Nobel Prize Winners: Milton Friedman
Richard J Ritterbeck
August 4, 2012
The Nobel Prize given to economists has been awarded to some of the people who have greatly shaped our economic knowledge. Milton Friedman is one of those economists. His work in economics has had a large influence on society. According to nobelprize.org, he was awarded the prize “for his achievements in the fields of consumption analysis, monetary history and theory and for this demonstration of the complexity of stabilization policy” (2012). He has greatly shaped economic thought.
Friedman came from an interesting, and intellectual background. He was born to immigrant parents, in Brooklyn, New York. His drive and intelligence were enough to help him graduate high school early, before his 16th birthday, obtain a scholarship to Rutgers, and after exposure to economics, another scholarship to the University of Chicago. His work and peers helped to establish the Chicago school of economic thought and he was a strong influence on his peers at the university. His experience and background further shaped his thinking, and led to some of the many thinking points for the economic world.
Friedman worked on several aspects of economics for which he is well known. Stagflation, a circumstance where inflation and unemployment increase at the same time, was one of Friedman’s thoughts. Another field he worked with was consumption spending. His work in monetary policy and guidance for the United States has shaped the lives of many. These fields have all been key in the development of economics and make Friedman worthy of a Nobel Prize.
Friedman’s work on inflation and unemployment has led to a change in policies. Until Friedman’s work, it was commonly thought that inflation and unemployment had an indirect relationship. Friedman demonstrated that they could both increase at the same time and he coined the term stagflation. His theories were proven in the recession of the 1970’s, when both occurred. A simple understanding of the relationship of these two key indicators is highly beneficial.
Next, Freidman’s work on consumption spending helped also understand economic behavior. John Maynard Keynes felt that consumers spent money that varied for the present income of the consumer. Friedman demonstrated that consumption spending was guided more by the perceived income of a consumer over a longer period of time, or the amount of money the consumer thought they would have, which accounted for potential promotions, job security, bonuses, and other financial variances. This change in belief helped economists better understand business cycles, and how consumer spending behaved.
Friedman’s work on monetary policy has affected many as well. Early in his career, he reviewed the Federal Reserve’s meeting minutes, critiqued them, and eventually led to them ceasing to release them to the public. He worked for the US Treasury, and also the U.S. Government agency that administered the Marshall Plan. Freidman dabbled in floating exchange rates, and thought “that a common market would inevitably founder without floating exchange rates” (Nobelprize.org, 2012). His work guiding financial and monetary policy has affected many of people for many years.
Friedman understood the work of earlier philosophers, and built on the knowledge of some, and disagreed with others. Mostly, Friedman disagreed with Keynes and his government assistance programs and active governments. He was greatly influenced by the Austrians and Hayek. Hayek worked closely with Friedman at the University of Chicago as well. In Friedman’s own words, “Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government” (London, 2012). This quote goes to show that Friedman both agreed with Hayek and disagreed with Keynes.
Freidman was influential to shaping our economic understanding today. He increased knowledge, and helped increase quality of people’s lives. For this improvement in people’s lives, Freidman deserved the Nobel Prize. He is one of the great economists, and his theories will become foundations for further economic understanding.
Heilbroner, R. (1953). The Worldly Philosophers, Seventh Edition. Simon & Schuster. ISBN: 978-0-684-86214.
Library of Economics and Liberty. (2008). Milton Friedman. Retrieved from http://econlib.org/library/Enc/bios/Friedman.html
London, J. (January 11, 2012). Opinion: Reflections from the Campaign Trail. The Tech. Retrieved from http://tech.mit.edu/V131/N60/london.html
Nobelprize.org. (August 5, 2012). Milton Friedman – Autobiography. Retrieved from http://www.nobelprize.org/nobel_prizes/economics/laureates/1976/friedman.html