B.A. (Hons), M.A (Econ). Ph.D., Hon. D.Sc Europe).

distinguished Indian Economist


  • Overview
  • Preface
  • Index
  • Review

Professor Milton Friedman was a distinguished monetary economist who received the Nobel Prize in economics in the year 1976. Since the start of the award of Nobel Prizes in economics in 1969, Professor Milton Friedman was the fourth economist to receive the full prize, the other three being Professors Paul A. Samuelson(1970) , Simon Kuznets (1971) and Wassily Leontief (1973). He was awarded the prize ?for his achievements in the field of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy.? He has thus been recognized for his path breaking contributions to monetary economics in particular.

The book consists of 13 chapters depicting his life and varied contributions both in appreciation and criticism.These are authored by distinguished economists from vaious parts of the World. They include Paul A. Samuelson, the first American Nobel Laureate in Economics, and others from Australia, Canada, China, Japan USA, Netherlands, France and Italy

The book provides a comprehensive picture of Milton Friedman the Nobel Laureate in Economics.

The name of Professor Milton Friedman is associated with the monetary economics and he has wide-ranging contributions to his credit in that area. The Nobel Foundation has stated that his name is ?Chiefly associated with the renaissance of the role of the money in inflation and consequent renewed understanding of the instrument of Monetary Policy?. Milton Friedman has given us the terms ?Money Matters? or even ?only Money Matter? with the emergence of Monetarism as a Chicago school. Friedman has carried out a number of studies which, scientifically speaking, are both original and weighty. The Foundation has prominently cited his book ?A Monetary H istory of the United States, 1867-1960? as the most profound and remarkable contribution of this Laureate.

Milton Friedman was a member of the ?International Journal of Applied Economics and Econometrics? from 1995 to 2006, the year in which he passed away. Therefore, it was felt that a volume should be published in his memory in recognition of his contributions to the journal and affectionate and co-operative support to the journal as one of its advisors.

We have presented the life and contributions of Professor Milton Friedman in a separate chapter in the book. Therefore, in the ?Preface‘, we try to highlight some of the major works of the Professor and try to highlight some of his qualities and strategic ways with which he handled the crises in the world, and in particular the monetary policies of USA.

Although Monetarism was the heart of his contributions to economics many areas of Milton Friedman‘s contributions need to be outlined. It is said that ?Friedman‘s work is hallmarked by its diversity as much as by its quantity. His theoretical and empirical contributions to economic analysis have ranged over such varied topics as utility theory, income distribution theory, the aggregate consumption function, tax theory, and many other topics, although his central concern has proved to be that of monetary economics. His contributions to the discussion of public policy have been even more varied, covering virtually the entire gamut of major economic and social issues of contemporary concern.

Milton Friedman was known for his originality and talent for controversy. His technical economic writings and his most populist writings on public policy exhibited a flair for attacking established orthodoxy. Dolan has remarked thus when Milton Friedman got the1976 Nobel Prize in Economics:

"Few were surprised. The main surprise was that this most original and influential of economists had to wait in line so long! The explanation is that Friedman has built in, in fact, by challenging virtually every major establishment doctrine."

The economists in the United States were divided as those belonging to Chicago School who expressed the critical views on Keynesianism. The Keynesian School of thought was headed by Professor Paul A. Samuelson who produced scholarly articles and engaged himself in debates in favour of Keynesianism. He is thus rightly named as the ?American Keynes?; others who followed him were also many.

Milton Friedman has lead the anti-Keynesianism. At Chicago, Henry Simon Dumurred. Though he attacked with vitriolic fervor the notions of Keynes and Hansen, it remained for one of his students to contribute the analytical depth, scientific precision and empirical evidence that alone could effectively challenge the Keynesian orthodoxy of the new economics.

"This student was Milton Friedman, the son of Ruthenian immigrants who worked in sweat shops at the turn of the century. From such inauspicious beginnings, he was eventually to set the agenda for the major economic debates of the post-World War II era. For the movement away from the monetary implications of neoclassical economics was to be halted by the empirical research and theoretical arguments of this brilliant economist".

Milton Friedman, in most of his writings including in his Nobel Lecture, is fond of providing fresh thoughts on inflation and the 'Philips curve' His methodological position has been elaborated to provide him major theoretical and empirical research to follow. According to Milton Friedman (1953), "the appropriate criterion for establishing the ?fruitfulness‘ of a theory is not the ?realism‘ of its assumptions, but the degree of empirical corroboration attained by its predictions. His argument bases itself on the proposition that the assumptions of any theory are inevitably – if it is to be scientifically fruitful – ?unreal‘ in some degree. This is so because the purpose of science is not to replicate the ?real world‘, in all its manifold complexity, but to provide simple models which abstract from the inessentials, and allow us to predict its behavior."

The 1963 magnum opus of Milton Friedman (with Anna J. Schwartz) " A Monetary History of United States, 1867-1960"was more than any other forced the economic profession to take monetarism seriously. Friedman and Schwartz assembled convincing evidence in support of the view that all macro economic crises in American history especially the Great Depression were caused by substantial monetary shocks. Government not the free market caused and perpetuated the Great Depression.

Friedman‘s analysis of the roles of information costs and inflation expectations in labor markets and his hypothesis of a natural rate of unemployment undermined one of the major pillars in the Keynesian orthodoxy – the Phillips curve. Though it is said that, because of Friedman‘s work and the work of others he inspired, by the late 1970s, it could reasonably be said that true Keynesians no longer existed, it can be asserted, that Keynesianism is yet the dominating force which is inspiring researchers and would continue to be the dominating force in the 21st century.

In all, Friedman is the author or co-author of more than 20 books and of roughly 100 scholarly papers for professional journals, plus numerous other articles and reviews for a wide range of popular publications. He was the Paul Snowden Russell Distinguished Service Professor of Economics at the University of Chicago until his retirement from active teaching in 1977, when he joined the Hoover Institution at Stanford University as a Senior Research Fellow. He continued to be a member of the research staff at the National Bureau of Economic Research and, until his death, he was a contributing editor and columnist for Newsweek magazine.

Like F. A. Hayek, Friedman is an unabashed classical liberal who does not accept the label ?conservative? because of his view that it connotes blind acceptance of the past. He clearly perceives and teaches the interdependence of economic freedom with the civil liberties of free speech, worship, press, assembly, and so forth. Consequently, he is one of the most eloquent and persuasive advocates of the economic and ethical superiority of free markets over collectivist government control.

In the course of his defense of individual freedom, Friedman has been the architect or advocate of many influential and ingenious proposals to resolve critical public issues, while at the same time dismantling government bureaucracy. Among his proposals are negative income tax, educational voucher, flat income tax, stable money growth, floating exchange rates, balance budget, volunteer army, no victimless crime laws.

Milton Friedman was a frank and outspoken person. My first experience with him on this was his letter of acceptance to be a member of the Editorial Advisory Committee of International Journal of Applied Economics and Econometrics. He had stated that he agrees to be a member without hesitation and fill the gap caused by the passing away of Professor Jan Tinbergen who was founder of the journal with me. The second example regarding his outspokenness may be quoted from his presentation made at the Trinity University after getting the Nobel Prize award. He has said that there are some pre-requisites to get a Nobel Prize in economics. Firstly, one should be very brilliant and merited in his academic career. After one comes out of the portals of the college and starts his research, he should be lucky enough to have a brilliant collaborator. If he is an American, it is an advantage and if he comes from Chicago School or from any one of the college of Chicago University, it is still better. Let us quote Milton Friedman his own presentation titled: "My Evolution as an Economist".

"So far, twenty-two people have received the Nobel award in economics. Not one of them has been female – so, to judge only from the past, the most important thing to do if you want to be a Nobel Laureate is to be male. I hasten to add that the absence of females is not, I believe, attributable to male chauvinist bias on the part of the Swedish Nobel Committee. I believe that the economics profession as a whole would have been nearly unanimous that, during the period in question, only one female candidate met the relevant standards – the English economist Joan Robinson, who has since died. The failure of the Nobel Committee to award her a prize may well have reflected bias but not sex bias. The economists here will understand what I am talking about.
"A second requirement is to be a U.S. citizen. Twelve of the twenty-two recipients of the Nobel Prize (till the date of this presentation by Milton Friedman)* were from the United States, four from the United Kingdom, two from Sweden, and one each from four other countries. This generalization is less clear-cut than the first because the population of the United States is more than three times as large as Britain, but the number of Nobel recipients only three times as large. So on a per-capita basis, Britain has a better record than we have."

"A third generalization is, at least to me, the most interesting statistical result. Of the twelve Americans who have won the Nobel Prize in economics, nine either studied or taught at the University of Chicago. And I may say, in addition to those nine, one other, Friedrich Hayek, also taught at the University of Chicago for ten years. However, I have classified him as an Austrian rather than an American in my compilation. Beyond that, the statistics won‘t go, and that‘s all the advice I can give to potential Nobel Laureates."

Out of 62 Nobel Laureates (including 2008 award) who won the prizes so far 46 are Americans of which a large number are from the Chicago School or related institutions. Milton Friedman is the 12th person to get the Nobel Prize and fourth to get the full prize. The other three who had received full prizes before him are Professors Paul A. Samuelson, Simon Kuznets and Wassily Leontief. By that time in four years, two persons had shared. They are, Professors Jan Tinbergen and Ragnar Frisch (1969) and Sir John R Hicks and Kenneth J. Arrow (1972) and Gunnar Myrdal and Friedrich August von Hayek, (1974), and Leonid Kantorovich and Tjalling Koopmans (1975).

Milton Friedman got the Nobel Prize in the eighth year (1976) (four full prizes and four prizes shared). It is a feeling of every economist that Jan Tinbergen and Ragnar Frisch should have got full prize, as also Sir John R Hicks and Kenneth J Arrow should have received the full prizes. Professor Paul A. Samuelson is of the opinion that ?Sir John R. Hicks and Kenneth J Arrow should have got full prizes even if his getting the award was postponed from 1970 to a future date?.9 This is how Samuelson stands for merit.

Milton Friedman was a open minded and spontaneous in his lecture presentation: "My Evolution as an Economist."

Milton Friedman though he belonged to Chicago School has been frank in his mathematical analysis of Nobel Prize winners and indirectly has felt that the Nobel Prize has eluded many economists from other parts of the world. He received a further recognition in professional status after the publication of his book "Free to Choose" with Rose Friedman. The other book which brought him the name as a well known "Monetary Economist" is "Money Mischief - Episodes in Monetary History". There is large number of episodes which he came across in his professional activities which has interested the economists and other readers."

The book "Essays in Positive Economics" by Milton Friedman is in principle independent of "Positive economics is in principle independent of any particular ethical position or normative judgments. As Keynes says, it deals with "what is", not with "what ought to be." Its task is to provide a system of generalizations that can be used to make correct predictions about the consequences of any change in circumstances. Its performance is to be judged by the precision, scope, and conformity with experience of the predictions it yields. In short, positive economics is, or can be, an "objective" science, in precisely the same sense as any of the physical sciences.

The real pleasure hour to Milton Friedman was the periods of recession. He played a vital role in shaping the monetary policies in the United States and elsewhere after the ?Great Depression? of 1929 and during the years after the Second World War. There was recession in the Britain during 1990‘s which was also exceptionally severe. After the Second World War, there were four recessions of varying degrees of duration and intensity. Two of them in 1974-76 and 1980-83 were sudden and quickly spread. The other two, that of 1970-72 and the one which began in 1991 were more complex needing policy measures. Milton Friedman played a vital part in suggesting policy measures in these contexts also. There is Great Recession in the USA and in all parts of the world currently. Had Milton Friedman lived now, what measures he would have suggested to come out of this depression. Those concerned with monetary policies in the United States or elsewhere, would remember Milton Friedman very much. His contributions in the context of previous recessions would serve as an indicator to the policy makers of today.

As said earlier, this book is being brought out in memory of Milton Friedman who was with us as a member of Editorial Advisory Committee of International Journal of Applied Economics and Econometrics. In this book, an attempt is made to cover as many subjects of Milton Friedman‘s favorites as possible. It is presented in 13 chapters by well known authors in the area of monetary economics.

In the first chapter, the life and contributions of Milton Friedman are presented as briefly as possible. In the second chapter, Professor Paul A. Samuelson, Institutes Professor Emeritus, MIT, Cambridge, USA, (1970) who received the second Nobel prize after the first prize was shared by Professors Jan Tinbergen and Ragnar Frisch in 1969, in his paper on ?Remembering Milton Friedman? has presented the contributions of Milton Friedman during 1929-39 (the Great Depression era) and during the Second World War 1939-45. He has expressed some conceptual differences between Friedman and himself which is natural in the discussions in economics or any other subject for that matter. He has expressed his affectionate relations and cordiality between them in many places in the chapter which demonstrates the fact that one has to differentiate between the personal relationship and academic differences, if any. In chapter three, Professor Warren Hogan with his co-author Jonathan Batten has tried to analyze Market Disturbances and Responses. The area of this paper was close to Milton Friedman and Hogan‘s paper is based on the presidential address of Milton Friedman to the American Economic Association in the December 196714 . In chapter four, Professor John Lodewijks provides the evolution of Fiscal Stabilizers in his paper: ?Automatic and Discretionary Stabilizers?. He gives the reasons for the end of discretionary stabilization policy and presents the need for Fiscal discipline. He goes on to conclude with the future of Fiscal Stabilizers. While the methodological conflict between Simon, Samuelson and Friedman is provided in chapter five by Professor Edward Mariyani-Squire, Professor Syed Ahmad has dealt with the two opponents of the Keynesian consensus in chapter six. Professor Gilbert Abraham-Frois has dealt with ?a neo-wicksellian? revival in the context of monetary control to inflation targeting. In the next chapter, Professor Neil Dias Karunaratne has discussed the influence of Milton Friedman on the monetary policy in Australia. The paper on ?China‘s Prospects as an Innovative Country‘ in the industrial sector has provided a perspective in that sector in the future China. This area has been dealt with Milton Friedman in his major work American Economic History. This paper is by Professor, Junbo Yu and Peter Nijkamp who have gone along the line of Milton Friedman who has depicted the American Economic History and prospects.

The paper by Robert Leeson talks about the legacy of Milton Friedman and the other chapter by Professor Alex Millmow shows the differences between Chicago and Cambridge in Australia. He has taken the case of Milton Friedman‘s visit to Australia in 1975 and the paper is an outcome of that visit. The paper by Professor Vittorangelo Orati is very critical of Milton Friedman‘s contributions, which may be read with interest. The last chapter by Professor Shosuke Takemura has shown the vision of Milton Friedman of competition basing on his multiple doctrines. The Annex which lists the contributions of Milton Friedman in chronological order, will be useful to future researchers, students, teachers and other professionals for their further research.

I have great pleasure in placing this volume before the world of economists, Professors, researchers and students of economics.

February 01, 2009.                                                                   K. Puttaswamaiah







1. Milton Friedman –His Life and Contributions                  K. Puttaswamaiah


2. Remembering Milton Friedman                                   Paul A. Samuelson


3. Markets, Disturbances and Responses           Warren Hogan and Jonathan Batten


4. Automatic and Discretionary Stabilizers            John Lodewijks


5. Methodological Conflict: Simon, Samuelson and Friedman                                                          Edward Mariyani–Squire


6. Two Opponents of the ?Keynesian Consensus? Syed Ahmad


7. From Monetary Control to Inflation Targeting: ?a neo-wicksellian? revival?                                         Gilbert Abraham-Frois


8. Friedman’s Influence on Monetary Policy Design (Down Under Australia)                                                  Neil Dias Karunaratne


9. China’s Prospects as an Innovative Country: An Industrial Economics Prospective                               Junbo Yu and Peter Nijkamp


10. The Legacy of Milton Friedman                             Robert Leeson


11. Chicago Versus Cambridge in Australia, 1975  Alex Millmow


12. Milton Friedman: A Late and Overestimated Master of Sophistry        Vittorangelo Orati


13. Milton Friedman’s Probable Vision of Competition Basing on his Multiple Doctrine   Shosuke Takemura


Annex 1 


List of Life time Contributions of Milton Friedman



Milton Friedman : Nobel Monetary Economist

This special issue presents papers covering a large range of Friedman analysis since it deals not only with Friedman influence on monetary policy, opposition to Keynesian ?consensus?, economic stabilization but also with methodological issues and conflicts. Large variety of views as well as critical contributions by internationally renowned scholars constitute a remarkable volume which will be of interest to a large group of scholars all over the world.
               -Gilbert Abraham-Frois, Professor, University Paris-X-Nanterre.

The volume on Milton Friedman is an impressive contribution.
             -Warren Hogan, Emeritus Professor in the University of Sydney and Adjunct Professor in the University of Technology, Sydney.

We are witnessing a time of financial turmoil in the world‘s largest economy which is experiencing the most dangerous shock to its financial sector since the 1930s. It would have been fascinating to know how Milton Friedman would have diagnosed the problem and how he would have reacted to a $US700 billion bail-out package. Unfortunately we will never know for in November 2006 the profession lost one of its most persuasive, controversial and influential economists. His original path-breaking contribution was a diagnosis of the Great Depression. Dr Puttaswamaiah has done us a great service by assembling thirteen contributors who have written papers in his honour. The authors include a former sparring-partner and fellow Nobel Prize Winner and his literary executor. The topics range over the terrain that Friedman contested: positive economics, monetary policy, Keynesianism and discretionary stabilization policy, and the legacy of Chicago economics.
              -John Lodewijks, Professor & Head, University of Western Sydney.