Champion of Economic Freedom
BSSB.BE achievement.org 23.08.2018
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1935: Rose and Milton Friedman. Rose Director met Milton Friedman in 1932, when the two were seated next to each other in alphabetical order as graduate students at the University of Chicago. In their book Two Lucky People Milton acknowledged Rose as having been a crucial partner in nearly all his economic and public policy work. The Friedmans were married for 68 years.
Milton Friedman was born in New York City, the fourth child and only son of working-class Jewish immigrants from a Hungarian community in what is now Ukraine. When he was a year old, the family moved to Rahway, New Jersey, where Friedman’s parents kept a dry-goods store. Although their financial position was precarious, and no member of the family had been to university before, it was decided early that Milton would attend college.
He read voraciously, enjoyed school and showed a particular talent for mathematics. He earned a degree in mathematics from Rutgers University, graduating in 1932 during the very depths of the Great Depression. Although scholarships covered his tuition costs, he worked throughout his student years to meet his living expenses.
- After graduation, Friedman was interested in pursuing further studies in mathematics, but the dire state of the national economy inspired him to pursue economics instead, and he accepted a scholarship from the University of Chicago. While earning a master’s degree in a single year at the university, he met a fellow economics student, Rose Director.
- The two hoped to marry, but were long dissuaded by the financial difficulties of starting a family during the Depression. Friedman was awarded a year’s fellowship to continue postgraduate studies at Columbia University. After another year in Chicago as a research assistant in the economics department, he was then hired by the National Resources Committee in Washington to work on a large consumer budget survey.
- 1947: Economists representing the emerging Chicago School: Milton Friedman, George Stigler, and Aaron Director, at the first meeting of free-market intellectuals, the Mont Pèlerin Society. Friedman earned a bachelor’s degree in 1932 from Rutgers University, his masters in 1933 from the University of Chicago, and a Ph.D. in 1946 from Columbia University. (Hoover Institution Archives)
In 1937, Friedman joined the research staff of the National Bureau of Economic Research in New York City. With a steady income finally assured, Milton Friedman and Rose Director were married in 1938. They have collaborated on many books and projects over the years. Friedman’s studies of income from independent professional practice served as his doctoral dissertation for Columbia University, but publication of his dissertation was delayed until after World War II.
In 1940, Friedman accepted a job at the University of Wisconsin but was forced to resign within a year. Friedman had fallen into conflict with other members of the faculty over America’s entry into World War II, which Friedman favored and others opposed. During World War II, he worked in the Treasury Department, where he helped create the federal withholding tax system.
Prior to that time, Americans had paid their taxes in a single lump sum each year. During the last years of the war, he suspended economic research and was employed as a mathematical statistician by a special projects group at Columbia University, concentrating on problems of weapons design, military tactics and metallurgical experiments.
1957: In Milton Friedman’s book A Theory of the Consumption Function, he presents a new theory of the consumption function, tests it against extensive statistical J material and suggests some of its significant implications.
Central to the new theory is its sharp distinction between two concepts of income: measured income, or that which is recorded for a particular period; and permanent income, a longer-period concept, in terms of which consumers decide how much to spend and how much to save. Milton Friedman suggests that the total amount spent on consumption is on the average the same fraction of permanent income, regardless of the size of permanent income.
The magnitude of the fraction depends on variables such as interest rate, degree of uncertainty relating to occupation, ratio of wealth to income, family size, and so on. “Friedman described Keynes’ theory of a declining propensity to consume as ‘very imaginative and thoughtful.’ But in A Theory of the Consumption Function, Friedman demonstrated that while the hypothesis seemed to make psychological sense, it was empirically false. In relating income to propensity to consume, Keynes had erred in not distinguishing between ‘transitory’ and ‘permanent’ income. In fact, consumption does not decline as incomes generally rise.”
After the war, Friedman’s dissertation was finally published, and he was awarded his Ph.D. from Columbia University. The resulting book, Incomes from Independent Professional Practice, introduced the concepts of permanent and transitory income. This study of professional income, integrated with his prior work on consumer budgets, served as the basis of his landmark Theory of the Consumption Function. After one year at the University of Minnesota, Friedman accepted an appointment at the University of Chicago, where he taught for the next 30 years, while simultaneously maintaining a staff position with the Bureau of Economic Research.
1962: Capitalism and Freedom, written by Milton Friedman, in collaboration with his wife, Rose, provides the definitive statement of his immensely influential economic philosophy — one in which competitive capitalism serves as both a device for achieving economic freedom and a necessary condition for political freedom. Among other concepts in Capitalism and Freedom, Friedman takes a radical stance against all forms of state licensure, including ending the mandatory licensing of doctors and introducing a system of vouchers for school education.
At the bureau, Friedman conducted a long-term study of the role of money in the business cycle. At the university, he established a “Workshop in Money and Banking,” which led a revival of interest in monetary studies in the United States. Friedman made a name as one of the university’s exponents of neoclassical economics, opposed to the Keynesian economics then in favor at most universities in Europe and America. Within the larger grouping of the Chicago School, Friedman and like-minded colleagues are regarded as monetarists.
They see money supply as the major determinant in the business cycle and inflation, and regard it as the most effective instrument of government economic policy. Rather than the fine-tuning of Keynesian fiscal policy, Friedman recommended that central banks such as the Federal Reserve adopt a general rule of controlling the money supply to suppress inflation and allow prices to find their natural level. Friedman long argued that most other forms of government intervention in the economy are not only counterproductive in economic terms, but are fundamentally contrary to the values of a free society.
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