Milton Friedman

1. Introduction

Milton Friedman (1912–2006) was an American economist whose work helped redefine macroeconomic theory, reshape public policy, and reframe philosophical debates about liberty, coercion, and the proper scope of the state. He is widely associated with monetarism, the Chicago School of economics, and late‑20th‑century neoliberal thought, but his influence extends into political philosophy, ethics, and the methodology of the social sciences.

Friedman’s central concerns were the relationship between economic freedom and political liberty, the design of rule‑based institutions in the face of limited knowledge, and the moral and practical evaluation of market versus governmental coordination. He defended a form of classical liberalism that emphasizes voluntary exchange, private property, and strong but narrowly bounded government. His views became touchstones for discussions of distributive justice, paternalism, and the legitimacy of welfare states.

In academic economics, Friedman made major contributions to consumption theory, monetary economics, and empirical methodology, often challenging prevailing Keynesian orthodoxy. In philosophy of economics, his essay “The Methodology of Positive Economics” provoked extensive debate about the role of idealization, prediction, and realism in economic modeling.

Beyond the academy, Friedman became a prominent public intellectual through newspaper columns, television programs, and popular books such as Capitalism and Freedom and Free to Choose. Supporters treat him as a leading defender of individual liberty and market coordination; critics regard him as a principal architect or symbol of market‑oriented reforms associated with rising inequality and financial instability. This entry surveys his life, major works, and core ideas, and examines the wide range of philosophical debates they have generated.

2. Life and Historical Context

Milton Friedman was born in 1912 in Brooklyn to Jewish immigrants from Eastern Europe and raised in Rahway, New Jersey, in modest economic circumstances. His early experience of small business life and financial insecurity is often cited as shaping his interest in social mobility and government intervention. Scholarships enabled him to study at Rutgers University, followed by graduate work at the University of Chicago and Columbia University, where he developed strong training in mathematics, statistics, and empirical economics.

Friedman’s early career unfolded during the Great Depression, the New Deal, and World War II—events that defined his generation’s view of the state and markets. He worked at the National Bureau of Economic Research and during the war at the U.S. Treasury and related research units, contributing to tax policy and statistical techniques. These roles exposed him both to large‑scale government management and to the difficulties of forecasting and planning under uncertainty.

From 1946, Friedman taught at the University of Chicago, a key node of what came to be known as the Chicago School of economics. The postwar dominance of Keynesian macroeconomics and faith in technocratic management provided the backdrop against which his monetarist and liberal arguments developed. The inflationary episodes and stagflation of the 1960s and 1970s created a receptive environment for his criticisms of discretionary macroeconomic policy.

Historically, Friedman’s career tracks broader shifts from mid‑century welfare‑state consensus to late‑20th‑century market‑oriented reform. He interacted with policymakers in the United States, the United Kingdom, Latin America, and elsewhere, and his media presence from the 1960s onward coincided with the rise of television politics and global economic integration.

3. Intellectual Development

Friedman’s intellectual development is often described in phases that correspond to shifts in his research focus and the broader economic climate, while retaining a consistent emphasis on empirical work and individual liberty.

Formative Training and Empirical Orientation

At Rutgers, Friedman studied under economists such as Arthur Burns, developing an early interest in business cycles. Graduate studies at Chicago and Columbia deepened his exposure to neoclassical theory and advanced statistics. Work at the National Bureau of Economic Research, often in collaboration with Simon Kuznets and others, grounded him in long‑run data analysis. Proponents argue that these experiences instilled his lifelong commitment to measurement and hypothesis testing.

Chicago School Consolidation

After joining the University of Chicago faculty in 1946, Friedman became central to the emerging Chicago School. During this period he developed the permanent income hypothesis, began rethinking the demand for money, and elaborated his methodological stance in “The Methodology of Positive Economics” (1953). He also engaged in intense seminar debates with colleagues and students over the feasibility and desirability of Keynesian fiscal policy.

Monetarist Architect and Public Intellectual

From the late 1950s through the 1970s, Friedman’s work with Anna J. Schwartz on A Monetary History of the United States, 1867–1960 and his essays on monetary policy crystallized monetarism. Simultaneously, he extended his technical arguments into a comprehensive political philosophy in Capitalism and Freedom. His role expanded from academic economist to public commentator, writing columns and giving lectures aimed at non‑specialist audiences.

Global Symbol and Later Revisions

In his later years, Friedman became widely known through Free to Choose and international policy advising. He refined some technical positions—such as aspects of his monetary rules in light of evolving financial systems—while reaffirming his general skepticism about discretionary government action. Scholars differ on how far his views changed; some emphasize continuity in his underlying liberal commitments, while others highlight adjustments in response to empirical developments.

4. Major Works and Key Texts

Friedman’s corpus spans technical economics, methodology, and popular political writing. The following overview highlights texts that have been especially influential in economics, philosophy, and public debate.

In A Theory of the Consumption Function, Friedman proposed the permanent income hypothesis, challenging prevailing Keynesian views of consumption behavior and influencing later models of intertemporal choice.

A Monetary History offered detailed empirical analysis to argue that monetary contractions, rather than inherent market instability, played a decisive role in major U.S. economic downturns. Its chapter on the Great Depression became particularly prominent.

Capitalism and Freedom and Free to Choose set out his broader political and social philosophy, treating economic freedom as both an end in itself and a means to political liberty. These works combined theoretical argument with concrete proposals, such as school vouchers and a negative income tax.

His 1970 article on corporate responsibility has been central in business ethics, often cited in debates about the moral obligations of firms and managers.

5. Core Ideas and Theoretical Contributions

Friedman’s core ideas span technical economic theory and broader claims about institutions and freedom. While their empirical validity and normative implications are contested, they form a relatively coherent framework.

Monetarism and the Role of Money

Friedman argued that changes in the money supply are the primary driver of nominal income and inflation over the medium to long run. He proposed that the demand for money is stable enough to allow central banks to follow simple rules—such as a constant growth rate of money—rather than discretionary fine‑tuning. Supporters claim this clarified the causes of inflation and provided a robust guide for policy; critics contend that financial innovation and unstable money demand limit such rules’ effectiveness.

Permanent Income and Expectations

In consumption theory, the permanent income hypothesis holds that individuals base spending on expected long‑term income, smoothing consumption over time. This challenged models in which current income largely determined consumption. The idea influenced later rational expectations and life‑cycle models, though some empirical studies suggest that liquidity constraints and myopia can generate deviations from Friedman’s predictions.

Natural Rate of Unemployment

Friedman introduced the notion of a natural rate of unemployment, implying that attempts to push unemployment below this rate via demand stimulus will eventually accelerate inflation without lasting employment gains. This underpinned the concept of the non‑accelerating inflation rate of unemployment (NAIRU) used in later macroeconomics. Debates continue over how fixed or policy‑sensitive this “natural” rate is.

Rules vs. Discretion

A recurring theme is the preference for rules‑based over discretionary policy. Friedman argued that limited knowledge, lags, and political pressures make discretionary macroeconomic management prone to error and instability. Advocates see this as an early articulation of a constitutionalist approach to economic policy; opponents argue that rigid rules can be too inflexible in crises.

6. Methodology and Philosophy of Economics

Friedman’s most explicit methodological views appear in “The Methodology of Positive Economics” (1953), a central reference in philosophy of economics.

Positive vs. Normative Economics

He drew a sharp but not absolute distinction between positive economics (descriptive and predictive claims about what is) and normative economics (value‑laden claims about what ought to be). Positive economics, in his view, can in principle yield objective knowledge, providing input to but not determining normative judgments.

Instrumentalism and Unrealistic Assumptions

Friedman famously defended an instrumentalist view of theory appraisal:

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“The only relevant test of the validity of a hypothesis is comparison of its predictions with experience.”

— Milton Friedman, Essays in Positive Economics (1953)

He argued that the realism of assumptions is largely irrelevant; what matters is the accuracy and scope of predictions. As examples, he cited models that treat firms “as if” they maximize profits, regardless of whether actual managers consciously do so.

Proponents claim this view legitimizes idealizations as long as they generate successful predictions, aligning economics with certain interpretations of physics. Critics—including philosophers of science and some economists—argue that it downplays explanatory understanding, causal structure, and the importance of microfoundations.

Empiricism and Statistical Inference

Friedman emphasized empirical testing using observational data, time series, and historical analysis. His work with the National Bureau of Economic Research exemplified a “measurement before theory” ethos. Scholars sympathetic to this approach praise its insistence on confronting models with data; detractors suggest that in practice, econometric limitations and identification problems complicate the clear tests he envisioned.

Methodological Individualism and Predictive Focus

Friedman generally endorsed methodological individualism, analyzing social phenomena in terms of individual choices under constraints. He was skeptical of models heavily reliant on unobservable psychological variables, preferring behaviorally specified, choice‑based frameworks. This stance influenced later rational choice and Chicago‑style economic analysis of law and politics, while raising questions about how well such models capture institutions, culture, and power.

7. Political and Social Philosophy

Friedman’s political and social philosophy is generally classified as classical liberal or libertarian‑leaning, though he accepted a more active state than some libertarians. His central thesis is that economic freedom is both intrinsically valuable and a necessary (though not sufficient) condition for political freedom.

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“History suggests that capitalism is a necessary condition for political freedom. Clearly it is not a sufficient condition.”

— Milton Friedman, Capitalism and Freedom (1962)

Conception of Freedom

Friedman primarily employs a negative conception of liberty—freedom from coercion. Markets, in his view, facilitate voluntary exchange and reduce the need for centralized commands. Advocates of this reading emphasize his focus on choice and exit options; critics argue that this neglects positive freedom (the capacity to act) and structural constraints such as poverty or discrimination.

Role of the State

He envisioned a government limited to functions such as:

• Enforcing property rights and contracts
• Providing a stable monetary framework
• Addressing certain “neighborhood effects” (externalities)
• Offering a minimal social safety net via mechanisms like a negative income tax

Supporters see this as a coherent framework that reconciles some social protection with market freedom. Opponents contend that it underestimates market failures, public goods problems, and the need for broader egalitarian measures.

Equality, Justice, and Redistribution

Friedman distinguished equality of opportunity from equality of outcome, prioritizing the former. He argued that efforts to impose outcome equality typically require coercive measures that erode freedom and, paradoxically, may reduce prosperity and long‑run opportunity.

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“A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”

— Milton Friedman, Capitalism and Freedom (1962)

Egalitarian philosophers challenge both the empirical and normative aspects of this claim, arguing that distributive justice requires more substantive redistribution than Friedman accepted.

Democracy and Constitutional Constraints

Friedman viewed majoritarian democracy as valuable but potentially dangerous if unconstrained. He favored constitutional rules that limit the scope of collective decision‑making, especially over economic matters, aligning him with broader “constitutional political economy” traditions. Critics worry that such constraints can entrench particular economic orders and limit democratic responsiveness.

8. Ethics, Markets, and Corporate Responsibility

Friedman’s ethical views about markets and corporations are widely discussed, particularly his 1970 New York Times Magazine article:

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“There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.”