Milton Freidman is one of the famous economists and statisticians whose ideologies revolutionized how economists and government perceive the forces of the economy. Freidman’s contribution to the field of economics gave them a Nobel Prize in 1976; the Nobel Prize recognized their efforts in research on consumption analysis, monetary history and theory, and the complexity of stabilization policy. Freidman was regarded to be an influential leader of the Chicago School of monetary economics. As a Chicago school of monetary economics leader, Freidman challenged the orthodox understanding of economics. In contrast to orthodox economics, Freidman advocated for the free market, where market factors determine the exchange and economic/market stability with no interception or interference by the government or central bank. From their advocacy, Freidman believed that the government needs to increase demand through monetary policies to boost economic growth.
The economic situation at the time influenced Freidman decision to study economics. The economic situation was characterized by depression and subsequent impacts such as inflation and concentration of power by the government or the central bank. According to Freidman, the depression state of the economy has created a near-consensus such that the price system had failed mainly because of the displacement of competitive markets dominated by influential monopolies. The economic intellectuals at the time differed from Freidman in that they perceived the existing corporations and labor unions as evidence of the monopoly power. The intellectuals concluded that only the government (unlike Freidman, who perceived market discipline) could serve as a countervailing power to their monopoly power.
Freidman authored influential manuscripts such as ‘A Theory of Consumption Function’ and ‘Studies in the Quantity Theory of Money.’ With his wife, Rose, Freidman co-authored their famous manuscript ‘Capitalism and Freedom’ and ‘Free to Choose.’ For over five decades, these famous manuscripts continue to have a significant impact on the field of economics, and they also guide the government in making critical decisions that will influence the state of the economy. This research evaluates Freidman’s contribution to micro and macroeconomics through their proposed ideologies and critics of their point of view. In particular, this research considers three significant journals ‘The Rebellion Against Keynesianism: Milton Friedman. Problems of Economics, ‘The Contributions of Milton Friedman to Economics. Economic Quarterly’ and ‘Milton Friedman’s Capitalism and Freedom: A Binary Economic Critique.’ Freidman contribution to economics exposed the classic concerns with the Keynesian dichotomy of inflation and deflation. In addition, Freidman’s contributions further showed that money creation had an impact on the behavior of prices. Freidman further upheld that depression is not caused by the failure of capitalism and the free market economy, but it is caused by actions by the federal bank. Moreover, Freidman’s insisted that the market forces work best when they are allocated resources, and equilibrium is maintained when the government eliminates or withdraws any form of intervention from the economy.
The article ‘The Contributions of Milton Friedman to Economics. Economic Quarterly illustrates the contribution of Freidman to economics and its influences thereof. The article further illustrates how Freidman was influenced and collaborated with other economists in developing their theory. At the beginning of the article, Hetzel (2007) illustrates how Freidman ideologies were rejected but remained unmoved by critics. The article indicates that Freidman did, at some point, receive support from fellow economists regarding their ideologies. In particular, Hetzel (2007) further indicates that Freidman’s ideologies are based on market demand and supply components. In particular, Hetzel indicates that markets influenced Freidman’s ideologies, demand, and supply and that central bank interference in unemployment and, thus, inflations should never be warranted. In Freidman’s contributions, their effort became a quantity theorist, emphasizing that money creation determined how prices behaved and thus evaluated how money, prices, and money were connected.
In addition, the article indicates that Freidman argued that free trade, lower taxes on income and capital, and a decrease in the burden of regulation would contribute to the rise of economic growth and improve social well-being. This Freidman’s ideology continues to be influential in modern economic policy across global economies. In particular, Freidman ideologies help modern economists to identify and evaluate causes of inflation and unemployment.
Basically, the article insists that the federal government is responsible for causing an economy to experience deflation and inflation, and money creation is a determinant of the prices’ behavior. Moreover, depression is not caused by capitalism but rather by the misguided behavior of the federal government. Freidman’s major concerning principle is that the inflation is that inflation is ever present in an economy given that monetary phenomenon is present. They further denoted that the trend existing between growth and inflation is optimistically conducive. Moreover, Freidman insisted that defending free markets unrelenting and many of Friedman’s proposals are exceptional. Hetzel (2007) also notes that Freidman further explained that flexible exchange rates, rather than pegged, eliminated the 1970s price control on energy and auctioning government bonds.
The article ‘The Rebellion Against Keynesianism: Milton Friedman. Problems of Economics by Hetzel (2007) considers several of Freidman’s literature works illustrating their development in economics. The literature works Freidman’s’ research on the state of the economy during and after the civil world war as well as the first and second world Wars. In particular, the article illustrates that Freidman exposed the contrast with classic Keynesian theory on inflation, which precedence the prices of products and services in free marketing, which would cause a rise from either cost-ouch or demand-pull sources. In contrast with Friedman’s point of view, Popov (1990) indicates that Keynesians argued that government intervention would be impactful in smoothing out recessions using fiscal and monetary policies; on the other hand, Freidman upheld the Laissez-faire concept in resolving the economic matter.
The article ‘Milton Friedman’s Capitalism and Freedom: A Binary Economic Critique’ by Ashford (2010) attempts to illustrate the requirement of freedom in relation to the capitalist system, privatization, and free and competitive market. Ashford (2010) upholds the general opinion that in a capitalist system, the prime motive remains to make a profit where private owners own and control capital assets. In addition, the prices of tangible and intangible goods and services are self-regulated. Having this in mind, Ashford (2010) criticizes Freidman’s economic point of view to note that Freidman’s stand is inaccurate in comprehending capitalism since it is this component that saturates the power of an economic operation and regulation which is placed in the hands of the wealthy. Moreover, it is capitalism that is responsible for widening the inequality gap and grievances of those in the middle and lower socio-economic classes of society.
The article criticizes Freidman’s insufficient understanding of capitalism to indicate that capitalism is responsible for causing a chronic unemployment rate of labor and capital. Moreover, capitalism is responsible for suppressing the freedom of most subjects of the economy and provides economic advantages to plutocrats. After carefully considering Freidman’s economic stand, Ashford (1990) recommends a binary economic approach that promotes capitalism in a sustainable approach. According to the article, a binary approach is considered a yielding and sustainable approach that promotes capitalism and provides reformable approaches that promote the free market and eliminate economic inequalities in society; the former factor is crucial in the growth and development of an economy. The term binary is derived from heterodox consideration of labor and capital in the market.
Be influenced by the markets, demand, and supply, and government interference in unemployment and, thus, inflation should never be warranted. Thus, in his contributions, Freidman became a quantity theorist, asserting that money creation determined how prices behaved, and thus engaged in the research of how money, prices, and income were interrelated.
Analysis of Literature
Freidman contributions continue t be impactful in guiding modern economics and governments in developing actions that are going to fuel the growth and development of an economy. Hetzel (2007) does not hesitate to indicate historical events that helped Freidman in developing and advocating their ideologies. In particular, Hetzel (2007) compares Freidman’s contribution to the mighty Niagara falls to indicate that their contribution to the economic field cannot be unboxed. However, despite Hetzel (2007) praising Freidman’s contribution to the economic field, they do not hesitate in indicating that their efforts were controversial, thus causing them to remain isolated from the school of economics. In their article Popov (2007) introduces Freidman from their birth and outlines their development from their motivation in studying economics to the challenges they faced in advocating for a flexible economy and a free market.
Contribution of Freidman’s Ideologies to Economic Concepts
In their efforts to analyze Freidman’s contributions to the field of economics, Hetzel (2007) identifies Freidman’s hypothesis that helped them in developing their economic ideology of monetarism. As illustrated in their literary works, Freidman’s hypothesis is based on two components 1) the federal government is responsible for inflation and deflation, and 2) market forces work efficiently to allocate resources and maintain economic equilibrium. Freidman rejected the concentration of power in the hands of a few to advocate for a free market system in which those who labored could earn their keep.
Moreover, Freidman gave their stand on the controversial issue of fixed markets. Scholars such as Walter Heller opposed the idea of a fixed economy as they upheld that it would cause economic chaos. On this matter, Freidman was of the opinion that it is possible for an economy to grow in a fixed market on the condition that the market can be adjusted in accordance with the situation or as the need arises. However, on the matter of fixed market, Freidman remains firm against government involvement in the market. As observed by Freidman, government involvement in a market, flexible or fixed, in an effort to control inflation was both unjustified and wasteful; drawing from this perception, Freidman indicated that, in a free economy, inflation is inevitable.
In their article, Popov (2007) recalls Freidman’s stand on government involvement in an economy. Popov (2007) starts by illustrating the circumstances that motivated Freidman to join the school of economics; these circumstances are significant as they are of priority in the field of economics to date. Similar to other writers, Popov (2007) defines Freidman’s stand on Keynesian theory and they get more concerned with human interest theory which emphasizes the significance of individual decision-making in influencing money creation, which consequently affects prices and ultimately other critical components of an economy such as inflation and deflation. Popov’s article illustrates major areas of Freidman’s theory that remain significant in modern economics, such as general concepts of economics and man, critical analysis of the basic idea of Keynesian how monetary theory is related to price theory and economics science and economics as a science. Similar to other scholars, Popov (2007) emphasizes Freidman’s vital lessons, which are 1) government interference in an economy should be limited, 2) rejecting fixed market as proposed by the Keynesian model, and 3) money circulation should be equal to the rate of production. Freidman opposed government interference with market forces as it poses a high risk of economic instability.
Analysis of Freidman’s Ideologies
One of Freidman’s vital ideologies regards government control and interference in the economy. Freidman considered federal control and involvement in the economy to be harmful and heightened the chances of economic instability. Freidman drew this conclusion after taking into consideration the state of the economy during and after the civil war as well as in both world wars. In the considered situations, the state of the economy was not productive as it was characterized by economic depression.
Another of Freidman’s influential ideologies regards the fixed and flexible economy. Freidman opposed fixed economy as proposed with the Keynesian model. Freidman further opposed other components of the Keynesian model, such as an increase in government expenditure and decreasing taxes, as strategies for stimulating demand and pulling an economy from depression. In addition, Freidman advocated a free market instead of a fixed market as it would allow an economy to be flexible as determined by economic factors.
Despite Freidman’s ideologies being influential even in the modern era, certain scholars criticize their ideologies. Ashford (2010) criticizes Freidman’s theories to argue that they do take into consideration those who effectively have no time or resources to advocate for equality. Ashford goes ahead to criticize Freidman’s stand on limiting government involvement in an economy and failing to do the same for the power concentrated by the private sectors. Despite the criticism of Freidman’s ideologies, their work continues to be relevant for modern economists and the federal government in guiding them in developing effective strategies for supporting an economy. Hetzel (2007) is one of the influential intellectuals who support Freidman’s ideologies.
Conclusion
The contribution of Milton Freidman in the field of the economy remains significant to date. Freidman advocated for the limitation of federal interference in an economy. Freidman opposed the fixed market, which was proposed by the Keynesian model, and suggested a free market that would otherwise be flexible to economic factors. Freidman gained interest in the field of economics after considering the state of the economy, which was characterized by economic depression. Freidman developed their ideologies after researching the state of the economy during and after the civil war and world wars. The research showed that excessive interference of government in an economy increases the risk of economic instability.
References
Ashford, R. (2010). Milton Friedman’s Capitalism and Freedom: A Binary Economic Critique. Journal of Economic Issues (Taylor & Francis Ltd), 44(2), 533–541. https://doi.org/10.2753/JEI0021-3624440226
Hetzel, R. L. (2007). The Contributions of Milton Friedman to Economics. Economic Quarterly (10697225), 93(1), 1–30.
Popov, G. (1990). The Rebellion Against Keynesianism: Milton Friedman. Problems of Economics, 33(5), 99. https://doi.org/10.2753/PET1061-1991330599
write