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Milton Friedman

John Maynard Keynes and Milton Friedman were the most influential economists of the 20th century.
Their differences were, indeed, profound. But so was what they shared. More interesting, neither won and neither lost:
today’s policy orthodoxies are a synthesis of their two approaches.
Martin Wolf, Financial Times, November 22 2006

Hayek - Keynes

Rolf Englund's blog: The Hayek-Friedman-Keynes Synthesis.



About Milton Friedman at Nobel Price winners

Milton Friedman was one of the very few intellectuals with both genius and common sense. He could express himself at the highest analytical levels to his fellow economists in academic publications and still write popular books such as "Capitalism and Freedom" and "Free to Choose," that could be understood by people who knew nothing about economics. Indeed, his television series, "Free to Choose," was readily understandable even by people who don't read books.
Thomas Sowell, WSJ November 18, 2006

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Milton Friedman introducerade begreppet den "naturliga" arbetslösheten, vilket kunde uppfattas som stötande.
Men hans slutsatser är numera allmänt accepterade: det lönar sig inte att låta priserna stiga för att kortsiktigt driva ner arbetslösheten, eftersom effekterna inte är varaktiga.
Johan Schück, DN 21/11 2006

by Milton Friedman and Robert Mundell

"Policy Options is Canada's premier public policy magazine"also:

also: "The Chicago School in the 1960s" by Rudiger Dornbusch
"Currency unions: Europe vs. the United States" by James Tobin
"Mundell and Friedman: Four key disagreements" by Richard G. Harris
"Central banks: Who needs them?" by Kevin Dowd
"Would fixed rates make markets more flexible?" by Christopher Ragan
"New currency regimes: How green the grass? How high the fence?" by William B. P. Robson
"The missing link in the debate on monetary regulation" by Jean-Luc Migué
The Donner Prize: Tom Flanagan
"Paul Martin's milestone: One for the record books" by Geoffrey Hale

Robert Mundell

One thing that baffles those of us with no training in economics is that two people who hold diametrically opposite views can both be held out as giants of their profession.
After all, if the great British economist John Maynard Keynes was right that government can smooth out the business cycle by stimulating and managing demand for goods and services through such mechanisms as public-works programs, deposit insurance and deficit spending, then how could Milton Friedman be right that the better approach is for government to cut taxes, curb regulation and focus on the supply of money in circulation?
Or how do we square Keynes's prescription that global finance can be stabilized through fixed exchange rates with Friedman's formula of floating exchange rates?
Steven Pearlstein, Washington Post Friday, November 17, 2006

Economics is a social science, not a physical one, in which people and systems are constantly adapting to changing conditions. The policies that may be good for one era may not be right for the next. And it is the truly great economists who spot the changing dynamics, acknowledge the inadequacy of the old prescriptions and are clever enough to come up with something better.

In this respect you can say that Milton Friedman, who died yesterday, was the greatest economist of our time. He was not simply the most influential economist since Keynes, but a worthy successor, building on Keynes's insights even as he discredited key aspects of Keynesian economic management.

"I grew up in a Keynesian household," recalls Larry Summers, the former Treasury secretary and Harvard president whose mother and two uncles were respected economists. "And as an undergraduate, I was taught an economics that had demand but no supply." But in time, says Summers, it dawned on him and most others in the profession that Keynesian theory was not so much wrong as incomplete.

With his focus on the overall demand for goods and services in the economy, Keynes overlooked the importance of the supply of money in circulation. Friedman argued that controlling that supply was a better tool for managing the economy than taxation and spending policies.

Friedman wasn't always right. His dogmatic monetarism clouded his economic predictions during the 1980s and '90s, in part because of globalization and new financial instruments that made it difficult to measure the money supply, let alone control it.

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The Quantity Theory of Money:
From Locke to Keynes and Friedman


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Capitalism and Friedman
Wall Street Journal om Milton Friedman

17/11 2006

Som vi alla vet är rubriken en ordlek syftande på hans berömda bok
"Capitalism and Freedom".

In today's feature, he updates and re-examines conclusions he reached about the Great Depression in "A Monetary History of the United States, 1867-1960," a book published with Anna Schwartz 43 years ago. His thesis was that the Great Depression was not, as was once commonly presumed, a "market failure," but a failure of government policy. Contraction of the money supply in the wake of the stock-market crash of 1929 was what turned a financial event into an economic catastrophe.

This insight flowed from Professor Friedman's conviction that "money matters." As the Royal Academy of Sweden noted in announcing his 1976 Nobel, Friedman's was a lonely voice in arguing for the importance of the money supply in economics when he began writing about it in the 1950s.

By the late 1970s, stagflation -- the combination of high inflation and high unemployment -- had made it obvious that the then-dominant Keynesian model had some large holes. These included the effect of the money supply on inflation and the fact that inflation and employment did not move in lockstep as some of Keynes's disciples asserted. It was a seminal insight, creating what became known at the University of Chicago and elsewhere as the "monetarist school" and laying the intellectual basis for central bankers to break the great inflation of the 1970s.

To measure the quantity of money, I use M2 in the U.S. and the conceptually equivalent M2 plus certificates of deposit in Japan. To express the data for the two countries and the widely separated periods in comparable units, I use as an index of the money stock the ratio of the quantity of money to its average value for the six years prior to the cycle peak. The peak quarter of the relevant business cycle is the third quarter of 1929 (29.3) for the earlier U.S. episode; the first quarter of 1992 (92.1) for Japan; and the first quarter of 2001 (01.1) for the second U.S. episode (see Table 1). Finally, the data are plotted to align the dates at the cycle peak.

Read Friedman´s article here:



Remarks by the President in Tribute to Milton Friedman
May 9, 2002

President Bush honored Dr. Friedman on his upcoming 90th birthday and for his lifetime awards
including the Nobel Prize in economics in 1976 and the Presidential Medal of Freedom in 1988.

THE PRESIDENT: It's an honor for me to be here to pay tribute to a hero of freedom, Milton Freidman. He has used a brilliant mind to advance a moral vision: the vision of a society where men and women are free, free to choose, but where government is not as free to override their decisions....

We have seen Milton Friedman's ideas at work in Chile, where a group of economists called the "Chicago Boys" brought inflation under control and laid the groundwork for economic success. We have seen them at work in Russia, where the government recently adopted a 13 percent flat tax with impressive results. We have seen them at work in Sweden, which has adopted personal retirement accounts. We have seen them even at work in China, where the government conceded long ago that Marxism was, in their words, "no longer suited" to China's problems.

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Milton Friedman's Cherished Theory - The permanent income hypothesis - Is Laid to Rest
Noah Smith, Bloomberg 12 January 2017

Friedman’s theory says that people’s consumption isn’t affected by how much they earn day-to-day.
Instead, what they care about is how much they expect to earn during a lifetime.

If they have a sudden, temporary loss of income -- a spell of unemployment, for example -- they borrow money to ride out the dip.
If they get a windfall, like a government stimulus check, they stick it in the bank for a rainy day rather than use it to boost consumption.

Only if people believe that their future earning power has changed do they respond by adjusting how much they spend.

But as economists get better and better data, they’re finding that even this modification isn’t enough.
A new study by Peter Ganong and Pascal Noel shows that consumer behavior is more short term than almost any mainstream model predicts.

Even the greatest scientists can be wrong. The measure of a science is how quickly it comes to grips with the mistakes its heroes make.

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"The only sound policy was to let the depression run its course, bring down money costs, and eliminate weak and unsound firms."
Friedman viewed this as evident nonsense, and commended instead the then Chicago view that banks should be rescued,
government should act to reflate the economy, and that there was a strong case “for the use of large and continuous deficit budgets to combat the mass unemployment and deflation of the times.”

Paul Krungman, tips from Brad DeLong, link Tim Lee, 14 April 2013

But as Lee notes, the doctrine Friedman considered self-evident nonsense is now more or less the official doctrine of the Republican party,
while the Chicago view he praised are now, according to conservatives, tyrannical socialism.

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The truth, although nobody on the right will ever admit it, is that
Friedman was basically a Keynesian — or, if you like, a Hicksian.
Paul Krugman, NYT blog 14 March 2012

Keynes offers us the best way to think about the financial crisis
Few still believe in the fiscal fine-tuning that his disciples propounded in the decades after the second world war.
But nobody believes in the monetary targeting proposed by his celebrated intellectual adversary, Milton Friedman, either
Martin Wolf, Financial Times, December 23 2008
Highly recommended

In the end, the Fed can always stop a deflationary spiral.
As Bernanke said to Milton Freidman on his 90th birthday, the Fed will not repeat the monetary crunch it allowed to happen 1930-32.
"Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
Ambrose Evans-Pritchard on 14 Dec 2007

Urban Bäckströms utspel om att ta bort överskottsmålet i de offentliga finanserna.
Den underliggande frågan är rimlig: Är det staten eller medborgarna som ska spara och ha resurser?
P J Anders Linder, SvD 28/1 2007

Samuel Brittan happened, prompted by Professor Charles Goodhart, to read Professor Milton Friedman’s seminal presidential address to the American Economic Association in 1967 somewhat sooner than any other prominent commentator in Britain at that time
About "Against the Flow" by Samuel Brittan, Atlantic Books £25, 385 pages
Peter Jay 12/2 2005

Peter Jay was for more than 20 years economics editor of The Times and later of the BBC. He is a non-executive director of the Bank of England.

Click here

"I've been wrong so far, so I don't have too much confidence in my view. But I think within the next 10 to 15 years the eurozone will split apart. The British government, on balance, should stay out of it."
Milton Friedman, Financial Times, June 06, 2003

Milton Friedman: EU to collapse within 10 years
The EU and its single currency euro will exist for some 5-10 years a than will just breakup, according Prof Milton Friedman, one of the leading libertarian economists.
EU Observer 2002-07-12

Intervju med Milton Friedman om EU/EMU
publicerad i Nyliberalen nr 1, 2002

Euro a ‘great mistake’
Milton Friedman
i Corriera della Sera
Monday 27th August 2001

Milton Friedman i Die Zeit 97-09-10:
"Europa är inte redo för en valutaunion och riskerar allvarlig ekonomisk skada och politisk osämja om projektet drivs igenom. "

Whither the EMU?
Milton Friedman i Wall Street Journal


"What has Happened to Monetarism?
An Investigation into the Keynesian Roots of Milton Friedman's Monetary Thought and Its Apparent Monetarist Legacies"
Jörg Bibow, The Levy Economics Institute, June 2002

Reporter: I ask whether he /Milton Friedman / has changed his famously sceptical views about European monetary union. After all, the euro has been around for a couple of years and is, as we speak, kicking sand in the face of a weak dollar. Surely this suggests that the European single currency could be a long-term success.

"I've been wrong so far, so I don't have too much confidence in my view. But I think within the next 10 to 15 years the eurozone will split apart. The British government, on balance, should stay out of it."
Milton Friedman, Financial Times, June 06, 2003

För motsatt uppfattning se Per T Ohlsson: I mitten av 90-talet, före eurons introduktion 1999-2002, kunde ingen veta hur stabilt EMU-systemet var. Nu, efter de första åren med euron, vet vi att det fungerar - även i en lågkonjunktur.
Ebba Lindsö: - När jag tyckte så då på 90-talet var det ett projekt på skisstadiet, nu vet vi att det faktiskt fungerar.
Göran Persson: Även jag har en gång sagt: låt oss vänta och se hur det går. Men vid den tiden fanns valutaunionen bara på papperet. Nu har den gemensamma valutan funnits en tid. Dåliga tider och vikande konjunktur världen över har satt valutaunionen på hårda prov - och den har varit framgångsrik.

Whom can You trust?

Intervju med Milton Friedman om EU/EMU
publicerad i Nyliberalen nr 1, 2002
Intervjuad av Erik Lakomaa

Vad Tycker du om EMU? Är det ett bra projekt?

- Jag tycker inte att det är något bra projekt,jag tycker att det är ett misstag.Men jag kan ju ha fel.

Ekonomiskt eller politiskt?

- Den enda anledningen till att man starade projektet är politik. Det här är inte ekonomi. Det var en del av Mitterrands och Kohls strävan efter Europas förenta stater och de kunde inte få med sig de andra politikerna eftersom ingen av dessa var beredda att tulla på sin makt. Det enda man kunde komma överens om var den ekonomiska delen. Jag tror dock att EMU kommer att leda till politiska problem.

Den penningpolitik som förs kommer att vara bra för ett land men dåligt för ett annat.Det som är rätt penningpolitik för Italien kommer att vara fel penningpolitik för Irland och Frankrike. Och när detta händer kommer politiska konflikter att uppstå.

Sverige hade helt privata konkurrerande valutor 1834-1902 - kan privata pengar vara en lösning?

- Jag tror inte privata valutor har framtiden för sig. När Hayek skrev om privata valutor byggde resonemanget på guldmyntsfoten,att de privata valutorna skulle vara knutna till guldet. Valutakonkurrens är en bra ide men jag tror dock inte på en återgång till valutor som bygger på guld eller silver. Så jag tror vi sitter fast med ett system med en politikerkontrollerad valuta som inte bygger på någon råvarustandard. Man kan tycka att det är bra eller dåligt men så tror jag det kommer bli.

Vad är din uppfattning om EU?

- Grundtanken med det europeiska samarbetet var frihandel,tullar och regleringar som hindrade handel mellan medlemsländerna skulle avskaffas. Det var en mycket god tanke. Det handlade om att avskaffa politik - inte om att centralisera den. Tyvärr har EU allt mer blivit ett politiskt projekt samtidigt som frimarknadstanken har vittrat bort.

Det samma gäller EMU, själva syftet med Euron - det politiska syftet - är att försöka tvinga de olika länderna att integrera sin politik mer och mer, det betyder att mer och mer makt centraliseras till Bryssel.

Nyliberalen och Frihetsfronten

Euro a ‘great mistake’
Milton Friedman i Corriera della Sera
Monday 27th August 2001

US economist Milton Friedman says the euro is a “great mistake” that will cause turbulence in several European countries in the next few years.

Mr Friedman , whose monetarist theories inspired the economic policies of Margaret Thatcher in the 1980s, argues that the euro will highlight the contrasts between EU countries instead of supporting a unified political system.

In an interview with Italian daily Corriere della Sera, he cited the example of Ireland, which he said should be tightening its monetary policy, and Italy, which “probably needs a more flexible policy”.

If Germany should also decide to “adopt a policy of easy money” to boost its economy, tensions would be considerable, particularly in Germany, France and Spain, he added.

Friedman said he approves of Italian Prime Minister Silvio Berlusconi’s plans to cut the tax burden along with reducing public spending, but added that to some extent Italy’s hands are tied.

“The problem, for you, is that Italy today cannot do what Thatcher did almost as soon as she arrived in power, eliminating exchange controls and making sterling float.

“Italy now unfortunately cannot do the same thing because of the euro,” Friedman said.

Asked whether some countries should consider dropping the single currency, Friedman said this would not be possible since “the key was thrown away” after the euro was adopted.

On the US economy, he said he expects a recession to be lengthier but less deep than in previous cases, with growth likely to return next year.

He said the Fed’s policy to cut interest rates is correct as an instrument to boost growth but will be too inflationary in the long run.

Milton Friedman i Die Zeit 97-09-10:
"Europa är inte redo för en valutaunion och riskerar allvarlig ekonomisk skada och politisk osämja om projektet drivs igenom. "

Europa är inte redo för en valutaunion och riskerar allvarlig ekonomisk skada och politisk osämja om projektet drivs igenom. Det sade den kände ekonomen och nobelpristagaren Milton Friedman i den tyska tidningen Die Zeit på onsdagen.

- Europa exemplifierar förhållanden som är ofördelaktiga för en gemensam valuta. Han påpekade att Europa består av tydligt skilda nationer, vars medborgare talar olika språk och har olika sedvänjor. Medborgarna är mer lojala mot och beroende av sina egna länder än den gemensamma marknaden eller idén "Europa".

Han jämförde Europa med USA som har ett språk och en kultur. USA har också flexibel arbetskraft, handel och rörligt kapital, vilket är nödvändigt för en gemensam valuta.

Om ett land upplever en plötslig ekonomisk nedgång är rörliga växelkurser det bästa sättet att återställa balansen med sina handelspartners. Detta skulle inte vara möjligt i en valutaunion, sade Friedman.

Han sade att viljan att introducera EMU den 1 januari 1999 är snarare politiskt än ekonomiskt motiverad.

Whither the EMU?
Milton Friedman i Wall Street Journal

With the future of EMU still in doubt, we asked a distinguished group of economists for their views on EMU, to wit: Is the EMU politically feasible? And is the EMU economically viable?

Milton Friedman, a Nobel Prize winner in economics, is a senior fellow at the Hoover Institution:

The relevant question is not whether the euro is economically viable -- it is if the member states are willing to exercise the necessary discipline, as they did from 1870 to 1914 under the gold standard -- but whether it is preferable to flexible exchange rates.

Does the gain from greater discipline and lower transaction costs outweigh the loss from dispensing with an effective adjustment mechanism and having to rely entirely on price and wage changes to absorb differential impacts of economic events on the different countries?

My considered opinion has long been that the loss outweighs the gain. The potential members of the EMU do not have sufficiently flexible wages and prices, or sufficiently mobile workers, or a sufficiently effective fiscal compensatory mechanism, to serve as a satisfactory substitute for flexible exchange rates.

The likely result is that the euro will exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues.

Political unity can pave the way for monetary unity. Monetary unity imposed under unfavorable conditions will prove a barrier to the achievement of political unity.

Other American Economists about EMU
"A Yankee Recipe for a EuroFed Omelet" By Robert F. Graboyes
Lawrence Lindsey, Adviser to Bush Jr
Martin Feldstein
Paul Krugman
Ronald I. McKinnon

Germany's Economic Ills
Martin Feldstein

Essays in Honor of Horst Siebert, forthcoming

Leading British and international economists, including three Nobel-prize winners have questioned the importance of the five economic tests, saying that the decision whether Britain should join the eurozone would be rather based on political rather than economic factors.
The economists include: professor Gary Becker, University of Chicago, Sir Alan Budd, provost of Queen's College, Professor George Akerlof at the University of California and Martin Weale, director of National Institute of Economic and Social Research.

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