Milton Friedman (1912–2006)

Milton Friedman lived through the Great Depression, two world wars, and the administrations of 17 presidents, into the 21st century and all the recessions on the way. One of the most influential economists of the 20th century—perhaps the most influential—Friedman had a long-term perspective on the United States’ economic activity. At his death at 94 in 2006, the New York Times called him “the grandmaster of free market economic theory,” and “one of the 20th-century’s leading economic scholars.”

Forty years earlier, the Royal Swedish Academy agreed, awarding Friedman the Nobel Memorial Prize in Economics in 1976 “for his achievements in the fields of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy.” Friedman’s influence was perhaps most evident in his theory of the money supply and its role in supporting prosperity or causing recession. His studies during the 1960s showed that the fluctuations of consumption and output were dependent on the money supply, not on government spending or investment, and that the Federal Reserve could effectively manage that supply to offset downward trends.

Friedman said the Great Depression could have been forestalled if the Fed, misguidedly, had not contracted the money supply at the time. His 1963 book, A Monetary History of the United States, written with economic historian Anna Jacobson Schwartz, examined the role of the money supply in the history of U.S. economic activity. “Monetarism,” or the quantity theory of money as it was called, had fallen out of favor but would become the dominant idea governing economic policy with Friedman as its advocate.

Though Friedman was against government regulation and intervention and advocated a laissez-faire approach to markets, during the Great Depression and President Franklin D. Roosevelt’s New Deal, he briefly subscribed to Keynesian ideas of government intervention to support the unemployed and create jobs. By the late 1940s, however, as he began his 30-year tenure as a professor at the University of Chicago, Friedman refuted liberal Keynesian ideas, subscribing instead to a libertarian view that people should be allowed to live as they want as long as they do no harm to others. This meant less government, not more, with an emphasis on private enterprise and free markets. It was Milton Friedman who coined the phrase, “There’s no such thing as a free lunch.”

His book, Capitalism and Freedom, published in 1962, set forth many of his major theories, advocating the end of military conscription and proposing floating exchange rates, a progressive income tax system, and school vouchers for education. One of the theorists who he said influenced him the most was the 18th-century philosopher, Adam Smith, often regarded as the father of modern economics. Smith’s book, The Wealth of Nations, published in 1776, puts forth his basic belief that the self-interest of the individual indirectly promotes the good of society, as self-interested competition—Smith’s “invisible hand”—in a free market keeps prices low, benefiting society and motivating more production of goods and services. Smith’s phrase, “laissez-faire” (let it be), applied to markets, implies that, left alone and propelled by self-interested competition, markets can be self-regulating. Friedman believed that government intervention went against the values of a free society and could infringe on individual liberty.

Economist Milton Friedman championed the free market economy and was awarded the Nobel Prize in Economics in 1976 for his contribution to understanding monetary policy.

Economist Milton Friedman championed the free market economy and was awarded the Nobel Prize in Economics in 1976 for his contribution to understanding monetary policy. (University of Chicago News Office)

Joining the academic world as a faculty member at the University of Chicago in 1946, Friedman was able to consolidate and develop the economic theories that were to be his trademark. These included a reinterpretation of the English economist John Maynard Keynes’s theory of the consumption function, which measured the influence of income on spending and consumption. In Keynes’s view, consumption is based on current income, not on potential future income or loss, positing that, as people’s income rises, their consumption would rise, though not equally.

Friedman and others were critical of Keynes’s theory because it left out long-term potential income. He reformulated the theory as a permanent income hypothesis to suggest that consumption is determined by people’s expectations of their future income. Transitory or windfall income was not as influential on consumption, he theorized, as an individual’s potential ability, through education, experience, property, and investments, to earn future income. Despite his advocacy of less government regulation, Friedman did say that the Federal Reserve could play a role in handling the money supply. Indeed, during the 2008–2010 Great Recession in the United States, Federal Reserve chairman Ben Bernanke was influenced by Friedman’s monetary theory as part of the response to the crisis. Bernanke himself said that “among economic scholars, Milton Friedman had no peer.” Alan Greenspan, the former Federal Reserve chairman, told the New York Times that Friedman’s academic achievements would have “lasting import” and that he had already had a “profound impact... on the American public’s view.”

With Friedman on the faculty of the Department of Economics at the University of Chicago, economics began to be treated as a serious subject. He was instrumental in creating a department ambience where faculty, a number of whom went on to win the Nobel Prize, could feel free to propose economic theories and engage in debate. “At Chicago, you are only as good as your last paper,” according to one faculty member. Out of the department came what was known as the conservative Chicago school of economics that espoused Friedman’s free-market point of view. At the same time, he was also serving on the staff of the National Bureau of Economic Research, at the invitation of Arthur Burns who was head of the bureau and later chairman of the Federal Reserve. Here Friedman began his study of monetary policy that resulted in his influential 1963 book about U.S. monetary history.

Friedman wrote a regular column for Newsweek magazine from 1966 to 1983 and also served as an economic adviser to several U.S. presidents and politicians. These included President Dwight Eisenhower during World War II, presidential candidates Barry Goldwater and Richard Nixon, and President Ronald Reagan, during whose term Friedman was a member of the President’s Economic Policy Advisory Board and was a supporter of supply-side economics. Reagan awarded him the Presidential Medal of Freedom in 1988. In 1975, Friedman was invited by a private foundation to spend a week in Chile giving lectures about economic freedom. Though he claimed that he had nothing to do with Chile’s military dictator, Augusto Pinochet, and did not condone his policies, his visit there was much criticized. But Friedman’s economic theory was influential in Margaret Thatcher’s United Kingdom and in other nations, even in Communist countries like China.

It was Friedman who, during World War II when he was an economist with the Treasury Department’s division of taxation, proposed a withholding tax on paychecks so Americans would not have to pay all their taxes in one lump sum once a year as they had been obliged to do. This also had the necessary effect of putting money in government coffers at regular intervals during the war effort, but the move became controversial because the withholding tax made it too easy for the government to raise taxes. Equally controversial were his proposals to legalize marijuana and prostitution and to eliminate state licenses for doctors. His rationale: regulating or licensing human behavior doesn’t work; it just creates bureaucracy. Another controversial Friedman concept: there is a natural rate of unemployment that can’t be driven down without provoking inflation and thus must be sustained. As expectations of workers and employers rise and wages rise, price inflation rises. If unemployment is driven too far down and more people are working, it will increase the inflation rate, so the natural rate of unemployment should be maintained. Despite extensive studies, however, no economist has yet managed to discern the optimal rate.

Milton Friedman was born in Brooklyn, New York, on July 31, 1912, the last of four children and the only son of recent Hungarian Jewish immigrants Jeno S. Friedman and Sarah Landau Friedman. His parents moved after he was born to Rahway, New Jersey, where they opened a clothing store. Milton graduated from high school in Rahway before his 16th birthday and went to Rutgers University in New Brunswick, then a small private institution, on a scholarship to study mathematics. It was 1929, the year the stock market collapsed. His father had died during his senior year in high school, and to earn his living expenses, Milton took part-time jobs and waited table. Encouraged by his Rutgers economics teachers Arthur Burns and Homer Jones, he graduated with majors in both mathematics and economics and went on to the University of Chicago for an MA in economics. There he met Rose Director who would become his wife six years later.

Meanwhile, Friedman won a fellowship for doctoral work at Columbia University, where he wrote his doctoral thesis on “Income from Independent Professional Practice,” which became a book, coauthored with Simon Kuznets, the first of more than a dozen he would write or coauthor. Fresh out of graduate school, he had trouble finding an academic position and was employed for a time in Washington, working for the National Resources Committee and the National Bureau of Economic Research. He took a job as an assistant professor of economics at the University of Wisconsin in 1940 but left within a year because of anti-Semitism in the department. In 1943, after another year in Washington working at the Treasury Department, he went back to Columbia, joining the Division of War Research. Finally, in 1946, he received an offer from the University of Chicago where he became a full professor in 1948.

He and Rose Director, who became an economist also, were married in 1938. They had two children, David and Janet. After Friedman retired in 1977, he and his wife wrote a memoir, Two Lucky People, about their life together. They moved to San Francisco where Friedman became a Senior Research Fellow for the Hoover Institute at Stanford University, a position he held until his death in 2006. In 1980, the Friedmans collaborated on a best-selling book about a 10-part public broadcasting series, Free to Choose, which was based on Friedman’s economic ideas. With no written script, Friedman did the documentary speaking extemporaneously from notes. He and his wife also wrote a book about the second PBS series in 1984, Tyranny of the Status Quo. Besides Capitalism and Freedom and A Monetary History of the United States, Friedman wrote many influential scholarly articles during his career and a number of other important books including A Theory of the Consumption Function (1957), Dollars and Deficits (1968), and Money Mischief: Episodes in Monetary History (1992), his last major work.

Friedman was the recipient of 18 honorary doctorates, including one from Harvard University. The think tank Cato Institute in Washington, D.C., awards a Milton Friedman prize of $500,000 every two years to the person who has done the most to advance the cause of economic freedom. The 2010 recipient was the exiled Iranian journalist Akbar Ganji. It is a fitting tribute to an economist who, in the words of former British prime minister Margaret Thatcher, “revived the economics of liberty.”

—Mary Cross


Ebenstein, Lanny. Milton Friedman: A Biography. New York: Palgrave Macmillan, 2007.

Friedman, Milton and Anna Jacobson Schwartz. Capitalism and Freedom. Chicago, IL: University of Chicago Press, 1962.

Friedman, Milton and Anna Jacobson Schwartz. A Monetary History of the United States: 1867–1960. Princeton, NJ: Princeton University Press, 1963.

Noble, Holcomb B. “Milton Friedman, Free Markets Theorist, Dies at 94.” The New York Times, November 16, 2006.