Milton Friedman

Dafato Team | Jun 26, 2022

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Milton Friedman, born July 31, 1912 in Brooklyn (New York) and died November 16, 2006 in San Francisco, is an American economist, considered one of the most influential of the twentieth century. An ardent defender of liberalism, he was awarded the so-called Nobel Prize in Economics in 1976 for his work on "the analysis of consumption, monetary history and the demonstration of the complexity of stabilization policies". He works in both theoretical and applied research areas, being the originator of the monetarist current, as well as the founder of the Chicago School. He is also a successful political commentator and essayist.

Two of his works have particularly touched the general public: his 1962 book Capitalism and Freedom and his 1980 television series Free to Choose. In Capitalism and Freedom, he explained his theory that reducing the role of the state in a market economy is the only way to achieve political and economic freedom. Later, in Freedom to Choose, Friedman sought to demonstrate the superiority of economic liberalism over other economic systems.

Milton Friedman inaugurated an economic thought of liberal inspiration whose prescriptions are in direct opposition to Keynesianism. In response to the Keynesian consumption function, he developed the theory of permanent income. With this theory and the introduction of the natural rate of unemployment, Friedman questioned the validity of stimulus policies which, for him, could only cause inflation, which had to be fought against. To this end, he proposed the introduction of a constant rate of growth of the money supply. Finally, he made an important contribution to modern competition law, "each decision of the Competition Authority, the Courts of Appeal or the European Commission indirectly weighing his ideas".

His ideas gradually spread and were taken into account by political circles in the 1980s, deeply influencing the American conservative and libertarian movements. His ideas on monetarism, taxation, privatization and deregulation directly or indirectly inspired the economic policies of many governments around the world, including those of Ronald Reagan in the United States, Margaret Thatcher in the United Kingdom, Augusto Pinochet in Chile, Mart Laar in Estonia, Davíð Oddsson in Iceland and Brian Mulroney in Canada.

Youth and training

Milton Friedman was born in Brooklyn, New York, on July 31, 1912, to a Jewish immigrant family from Transcarpathia, then part of Hungary (in present-day Ukraine). He was the first child of Sarah Ethel Landau and Jenő Saul Friedman, both small businessmen. When Friedman was one year old, his family moved to Rahway, New Jersey, where he spent his youth. His father died when he was 15 years old. A brilliant student, he graduated from Rahway High School in 1928, shortly after his sixteenth birthday.

He then obtained a scholarship to study at Rutgers University in New Jersey, where he received his Bachelor of Arts degree in 1932. He majored in mathematics and planned to become an actuary before abandoning this idea to pursue pure economics.

After graduating from Rutgers, still on scholarship, he studied economics at the University of Chicago where he received a master's degree in 1933. He was influenced by the ideas of Jacob Viner, Frank Knight and Henry Simons. It was also at this time that he met his future wife, Rose Director, sister of law professor Aaron Director.

He studied statistics for a year at Columbia University under the direction of Harold Hotelling, where he became friends with George Stigler, co-founder with him of the Chicago School, before returning to Chicago the following year as a research assistant to economist Henry Schultz, who was working on his book Theory and Measurement of Demand.

Work at the federal level

In 1935, unable to find a job at a university, Friedman went to Washington, where the programs launched by Roosevelt offered an opportunity for economists. In Two Lucky People, a memoir he wrote with his wife Rose, he wrote that he thought the government job creation programs were appropriate for a critical situation, but not the price and wage fixing systems. A few years later he wrote an article with George Stigler entitled Roofs or Ceilings, in which Stigler and Friedman vigorously attacked rent control. In this, we can see the beginnings of his future ideas on price controls that distort price setting through the mechanism of the meeting of supply and demand.

He later adopted a more critical stance towards the New Deal measures, considering that the Great Depression came mainly from a mismanagement of money, the supply of which should have been increased and not reduced. In his Monetary History of the United States, published in 1963, he develops this thesis by explaining this serious economic crisis by the policies of monetary contraction.

In 1935, he joined the National Resources Committee, which was then working on a broad study of consumption. He drew from this work some of the ideas that he developed in his Consumption Function Theory. Two years later, Milton Friedman joined the National Bureau of Economic Research where he assisted Simon Kuznets in his work. In particular, he studied the distribution of income and in a controversial article at the time, he explained the high salaries of doctors by the barriers to entry maintained by the National Union of Physicians. This was the subject of his thesis and he would take up this subject in several writings.

In 1940, he was appointed assistant professor at the University of Wisconsin-Madison, which he left after encountering problems with anti-Semitism in the economics department.

From 1941 to 1943 he worked as an advisor to the U.S. Treasury Department on the issue of taxes to finance the war effort. As Treasury spokesman, he defended a Keynesian policy. In his autobiography, he notes "how much .

Academic career

In 1943, he joined Columbia University where he worked for the rest of the war as a statistician. In 1945, he returned to Columbia with his doctoral dissertation, a work done under the direction of Simon Kuznets and entitled Incomes from Independent Professional Practice. He finally received his doctorate for this thesis the following year, the year Keynes died.

The same year, his second child, David Friedman, was born. He also studied science before becoming an economist and member of the anarcho-capitalist movement. In 1945 and 1946, Milton Friedman taught at the University of Minnesota, alongside George Stigler.

In 1946, Friedman accepted a position as professor of economics at the University of Chicago, a position that was vacated following the departure of Jacob Viner for Princeton University. Friedman finally stayed there for thirty years and developed an economic school: the Chicago Monetarist School, with authors who were awarded the highest economic distinction several times: George Stigler ("Nobel" 1982), Ronald Coase ("Nobel" 1991), Gary Becker ("Nobel" 1992), Robert E. Lucas ("Nobel" 1995).

At the same time, he returned to the National Bureau of Economic Research, at the invitation of Arthur Burns; he remained there until 1981. There he studied the role of money in economic cycles and in 1951 founded the Workshop in Money and Banking, which contributed to the revival of the study of monetary phenomena. He also began a collaboration with Anna Schwartz, a specialist in economic history, which led to the publication in 1963 of a Monetary History of the United States, 1867-1960, in which the beginnings of monetarist thought were expressed.

He spent part of the 1950s in Paris, where he assisted the American administrators of the Marshall Plan. During this time he studied flexible exchange rates, on the basis of which he published a book entitled The Case for Flexible Exchange Rates.

Friedman spent the 1954-1955 academic year as a visiting professor at Gonville and Caius College, Cambridge.

Following the publication of his book Studies in the quantity theory of money in 1956, monetarist ideas gained more importance in the economic debate, but remained in the minority. Thus, in 1959, the Radcliffe Committee, created by the British government to propose changes to the international monetary system, developed radically opposed ideas.

He became known to the general public with his 1962 book, Capitalism and Freedom, in which he defended capitalism and criticized the New Deal and the emerging welfare state. Although none of the major American newspapers published reviews of the book, it gradually spread and more than 400,000 copies were sold in eighteen years. This established Friedman's involvement as an intellectual in the public debate; he later became an economic advisor to the unsuccessful Republican presidential candidate in 1964, Barry Goldwater, who was very much influenced by his conservative positions.

Two years later, he wrote his first business column for Newsweek magazine, taking over from Henry Hazlitt. Every other week he wrote in the newspaper, alternating with Paul Samuelson. Through these articles, he reached the American population, until 1983 when he ended his column. His fame grew and in 1967 he became president of the American Economic Association, an association of American economists.

At the end of the 1960s, he became an advisor to President Richard Nixon, who only partially followed his advice during his presidency. Nixon thus imposed price and wage controls, contrary to Friedman's ideas. In 1969 he was appointed to the commission in charge of reflecting on the future of military service, in which he strongly supported a service based solely on voluntary service. Conscription was abolished in 1973. Friedman considered this result as the most satisfying in his intellectual commitment.

Since 1956, he has been lecturing at the University of Chicago to economics students from the Pontifical Catholic University of Chile as part of an agreement signed between the two universities. This was an important influence on the so-called Chicago Boys. In 1975, he traveled to Santiago for five days to deliver a series of lectures at the Pontifical University. On March 26, he was summoned to the government headquarters and met with the dictator Augusto Pinochet, in a 45-minute interview, which was reproached by his opponents.

In the context of English stagflation from 1968 onwards and American stagflation in the 1970s, his monetarist ideas took hold as the previously dominant Keynesianism lost its dominance.

During this period, he directed the doctoral theses of Gary Becker and Thomas Sowell.

"Nobel Prize" and retirement

In 1976, Friedman received the "Nobel Prize" in economics for his work on "the analysis of consumption, monetary history and the demonstration of the complexity of stabilization policies". During the award ceremony, he was greeted by demonstrators who criticized him for having met with the leaders of the military dictatorship during his visit to Chile. The following year, at the age of 65, he retired from the University of Chicago, where he had taught for 30 years. He then moved with his wife to San Francisco and joined the Hoover Institution at Stanford University.

In 1977, at the invitation of the Palmer R. Chitester Fund, he began work on a ten-part television program to present his philosophy. From the three years of work that this required, Free to Choose was released, first as a program, then as a book, both produced or written with his wife Rose. The book was the best selling non-fiction book of 1980 with 400,000 copies sold and was translated into twelve languages.

In the 1980s, he was an unofficial advisor to Republican candidate Ronald Reagan, then joined his economic committee when Reagan was elected to the White House. He remained there until 1988. During the 1980s and 1990s, he continued to make numerous media appearances and trips to Eastern Europe and China to promote his views.

In 1996, he and his wife created a foundation for freedom of choice in education.

In an interview with Henri Lepage in 2003, he takes stock of the world from the 1980s to the beginning of the 21st century. Concerning the fight against pollution, he recognizes the legitimacy of government to control negative externalities, but through market mechanisms, rather than through regulation. In particular, he states in this interview, concerning the taxation of polluting emissions:

"It's just a stopgap, but it's one we have to live with. The idea that we could eliminate all pollution, or even that there is an "optimal" level of pollution, is absurd. Pollution is, by definition, part of our world. We pollute as soon as we breathe. We are not going to shut down factories under the pretext of eliminating all carbon monoxide emissions into the atmosphere. We might as well hang ourselves right now! So we must necessarily settle for imperfect solutions. The problem is not to chase zero pollution, but to know which technique is the least penalizing. It seems to me that it is taxes.

This position is sometimes put forward to illustrate the incompatibility of free trade and ecology.

Milton Friedman died of a heart attack on November 16, 2006, at the age of 94.

Milton Friedman was the husband of Rose Friedman and his grandson Patri Friedman is a committed libertarian and has created the Seasteading Institute, an institute that aims to create artificial islands in international waters to live by libertarian principles.


During World War II, Milton Friedman worked on statistical topics, work that, according to The New Palgrave, is still referenced today. In particular, he worked on arrangements and rank problems in set theory. He also laid the groundwork for sequential sampling (Friedman Test) and developed nonparametric methods for analysis of variance on paired samples.


Milton Friedman's most important work concerns money, in particular his rehabilitation of the quantitative theory of money, which explains price movements by the variation in the money supply. This quantitative theory is old and has its roots in the work of the Salamanca School, Jean Bodin, William Petty and Irving Fisher.

Friedman offered his modern reformulation of this theory, as early as 1956, in an article entitled "The quantity theory, a restatement", basing it on an analysis of money demand linked to his theory of permanent income. However, he returned to the conclusions of the old formulations of quantity theory: prices vary in proportion to the quantity of money, according to the Fisher equation:

M∗V=P∗Q{\displaystyle \mathbf {M*V=P*Q} }.

This basic equation of the quantity theory posits the equivalence between; production (and the quantity of money that has been exchanged in the economy during the period represented by the quantity of money in circulation (M) factored by its velocity of circulation (V).

Friedman believes that agents have a stable demand for money, as a function of their permanent income. According to Friedman, for agents, money is a capital good like any other, and they demand it as a function of their permanent income, i.e., the discounted income they expect over their entire life. Consequently, since the demand for money is stable, any increase in the supply of money does not alter agents' real balances. They therefore use the extra money they have to consume, which results in an increase in prices. For him, the cause of inflation is nothing more than an additional quantity of money in relation to the needs of the national economy. Inflation through costs (high wage rates, interest rates or (and) commodity prices) makes no sense to Friedman. This theory has inspired a large number of countries for which the central bank must be independent of the government. In the countries of the European Union, the Maastricht Treaty obliged the member states to apply this recommendation. The purpose of this separation of powers (the governor of the Central Bank is not appointed by the government) is to maintain monetary stability in order to avoid inflation. Employment policy and economic growth policy are, in most cases, the responsibility of national governments.

Milton Friedman tried to provide an empirical verification of these results in 1963 in his Monetary History of the United States (written with Anna Schwartz) and in The Counter-Revolution in Monetary Theory in 1970. This book proposes a study of the evolution of monetary policy in the United States from the 1870s to the 1960s. Friedman and Schwartz studied the evolution of the quantity of money and inflation in the United States over almost a century. In his Monetary History of the United States, he observes that during the 18 economic cycles studied, troughs or peaks in economic activity were preceded by troughs or peaks in the money supply. These observations can be seen as evidence (Granger causality) that it is indeed fluctuations in the money supply that cause business cycle reversals and not the other way around. He was particularly critical of the policy conducted during the Great Depression of the 1930s. According to the Fed, the American central bank created in 1913, limited the quantity of money too drastically during the 1929 crisis. According to him, it was the central bank that caused, aggravated and prolonged the economic depression. Friedman writes about this:

"The Fed is largely responsible for . Instead of using its power to offset the crisis, it reduced the money supply by one-third between 1929 and 1933... Far from being a failure of the free enterprise system, the crisis was a tragic failure of the state."

- Milton Friedman, Deux personnes chanceuses : Mémoires

Former Fed Governor Ben Bernanke reached the same conclusions and expanded on them in 2000 in Essays on the Great Depression. In a speech in 2002, he added, referring to Milton Friedman: "You're right. We are sorry. But thanks to you we will not make that mistake again.

From his work on the equation of the quantity theory of money, Milton Friedman derived the idea that inflation is monetary in origin. He said of the link between inflation and money:

"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can only be generated by an increase in the quantity of money faster than that of production."

- Milton Friedman, La contre-révolution dans la théorie monétaire.

Consequently, he defended a monetary policy based on the supply of money: he was the main advocate of monetarism. This monetarist approach to the economy emphasizes aggregate monetary adjustment based on aggregate activity and price data, from which it seeks to derive an estimate of money demand. He therefore proposes a reduction in the role of government in the economic sphere. Milton Friedman also asserted that discretionary interventions by a central bank could only add to uncertainty about demand; he therefore advocated a monetary policy whose effects could be reasonably foreseen by all economic actors, for example the regular increase in an indicator of the money supply deemed representative; this is the golden rule for increasing the money supply. To summarize his thinking towards central banks, he states:

"Money is too important to leave it to central bankers

- Milton Friedman, Capitalisme et liberté

He also advocated the removal of the government from the foreign exchange market and promoted flexible exchange rates. In particular, in 1953 he wrote an article, The Case for Flexible Exchange Rates, which theorized ideas he had been expressing for several years. In it, he justified the use of flexible exchange rates by the adjustment that this system allows between the currencies of inflationary and non-inflationary countries.

His theories of adaptive expectations were, however, rather quickly overtaken by the theory of rational expectations, developed by another Chicago economist, Robert E. Lucas. The economists of the New Classical Economics opposed Friedman by defending significantly different behavioural assumptions: Friedman and the classical monetarists assumed adaptive expectations, i.e., that agents act by adapting to the present situation but can be temporarily misled by an economic policy, which will then be efficient in the short run but harmful in the long run when agents realize their errors. For the new classics, expectations are rational. Agents reason in real terms and cannot be fooled by an expansionary monetary policy, which will therefore be ineffective in both the short and long run.

Friedman also conducted work on the consumption function, which he considered to be his best scientific work. At a time when Keynesianism was dominant, he questioned the form adopted for the consumption function and pointed out its imperfections. Instead, he formulated in particular the permanent income hypothesis, which postulates that consumption choices are guided not by current income but by consumers' expectations of their income. As these expectations are more stable, they tend to smooth consumption, even when disposable income falls or rises. This work was particularly noteworthy because it called into question the validity of cyclical demand stimulus policies and the Keynesian investment multiplier.

He also contributed to the questioning of the Phillips curve and developed with Edmund Phelps the concept of the natural rate of unemployment. This work was published in 1968 in Inflation and Monetary Systems. It is opposed to the Keynesian rate of unemployment without inflation acceleration. In essence, he considers that there is a natural rate of unemployment, linked to imperfections in the labor market, including state intervention that disrupts the free setting of wages. Being structural in nature, this rate of unemployment cannot be reduced by cyclical policies and the injection of liquidity inevitably leads to inflation, according to Friedman.

In his essays, he also developed a problem inherent in any cyclical policy: government action always comes too late, according to Friedman, because of the time needed to take stock of the situation and the time needed for the measures to have an effect. Government action would therefore ultimately be harmful, reviving the economy when it had already emerged from the crisis and thus encouraging overheating or, in the opposite case, plunging the economy into crisis. This work therefore called into question the validity of Keynesian stimulus policies.

In general, the conclusions of Friedman's economic work are opposed to those of Keynes, who dominated after the Second World War. Milton Friedman has thus often been defined as the "anti-Keynes". However, his work takes up the analytical tools established by Keynesianism.

In 1965, Time had published a quote from Friedman that stated "We are all Keynesians today. Friedman, faced with criticism, published an erratum in February of the following year, writing that his quote had been truncated and that what he meant was that "In one sense, we are all Keynesians today; in another sense, no one is a Keynesian anymore. He added, "We all use the Keynesian language and analytical apparatus, but no one accepts the original Keynesian conclusions anymore."

Nevertheless, some of the reforms he proposed, such as the withholding tax and the negative income tax, were sometimes criticized within the liberal or libertarian movement. Some representatives of the Austrian school of economics, such as Roger Garrison, have questioned whether Milton Friedman is not in some respects Keynesian. Murray Rothbard, an anarcho-capitalist, strongly criticized him for his support of the fractional reserve system as a system of money creation, which he himself opposed.

In his book Essays in Positive Economics, he presented the epistemological framework of his future research and, more generally, of the Chicago School: economics as a science must be detached from questions about what should be and focus on what is, independently of moral judgments. He therefore advocates positive economics instead of normative economics. Similarly, an economic policy should be judged not by its intentions but by its results. He thus declared in 1975:

"One of the biggest mistakes we can make is to judge a policy or programs on their intentions and not on their results."

- Milton Friedman, Interview with Richard Heffner

But Milton Friedman's most important article in epistemology is "The methodology of Positive Economics", published in 1953. Friedman had a profound influence on economists' thinking about the methodology of their science, while at the same time provoking a very important debate. In this article, Friedman criticizes the logical empiricism of Paul Samuelson, then dominant in economics. For Friedman, the goal of scientific theories is to offer valid predictions, without being trivial. Consequently, the question of the realism of the hypotheses on which they are based does not arise: theories are instruments. They do not therefore have to be based on "true" or "realistic" hypotheses, resulting from an observation of reality, if they are to be predictive. Thus, for Friedman, the criticism of the lack of realism of the founding postulates of economic science, such as the rationality of actors, is irrelevant insofar as the only thing that matters is the instrumental value of these hypotheses: if they are the basis of theories with accurate predictions, their use is justified.

Milton Friedman played a major public role in promoting liberalism: he was heavily involved in the public debate, in particular by organizing numerous conferences or participating in television programs in which he presented his convictions in favor of the free economy and capitalism. In a television interview in 1979, he declared for example:

"The story is clear: there is to date no way to improve the situation of the man in the street that comes close to the productive activities liberated by a free enterprise system"

- Milton Friedman, Interview with Phil Donahue

He placed the beginning of his involvement in the public debate in favor of liberalism in 1947, when he participated in April in the founding meeting of the Mont Pelerin Society, convened at the initiative of Friedrich Hayek. Friedman was president of this international association of liberal intellectuals from 1970 to 1972.

His most important work in spreading liberal ideas to the general public is probably Capitalism and Freedom, published in 1962 in the United States. It is mainly a compilation of lectures given in June 1956 at Wabash College at the invitation of the now defunct William Volker Fund. It was translated into 18 languages. Addressing a wide audience and not only economists, he defends capitalism as the only way to build a free society. He places himself on the ground of the philosophical but also practical justification of a liberal economy. The book is considered by the National Review as the tenth most important essay of the 20th century. In it, Friedman presents the view that the only (social) responsibility of business leaders is to ensure maximum profits for their shareholders.

This book was followed by another major work, Free to Choose, written with his wife Rose in 1980. This book was to have a great influence (see below), as was the homonymous series of ten television programs that were broadcast from January 1980 on PBS and on which the book was based. These programs developed Friedman's ideas on a number of topics and popularized them among the general public. Five revamped programs followed in 1990.

In 1996, he and Rose established the Milton & Rose Friedman Foundation to advocate for parental choice in education (Schooling choice). In particular, the foundation promotes the use of education vouchers. However, this system remains very marginal.

Through this engagement in public debate, he played an important role in the reactivation of liberal ideas in a context where Keynesian economics were triumphing. This role was recognized both by his supporters :

"In a period when Marxism and state interventionism dominated people's minds, Friedman played, against the current, an absolutely irreplaceable role"

- Pascal Salin, former president of the Mont Pèlerin Society

"Along with Friedrich Hayek, Milton Friedman is probably the thinker who most inspired the neoliberal revolution. In addition to his intellectual influence, Milton Friedman was a fighter."

- Serge Halimi, journalist at Le Monde Diplomatique

United States

In a general context of conservative revolution, Milton Friedman took part in the renewal of the Republican movement and liberal ideas. He was an early supporter of California's "Proposition 13" tax-cutting initiative and advised Ronald Reagan in his presidential campaign and during his two terms in office. Partly as a result of this influence, the economic policies Reagan implemented were close to the ideas advocated by Friedman. Reaganomics" as defined by William A. Niskanen was based on reducing the size of government, lowering marginal tax rates, deregulating the economy and pursuing a monetarist policy to reduce inflation; however, his influence was challenged by supply-side economics. The major tax cuts orchestrated by Ronald Reagan, the Economic Recovery Tax Act of 1981 in particular, owe to his influence but also to that of Robert Mundell and Arthur Laffer.

More recently, Arnold Schwarzenegger also claimed to be influenced by Friedman's thinking, saying, "The two people who have most influenced my economic thinking are Milton Friedman and Adam Smith.

United Kingdom

Chile and Latin America

Milton Friedman exerted an important influence on the Chilean economists known as the "Chicago Boys", such as José Piñera or Hernán Büchi: trained at the Pontifical Catholic University of Chile in the framework of a partnership signed in 1956 with the University of Chicago, many of them obtained their doctorate in economics in Chicago. Milton Friedman and Arnold Harberger had a decisive intellectual influence, and the economic policies they implemented during the military dictatorship of Augusto Pinochet were inspired by Friedman's ideas: funded pensions, education vouchers, privatization, etc. Friedman went to Chile in 1975 at the invitation of a private foundation; he gave a conference in which he declared that "the free market would destroy centralization and political control" and after which he met Augusto Pinochet. On April 21, 1975, Friedman wrote a letter to the dictator giving economic advice. In this letter, he made recommendations concerning the fight against inflation and the establishment of a social market economy. He was criticized for not mentioning at any time the dictatorship, the suppression of civil liberties, the violations of human rights and the systematization of torture. In fact, the letter did not contain the slightest criticism of the dictator, who thanked it on May 16 for its "courteous letter.

In 1980, in his documentary Free to Choose, he said: "Chile is not a politically free system and I do not approve of the system. But the people are freer there than in communist societies because the government plays a lesser role (...) In recent years the people's living conditions have improved, not deteriorated. It would still be better to get rid of the junta and be able to have a free democratic system." In 1984, Friedman stated that he "never held back from criticizing the political system in Chile.

In an interview on PBS in 2000, Milton Friedman defended his work in Chile by saying that the adoption of the free market first improved the country's economic situation and then allowed for the improvement of the regime and the transition to democracy in the 1990s - he considered this second consequence "more important" than the regime's good economic results. His point is summarized in Capitalism and Freedom, where he says: "History only suggests that capitalism is a necessary condition for political freedom. Clearly it is not a sufficient condition. In the PBS documentary The Commanding Heights Friedman reaffirms his position that greater freedom for markets leads to greater freedom for people. Moreover, he argues that it was the lack of economic freedom in Chile that brought about the military regime, while economic liberalization brought about the end of the military regime and the advent of democratic Chile. Moreover, according to Johan Norberg, "Milton Friedman never worked as an advisor to the Chilean government and never accepted a penny from the regime. Norberg states in the above-mentioned interview that if he gave lectures in Santiago, he was invited by a private organization (the Catholic University of Chile) and not by the Chilean government. In this regard, the reproaches he received for having given these conferences are for him "a wonderful example of double standards". After returning from China, he wrote a letter to the Stanford newspaper, in which he said that he had written: "It is curious. I gave exactly the same lectures in China as in Chile. I faced many demonstrations against me because of what I said in Chile. Nobody protested against what I said in China. How is this possible?

The economist André Gunder Frank, a former student of Friedman's, who did not share his views and had worked for Allende's reforms, criticized him in 1976 for having supported reforms "carried by a torrent of blood. Shortly before he was assassinated by the dictatorship, the economist and diplomat Orlando Letelier voiced similar criticisms. According to Letelier, Friedman disapproved of the authoritarian nature of the regime but believed that giving technical economic advice to the Chilean government was no more wrong than a doctor giving technical medical advice to help stop a plague. Letelier responds that this "economic project must be imposed by force" and that in "Chile, regression for the majority and 'economic freedom' for a privileged few are two sides of the same coin.

The Chilean economic experience is seen as a great success by the Encyclopædia Britannica: "the Pinochet dictatorship," "after imposing difficult readjustments and making its share of mistakes, had launched the country on a steady course of economic growth that made it an admired model in Latin America, which continued even after the dictatorship handed over power (but not control of the armed forces) to an elected Christian democrat in 1990. The Chilean model was based, in any case, on the application of neoliberal policies that were ultimately adopted to one degree or another by all countries, including (within limits) the surviving communist dictatorship in Cuba."

According to The Independent's obituary of Pinochet, Friedman "approved of the dictatorship and chose not to criticize the killings, illegal imprisonment, torture, exile, and other atrocities" committed "in the name of the free market". The complacency that is attributed to Friedman towards Pinochet leads Thomas Piketty to see in him political anti-liberalism: "his economic ultra-liberalism went hand in hand with a certain political anti-liberalism.

However, this Chilean experience is perceived differently by some authors, such as Marie-Noëlle Sarget, who assert that these successive economic policies have had negative effects during their implementation period.

When asked about the controversies created by his visit to Chile, Friedman accused his opponents of ideological bias, because he had given similar lectures in several communist dictatorships, including China and Yugoslavia, but he was only criticized for his lectures in the Pinochet dictatorship. After the fall of the regime, Milton Friedman said, "I have nothing good to say about the political regime that Pinochet imposed. It was a terrible political regime. The real miracle of Chile is not its economic success; the real miracle of Chile is that a military junta was willing to go against its principles and support a free-market regime In Chile, the movement toward political freedom, which was spawned by economic freedom and the resulting economic success, eventually led to a referendum that introduced political democracy. Now, finally, Chile has three things: political freedom, human freedom and economic freedom. Chile will continue to be an interesting experiment to watch to see if it can keep all three or if, now that it has political freedom, it will tend to be used to destroy or reduce economic freedom."

In Argentina, the military junta led by Jorge Rafael Videla was also inspired by the economic theories of Milton Friedman from 1976. Nevertheless, the increase in unemployment and the fall in the value of the peso prompted General Roberto Eduardo Viola, Videla's successor, to return to a more moderate economic liberalism.


Friedman went to Iceland in the autumn of 1984 and gave a conference at the University of Iceland, after which he met socialist intellectuals, including the future President Olafur Ragnar Grimsson during a televised debate.


Although Friedman never visited Estonia, his book Free to Choose was an important influence on Mart Laar, who was to become the country's prime minister on two occasions. Laar said it was the only book on economics he read before taking office and credited Friedman with the reforms that made Estonia one of the "Baltic Tigers. In particular, Laar introduced the flat tax, made major privatizations and fought corruption.

For his liberal reforms, Laar was awarded the Milton Friedman Prize for the Advancement of Freedom by the Cato Institute in 2006. As a result of Laar's reforms, Estonia ranked 12th in the Heritage Foundation's 2007 list of the world's freest economies.

Milton Friedman has received numerous awards for his work: in 1951, the John Bates Clark Medal, a prize that is awarded every two years to an American economist under the age of 40 "who has made a significant contribution to economic thought and knowledge. This was followed in 1976 by the "Nobel Prize" in economics for his work on "consumption analysis, monetary history, and the demonstration of the complexity of stabilization policies. In 1988, he received the Presidential Medal of Freedom and the National Medal of Science in the same year.

According to the British weekly The Economist, Friedman "was the most influential economist of the second half of the 20th century and perhaps of the entire 20th century. Fed chief Alan Greenspan said that "there are very few people whose ideas are original enough to change the direction of a civilization. Milton Friedman was one of them.

The Cato Institute agreed to name an award after him in 2001; it is given every two years to a person who has advanced freedoms in the world and has honored British economist Peter Thomas Bauer in 2002, Peruvian economist Hernando de Soto in 2004 and former Estonian Prime Minister Mart Laar in 2006.

According to Harry Girvetz and Kenneth Minogue, editors of the Encyclopædia Britannica article Liberalism, Friedman was, along with Friedrich Hayek, one of the actors who brought about the revival of classical liberalism in the 20th century.

January 29, 2007 was declared Milton Friedman Day by Arnold Schwarzenegger, Governor of California to honor his life, work and achievements as well as his influence on contemporary economics and public policy.

He has received numerous honorary doctorates, from Rutgers University in 1968, the Hebrew University of Jerusalem in 1977, Francisco-Marroquin University in 1978, Harvard University in 1979 and the Prague School of Economics in 1997.

Milton Friedman is a central figure of the Chicago School after the Second World War and is considered the founding father of contemporary monetary policies. He is, in fact, one of the main actors in the reclaiming by the liberal neoclassical school of its place before the Keynesian revolution. However, even if his legacy is vast, economic theory has continued to evolve since Friedman, and the generation of Chicago economists that succeeded him has extended his work, while abandoning points, sometimes important, of his theories. His legacy is, however, highly controversial. Raymond Barre writes, for example, that "monetarism appears today to be too simplistic. "The controversies come mainly from Keynes's heirs, both the neo-Keynesians, the new Keynesians and, above all, the post-Keynesians.

Moreover, central banks have essentially abandoned the monetarist doctrine, according to which the money supply must follow a fixed growth rule. Thus, the recent monetary policy of the US central bank has been described by Michel Aglietta as reflecting the "triumph of discretionary policy". Nevertheless, Friedman's thinking has had a profound impact on monetary policy by imposing the idea that there is no possible trade-off between inflation and unemployment, thus making the fight against inflation the primary goal of monetary policy. Moreover, even if Friedman criticized the principle of central bank independence, in that it conferred, in his view, extensive power on individuals who were not subject to the control of the electorate, defending what he considered to be liberal principles, he was partly at the origin of this principle because he insisted on the need for a non-discretionary policy, which would not be left to politicians.

Extension and critique of the new classics

The monetarist theory was radicalized and, in the end, reformulated by the generation that followed Friedman in Chicago, which is known as the new classics. They questioned Friedman's theory of adaptive expectations: for Friedman, agents could be victims of a monetary illusion in the short term, not immediately measuring the supposedly inflationary effects of expansive economic policies; these policies could therefore be effective in the short term. For neo-classicalists, who defend the idea that agents have rational expectations, money is no more than a pure veil. Agents know immediately that any stimulus policy is inflationary, since they are rational and perfectly informed, i.e. they act in a perfect manner, in accordance with their interests according to the model of the economy as conceived by the new classics. There is therefore no monetary illusion, even in the short term.

Critique of the Austrian school of economics

The Austrian criticism relates first of all to the method: the axiom of action is not taken into account by monetarists, who prefer to confront economic data with theories, without any preconceived ideas. Friedman was then criticized for advocating state interventionism: the Great Depression of the 1930s could have been avoided, according to him, if the Federal Reserve had injected sufficient liquidity into the system. For "Austrian" economists, Friedman is a monetary statist, advocating control of money by a central bank and a steady increase in the money supply by the state. Some even ask to what extent Friedman could not be considered Keynesian.

Criticism of monetarism by Keynesian currents

Although less critical than the post-Keynesians, the neo-Keynesians, who had synthesized the theory of Keynes and that of the neo-classical school, and who dominated the discipline at the time when monetarism developed, raised strong objections to Friedman's doctrine. Thus, James Tobin contested the reality of the causality, which Friedman put forward in his Monetary History, between fluctuations in the money supply and economic cycles in the United States. For Tobin, the existence of a correlation does not mean that there is a causal link: fluctuations in the money supply may be the product of the cycle, rather than the reverse.

However, Franco Modigliani considers that "there are in fact no serious analytical differences between the main monetarists and the main non-monetarists . In fact, the distinguishing feature of the monetarist school and the real point of disagreement with non-monetarists is not monetarism, but rather the role that should probably be assigned to stabilization policies. Don Patinkin considers that Friedman only reformulated Keynes' monetary theory with greater sophistication.

The post-Keynesian authors of the 1980s were even more critical of monetarism. The quantitative theory of money reformulated by Milton Friedman was criticized by the supporters of the endogenous theory of money. According to them, money should not be thought of as a variable exogenous to production processes and whose quantity is controlled by an external institution ("the monetary helicopter" according to Milton Friedman's metaphor), but as the result of the demand for credit in the economic system.

According to post-Keynesian economists, the application of monetarist principles must therefore necessarily come up against the question of targeting monetary aggregates. Indeed, whatever the definition of the money supply adopted by the central authorities, agents will try to substitute more or less liquid assets to circumvent the credit crunch. Thus, according to Nicholas Kaldor, "there is no clear demarcation within the liquidity pool between what is money and what is not. Whatever definition one chooses for money, it will be surrounded by a myriad of more or less liquid instruments that can serve as substitutes for it."

For post-Keynesian economists, the theoretical problems of the quantitative theory of money would explain the growing difficulties that central banks would encounter in controlling monetary aggregates in the United States and the United Kingdom during the 1980s.

Friedman's ideas were also strongly criticized by New Keynesian economists. Paul Krugman has been very critical of Friedman's ideas, especially of monetarism, which he says has not had the desired results: "Friedman's public image and reputation were built by what he said about monetary policy and by his creation of the monetarist doctrine. It is therefore somewhat surprising to realize that monetarism is now widely regarded as a failure, and that some of the things Friedman said about 'money' and monetary policy - unlike what he said about consumption and inflation - seem to have been misleading, perhaps deliberately so. Krugman called Friedman's commitment to liberal capitalism "laissez-faire absolutism.

Milton Friedman is an advocate of floating exchange rates. For him, money is a commodity like any other. The price of currencies should therefore appreciate freely on a free market. The country that allows itself to be lax in its budget and inflationary printing of money will have a weak currency, so that economic actors will prefer other currencies. Conversely, the virtuous will have a strong currency. Thus, in a flexible exchange rate framework, market mechanisms would spontaneously punish bad monetary policies. Conversely, in a fixed exchange rate system, the strong country can pursue an inflationary policy and spend lavishly while selling its banknotes above their value to countries that cannot refuse them, so that the powerful impose their law on the weak. This is what happened in the post-war relationship between the United States and Germany, when the United States printed money and sold it to the Germans at a fixed rate.

Journalist Naomi Klein, in her book The Strategy of Shock (which was picked up by a film of the same title in 2010), criticizes Milton Friedman for having advised several dictatorships. She writes that Friedman's theory "was belied by soup kitchens, typhoid outbreaks and factory closures in Chile, where the only regime ruthless enough to put his ideas into practice reigned.

Klein criticizes "Friedman's definition of freedom, according to which political freedoms are incidental, even unnecessary, to unfettered commercial freedom."

Friedman's liberal vision of "economic science" is also strongly criticized by Paul Jorion, who criticizes it for its dogmatism, based on presuppositions and principles, and its lack of epistemological reflection, notably in his essay Le dernier qui s'en va éteint la lumière: Essai sur l'extinction de l'humanité (Fayard, 2016). According to him, this "economic science" is supposedly neutral and apolitical, and "assumes that the economy is made up of a juxtaposition of rational individuals, called homo œconomicus, who aim to maximize their personal utility through rational choices between scarce resources," a theoretical vision that does not take into account reality and the distinction of individuals and social classes. Jorion thus criticizes Friedman for ignoring the epistemological dimension of his knowledge, as of all knowledge, by denying any social anthropological approach, in favor of a "methodological individualism"; "in the same way, a 'Laplacian' determinism has been transposed into the doctrine of rational anticipations of economic 'science'. It postulates that if the present is completely understood, then the future becomes perfectly predictable." Modern physics, with the discovery of discrete dynamical systems, as well as the recent repeated financial crises have demonstrated to what extent this fixed and entirely theoretical understanding of the world, placed under the aegis of economic calculation (according to Friedman and the liberal defenders of the market paradigm), is contradicted by reality and its historical, social, and economic jolts.

Naomi Klein and Paul Jorion also criticize the militant support that Friedman and other members of the Chicago School, such as Ronald Coase or Gary Becker, allegedly gave to the Pinochet military dictatorship.

Results of monetarist policies on the "real" economy

For Friedman, the role of the monetary authorities is to follow a strict rule for increasing the money supply, parallel to the rate of growth of the economy: this should provide the economy with the liquidity necessary for transactions, without causing either an inflationary bubble (too much money creation) or a recession (too little money creation). This monetarist policy was implemented by the US Federal Reserve from the end of the 1970s. It allowed for a significant reduction and then control of inflation, after the inflationary surges of the two oil shocks and the ineffectiveness of traditional "stop-and-go" policies.

Monetarists consider this rapid control of inflation to be a great success and see it as the origin of the stable and high growth of the 1980s and 1990s in the United States. The new classics, heirs to Friedman, believe that monetarist policy primarily anchored inflation expectations at a low level, which then allowed the Fed to ease interest rates.

Critics thus believe that monetarist policies have not produced all the expected results, and that they have not achieved them in accordance with Friedman's doctrine. Michel Aglietta writes in particular that if inflation was broken "beyond all expectations, the exorbitant costs in terms of production and employment losses throughout the world, the outbreak of the sovereign debt crisis in Third World countries, and the structural changes induced in finance were consequences that were out of all proportion to the benign adjustments that were predicted by the monetarists. For neo-Keynesian economists, this fall in inflation and the rise in the unemployment rate were moreover directly linked, not to the control of the money supply (which was never really achieved by the Fed, see below), but only to the effects on the real economy of the Fed's extremely high interest rates in the early 1980s. John Kenneth Galbraith states: "In the end, inflation was brought under control. Money is tied to prices not by the hidden magic of the Fisher equation, or by Friedman's faith, but by high interest rates that control bank (and other) lending and deposit creation. In other words, the monetary policy of high interest rates that discourages the least profitable investments by making loans more expensive would have caused the economic slowdown, which is responsible for the fall in inflation. The control and reduction of the money supply would not be the cause.

Abandonment of money supply controls and return to discretionary policies

However, while the fight against inflation is at the heart of central bank action today, central banks have abandoned the essence of the monetarist doctrine in this area. For Friedman, central banks had to control inflation by controlling the growth of the money supply.

Although central banks followed these recommendations at the end of the 1970s, they soon stopped doing so. For them, the growth of the money supply is now only one of the indicators of future inflationary pressures. Indeed, as Olivier Blanchard and Daniel Cohen note, "the conduct of monetary policy on the basis of money growth postulates the existence of a close medium-term relationship between inflation and nominal money creation. The problem is that this relationship is not very close in reality. The instability and weakness of the link between money creation and inflation can be explained by several reasons.

First, the financial innovations of the 1980s and 1990s, by increasing the liquidity of assets, made it difficult to distinguish between money and non-monetary assets: instead of money in the strict sense, an agent can hoard other assets, such as mutual funds, included in M2. These assets are thus very close to money and constitute a substitute for it. As a result, agents arbitrate between these assets, which implies that the stock of money experiences large and sudden variations, whereas Friedman considered it to be stable. The relationship between inflation and the money supply is only close if the velocity of money circulation is constant. Thus, the growth of monetary aggregates, especially M1 and M2, has no longer had a stable relationship with inflation since the end of the 1970s. The Fed initially followed the M1 money supply, in line with monetarist recommendations, and then used M2 as a reference indicator, but it also tended not to provide good indications of price developments.

Moreover, while the central bank can directly control M1, it cannot control M2: it cannot prevent an agent from buying a financial asset included in M2 instead of money. This is all the more problematic because some economists believe they have found that the mere announcement by central banks of a target for a money supply indicator can cause economic actors to react by modifying their behavior to escape the monetary constraint, thereby removing all value from the money supply indicator, according to what has been called Goodhart's law. Finally, between 1975 and 2000, the Fed did not reach its target for M2 growth 11 years out of 26. As Olivier Blanchard and Daniel Cohen note: "These irregularities in M2 growth and the frequent failures to reach the announced target have raised an obvious question. What is the point of announcing a range for M2 if we fall outside it so often? That's the conclusion the Fed actually came to in 2000, and that's why it no longer announces a target range for M2.

Thus, Frederic Mishkin (en), summarizing these difficulties, states that monetary aggregates are far from being able to fulfill the three roles of providing relevant information, being indicators of economic policy, and being the basis of a rule to be followed in terms of monetary policy: "Our results show that in the United States, since 1979, monetary aggregates have been far from being able to fulfill these roles, and that the M3 aggregate in Germany is hardly any more effective.

The record of U.S. monetary policy since the abandonment of monetarism, particularly during the period when the Federal Reserve was headed by Alan Greenspan between 1987 and 2006, is the subject of intense debate. Some economists consider that it has contributed to preventing the development of major systemic crises in the developed countries and to maintaining full employment in the American economy. Other authors consider that this discretionary policy is at the origin of the formation of repeated speculative bubbles, the most important of which is the American real estate bubble of the 2000s that led to the subprime crisis.

A new approach to monetary policy

However, despite the failures of monetary policies that strictly applied the monetarist doctrine, Friedman's legacy in terms of monetary policy is important. Indeed, he imposed a certain number of ideas that remain structural in monetary policy. Through his critique of the Phillips curve and the development of the idea of the natural rate of unemployment, he supported the idea that there was no possible trade-off between inflation and unemployment and that, consequently, the mission of monetary policy is price stability. Monetary policy does not have to try to stimulate activity, since it only causes inflation. The fight against inflation is now, in accordance with Friedman's message, at the center of monetary policy. Moreover, monetarism has rehabilitated monetary policies in relation to fiscal policies, which were favoured by Keynesianism.

Friedman has written numerous books and articles. The following list is not exhaustive:


  1. Milton Friedman
  2. Milton Friedman

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