Milton Friedman

Definition

Milton Friedman was an influential American economist and a key figure in the Chicago School of Economics, known for his strong advocacy of free-market capitalism and limited government intervention. His ideas on monetary policy, consumption analysis, and economic freedom have significantly shaped modern economic thought and influenced business-government relations, particularly regarding the role of government in the economy.

5 Must Know Facts For Your Next Test

1. Friedman received the Nobel Prize in Economic Sciences in 1976 for his research on consumption analysis and monetary history.
2. He introduced the concept of the 'Permanent Income Hypothesis,' suggesting that people's consumption choices are determined by their expected long-term average income rather than current income.
3. Friedman was a strong proponent of school vouchers as a means to improve educational quality through competition.
4. His famous phrase 'there's no such thing as a free lunch' illustrates his belief that every benefit has a cost, emphasizing the trade-offs involved in economic decision-making.
5. Friedman's work has been pivotal in shaping debates around fiscal policy, especially during periods of inflation and recession, advocating for a focus on controlling money supply.

Review Questions

• How did Milton Friedman's views on government intervention influence economic policy during the late 20th century?
  • Milton Friedman's advocacy for limited government intervention significantly influenced economic policy during the late 20th century, particularly during the Reagan administration. His ideas supported deregulation, tax cuts, and reduced government spending, aligning with neoliberal principles. This shift towards free-market policies encouraged economies to prioritize private sector growth and led to widespread changes in how governments approached economic management.
• Discuss how Friedman's Permanent Income Hypothesis altered traditional views of consumer behavior and its implications for economic forecasting.
  • Friedman's Permanent Income Hypothesis challenged traditional views that linked consumption directly to current income. By proposing that consumers base their spending decisions on expected lifetime earnings instead, this theory transformed how economists understand consumer behavior. The implication for economic forecasting is significant; it requires a focus on long-term income trends rather than short-term fluctuations to accurately predict consumption patterns.
• Evaluate the impact of Milton Friedman's ideas on modern business-government relations and how they contribute to current economic challenges.
  • Milton Friedman's ideas have left a lasting impact on modern business-government relations by promoting free-market principles and reduced regulation. As governments increasingly prioritize market-driven solutions over interventionist policies, challenges such as income inequality and environmental sustainability have emerged. Evaluating these impacts reveals a complex relationship where Friedman’s advocacy for minimal government involvement has sometimes led to economic growth but also raises questions about social responsibilities and the need for regulatory frameworks to address emerging economic challenges.

Related terms

Chicago School: A group of economists at the University of Chicago who advocate for free-market principles and minimal government intervention in the economy.

Monetarism: An economic theory that emphasizes the role of governments in controlling the amount of money in circulation as a primary method for regulating the economy.

Neoliberalism: A political and economic philosophy that promotes free markets, deregulation, and privatization, often associated with policies advocated by Friedman.