DEATH OF THE MASTER
November 17, 2006
Another great master has left us -- Milton Friedman died in San Francisco on Nov. 16 at age 94. Unquestionably, he was the most important and influential economist of the second half of the 20th century, says columnist Bruce Bartlett.
Born on July 31, 1912 in Brooklyn, New York, Friedman's path toward economics began at Rutgers University, from which he graduated in 1932. The 1950s were the high point of Friedman's scientific work in economics. His main accomplishment during this period was to resurrect the role of monetary policy in the economy:
- At that time, economists generally followed the theories of British economist John Maynard Keynes, who believed that fiscal policy (taxing and spending) was government's most powerful tool for influencing growth, inflation and business cycles.
- In the Keynesian model, the Federal Reserve's monetary policy (credit and interest rates) was essentially passive, with little direct economic impact.
Eventually, Friedman was successful in convincing most economists that Keynes was wrong:
- The Friedman view became known as monetarism and was instrumental in overturning the Keynesian orthodoxy in the 1970s.
- But Friedman's other scientific work also contributed to this development, including the "permanent income hypothesis," which says temporary changes in incomes do not affect consumer spending, only permanent changes do.
- Friedman also was instrumental in debunking the idea that higher inflation would lower unemployment, as the Keynesians believed; any such effect was temporary at best, Friedman argued. In the long run, inflation raises unemployment, he said, a view proven correct in the 1970s.
In 1976, Friedman was awarded the Nobel Prize in economics. The Royal Swedish Academy of Sciences cited his achievements in the fields of consumption analysis, monetary history and theory, and stabilization policy.
Source: Bruce Bartlett, "Death of the Master," Townhall.com, November 16, 2006.
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