Milton Friedman, 1912

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Milton Friedman, 1912 2006

• Theres no such thing as a free lunch.

• Born in Brooklyn, 1912
• Immigrant parents
• BA, Rutgers, 1932
• Arthur F. Burns, Homer Jones
• MA, Chicago, 1933
• Viner, Knight, Simons
• Columbia Statistics
• Washington/Treasury
• Keynesian taxes to combat inflation
• NBER/Kuznets
• Consumer Budgets
• Professional Income
• War Research constrained optimization
• Anti-aircraft missile
• Sequential Sampling
• Proximity fuse
• PhD, Columbia, 1946
• U. of Chicago, 19461977
• Clark Medal, 1951

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• Milton Friedman (1912 - 2006) Major Works
• People tend to attribute to me a long-term
  planI did no planning. Things just happened in
  the order in which they happened to happen.
• "Professor Pigou's Method for Measuring
  Elasticities of Demand From Budgetary Data"
  Quarterly Journal of Economics Vol. 50, No. 1
  (Nov., 1935), pp. 151-163
• "Utility Analysis of Choices Involving Risk" with
  Leonard Savage, 1948, Journal of Political
  Economy Vol. 56, No. 4 (Aug., 1948), pp. 279-304
• "The Expected-Utility Hypothesis and the
  Measurability of Utility", with Leonard Savage,
  1952, Journal of Political Economy Vol. 60, No. 6
  (Dec., 1952), pp. 463-474 JSTOR
• The Methodology of Positive Economics (1953)
• Essays in Positive Economics (1953)
• "The Quantity Theory of Money A restatement",
  1956, in Friedman, editor, Studies in the
  Quantity Theory of Money.
• A Theory of the Consumption Function (1957)
• Permanent income hypothesis
• A Program for Monetary Stability (Fordham
  University Press, 1960) 110 pp online version
• Price Theory ISBN 0-202-06074-8 (1962),
• A Monetary History of the United States,
  1867-1960, with Anna J. Schwartz, 1963. Part 3,
  The Great Contraction
• The Relative Stability of Monetary Velocity and
  the Investment Multiplier in the United States,
  1897-1958 with David Meiselman
• "The Role of Monetary Policy." American Economic
  Review, Vol. 58, No. 1 (Mar., 1968), pp. 1-17
• Expectations and the natural rate of unemployment
• The Optimum Quantity of Money And Other Essays
  (1976)
• Milton Friedman's Monetary Framework A Debate
  with His Critics (1975)
• "Inflation and Unemployment Nobel lecture",
  1977, Journal of Political Economy. Vol. 85, pp.
  451-72.

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Ideas of Milton Friedman

• Positive economics is in principle independent of
  any particular ethical position or normative
  judgments it deals with what is, not with
  what ought to be.
• The ultimate goal of a positive science is a
  theory or hypothesis that yields valid and
  meaningful predictions about phenomena not yet
  observed Theory is to be judged for its
  predictive power ... The choice among alternative
  hypotheses equally consistent with the available
  evidence is suggested by the criteria of
  simplicity and fruitfulness within a given
  field of phenomena.
• Truly important and significant hypotheses will
  have assumptions that are wildly inaccurate
  descriptive representations of reality A
  hypothesis is important if it explains much by
  little The relevant question is not whether
  assumptions are descriptively realistic but
  whether they are sufficiently good approximations
  for the purpose in hand.
• Economics is a dismal science because it
  assumes man to be selfish and money-grubbing it
  assumes markets to be perfect, competition to be
  pure, and commodities, labor, and capital to be
  homogeneous Criticism of this type is largely
  beside the point unless supplemented by evidence
  that a different hypothesis yields better
  predictions.

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More Ideas of Milton Friedman

• I never reached a judgment about monetary or
  fiscal policy because of my belief in free
  markets.
• A Monetary and Fiscal Framework for Economic
  Stability, AER 1948
• Eliminate private creation of money and
  discretionary control of Ms by central bank ?100
  reserve banking
• Base G on communitys desire, need, and
  willingness to pay for public services
• A predetermined program of transfer payments
• A progressive personal income tax system
• ? Rely on automatic stabilizers
• countercyclical action can do too much as
  well as too little. (1951)
• The Case for Flexible Exchange Rates (1950)
• Instability of exchange rates is a symptom of
  instability in the underlying economic structure.
  Elimination of this symptom by administrative
  freezing cures none of the underlying
  difficulties and only makes adjustment to them
  more painful.
• Studies in the Quantity Theory of Money (1956)
• The Quantity Theory of Money A Restatement
• There is perhaps no other empirical relation in
  economics that has been observed to recur so
  uniformly under so wide a variety of
  circumstances as the relation between substantial
  changes over short periods in the stock of money
  and in prices
• Phillip Cagan, Monetary Dynamics of
  Hyperinflation
• Adaptive expectations and stable money demand
• John Klein, German Money and Prices, l932-44
• Eugene Lerner, Inflation in the Confederacy,
  1861-65
• Richard Seldon, Velocity in the United States

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Paul Samuelson on Naïve Monetarism

• The pity increases for one who adopts a simple
  theory of positivism that exonerates a nominated
  theory (the quantity theory), even if its
  premises are unrealistic, so long as it seems to
  describe with approximate accuracy some facts.
  Particularly vulnerable is the scholar who tries
  to test competing theories by submitting them to
  simplistic linear regressions with no
  sophisticated calculations of Granger causality,
  cointegration, collinearities
• The proof of the pudding is in the eating. There
  was a widespread myth of the 1970sA new
  paradigm, monistic monetarism, gave a better fit.
  King Keynes is dead! Long live King Milton!
  But contemplate the true factsIn terms of
  accuracynever did post-1950 monetarism score
  well.

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Yet More Ideas of Milton Friedman

• A Theory of the Consumption Function (1957)
• Errors are in income, not in consumption
• ?Permanent income hypothesis
• A Monetary History of the United States (1963)
• inflation is always and everywhere a monetary
  phenomenon.
• small events at times have large consequences.
  A liquidity crisis in a fractional reserve
  banking system is precisely the kind of event
  that can trigger and often has triggered a
  chain reaction. And economic collapse often has
  the character of a cumulative process. Let it go
  beyond a certain point, and it will tend for a
  time to gain strength from its own development as
  its effects spread and return to intensify the
  process of collapse. Because no great strength
  would be required to hold back the rock that
  starts a landslide, it does not follow that the
  landslide will not be of major proportions.
• The Role of Monetary Policy (1968)
• Adaptive Expectations
• ?Vertical Long-run Phillips Curve
• ? Accelerationist Hypothesis
• Capitalism and Freedom (1962)
• Money growth rule (3 5 per year)
• Floating exchange rates
• Negative income tax
• School vouchers
• End occupational licensure
• Why Not a Volunteer Army? (1967) / Gates
  Commission (1968)

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• The Great Depression Holy Grail of
  Macroeconomics
• Lionel Robbins (1934) The Great Depression
• J.K. Galbraith (1955) The Great Crash 1929
• Friedman and Schwartz (1963) The Great
  Contraction
• Murray Rothbard (1963) Americas Great Depression
• Charles Kindleberger (1973) The World in
  Depression 1929 - 1939
• Robert Lucas and Edward Prescott (1970s)
• Peter Temin (1978) Did Monetary Forces Cause the
  Great Depression?
• Hyman Minsky (1982) Can It Happen Again?
• Ben Bernanke (1983) Nonmonetary Effects of the
  Financial Crisis in Propagation of the Great
  Depression
• Peter Temin (1989) Lessons from The Great
  Depression
• Barry Eichengreen (1992) Golden Fetters The Gold
  Standard and the Great Depression, 1919-1939
• Edward Prescott (1999) Some observations on the
  Great Depression
• C. Reinhart and K. Rogoff (2009) This Time is
  Different Eight Centuries of Financial Folly

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Monetarism in Theory and Practice

• Theory M ? P and Y in short run
• M ? P in long - run
• Friedmans restated quantity theory
• Expectations augmented Phillips Curve
• ? Vertical long run Phillips Curve
• ? Monetary mischief
• Practice oppose Keynesian activism
• Monetary vs. fiscal policy what matters?
• Inherent stability vs. instability of enterprise
  economy
• Policy Long run vs. short run focus
• Varying policy lags too much too late
• Steady money growth as automatic stabilizer

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• Monetarism Spreading the Word

Shadow Open Market Committee
Journal of Money, Credit and Banking
Carnegie-Rochester Conference Series on Public
Policy
Journal of Monetary Economics
Allan Meltzer 1928 -
Karl Brunner 1916 1989
Meltzer I was very much a left-wing activist as
a student.

• Major Works by Meltzer
• Keynes Monetary Theory
• A Different Interpretation, 1988.
• A History of the Federal Reserve, volume 1,
  1913-1951, 2002.

Early Joint Works Meltzer with
Brunner "Predicting Velocity Implications for
theory and policy", with K. Brunner, 1963, J of
Finance The Federal Reserve's Attachment to the
Free Reserves Concept, with K. Brunner, 1964. An
Alternative Approach to the Monetary Mechanism,
with K. Brunner, 1964. "Some Further
Investigations of Demand and Supply Functions for
Money", with K. Brunner, 1964, J of Finance "The
Meaning of Monetary Indicators", with K. Brunner,
1967, in Horwich, editor, Monetary Process and
Policy. "Economies of Scale in Cash Balances
Reconsidered", with K. Brunner, 1967, QJE.
"Liquidity Traps for Money, Bank Credit, and
Interest Rates", with K. Brunner, 1968, JPE "The
Nature of the Policy Problem" with K. Brunner,
1969, in K. Brunner, editor, Targets and
Indicators of Monetary Policy. "The Uses of
Money Money in the Theory of an Exchange
Economy" with K. Brunner, 1971, AER "Friedman's
Monetary Theory" with K. Brunner, 1972, JPE
"Money, Debt and Economic Activity" with K.
Brunner, 1972, JPE "A Monetarist Framework for
Aggregative Analysis" with K. Brunner, 1972,
Kredit und Kapital

Later Joint Works "Strategies and Tactics for
Monetary Control", with K. Brunner, 1983, CROCH
"Money and Credit in the Monetary Transmission
Process", with K. Brunner, 1988, AER Money and
the Economy Issues in monetary analysis, with K.
Brunner, 1989. Monetary Economics, with K.
Brunner, 1989. "Money Supply", with K. Brunner,
1990, in Friedman and Hahn, editors, Handbook of
Monetary Economics