least he had them. And in the one area where he was proved correct, he exercised great influence on policymakers. But even in this area, Hayek’s insights go much deeper and offer a better framework for the research programmes of the 21st century.'
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