Introduction
Milton Friedman is widely known as a well-versed American economist, having received the Nobel Memorial in 1976 in the scope of economic sciences. He was born in 1912 in New York City and died in 2006 at his palatial home in California. His essential work includes research on consumption scrutiny, the theory on monetary history, and the complexity of stabilization strategy. He was also a statistician who had strong principles and beliefs in the notion of capitalism. Friedman became a lecturer at the famous University of Chicago, where he developed the free-market model that opposed the traditional Keynesian economists' opinions. He became one of the world's renowned economist, as he popularized some of the most studied economic principles in modern-day society. Monetarism was one of his major economic strategy that had overturned the application of Keynesian economics. He was among the intellectual class of leaders in the field of economics and played a huge role in crafting the new classical macro and microeconomics that is embedded in the conception of rational prospects.
Friedman received various honors due to his education, having received the prestigious John Bates Clark Decoration for his exceptional economic advancements. He was also an advisor to Richard Nixon, the then United States president, and was honored to become the American Economic Association president ( Krugman, 2007 ). After retiring from the Chicago University in 1978, he later turned out to be a principal researcher at Hoover institute based at the University of Stanford. He also focused on income inequality and was well versed in statistical economic analysis and tax research.
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Literature Review
Milton Friedman greatly advocated for the rebellion against the theory of Keynesianism. According to Popov (1990), Milton Friedman was guided by two factors: Arthur Burns being his economist lecture at the university and the events leading to the Great American Economic Depression. Burns was a renowned economist who was completing his doctoral dissertation and was expected by many to become the next United States President of the Federal Reserve Organization. Friedman had by then completed his studies, and many scholars were researching for answers to solve the puzzle brought about by the depression in 1932. Some of his mentors in his learning time were Simon Kuznets, George Stigler, and Kenneth Boulding. He worked on economics, and it was during the years of the Second World War, he found himself working in various governmental sections under the scope of economics.
Friedman wrote books such as Capitalism and Freedom , Essays in Positive Economics , and the well-known The History of the United States Monetary System . This led to him being awarded the 1976 Nobel Economist Peace Prize. Many referred to him as the anti-Keynesianism as he belonged to the famous Chicago School of Economics. During this time, the world experienced enormous growth and development in administration and bureaucratic policies. The environment was also being destroyed, and the dangers associated with the exhaustion of natural resources took over. Epidemics were common, raising the concern of alternative cost where individuals had to choose between orientation towards other values and the growth and development of material affluence. These factors formed the basic principles of adapting to economic trends where Milton Friedman was viewed as the savior of humankind against harsh economic times.
Friedman's major findings entail man and economics’ general conception, commonly known as the economic man. He believes that a man only depicts himself as economical if only he becomes productive. Secondly, Friedman believed that state regulations against economic prosperity should be removed to pave the way for desirable economic advances. He emphasized the role of pure competition where each person acquires education and uses it to bring development in areas such as medical care, housing, and agriculture. Thirdly, Friedman critically analyzed the basic ideologies of Keynes, mostly in the concept of consumption. Keynes's viewpoint was that consumption rises with the growth of income but at a slower rate. Freidman orchestrated the advancement of both permanent primary and secondary income. His thoughts matched with his ideology that investment does not necessarily constitute real consumption. Keynesianism was concerned with developing a minimum wage, which later leads to increased saving instead of spending. Friedman took this as wrong because demand is generated when prices fall rather than when they rise.
Subsequently, Friedman came up with the monetary theory, which borrows from the economics price theory. He believed that the amount of money in circulation should be the same as the rate of production. Any interference from the state tends to carry the danger emanating from the undesirable economic instability. He was inclined to the notion of the banking system being placed in private entrepreneurs' hands. Friedman first introduced the money-first slogan, which criticized inflation as a tool that works for short development times. Additionally, he differed with Mydal Gunnar, who said economics was not a science ( Fujita, 2017 ). He believed that economics was a science that could not exist without social assessment and that economic science makes it possible to forecast the sequence of events. Friedman advanced in his monetarism strategy, where he challenged the policies based on the Keynesian economists in the post-War era.
Through his binary economic critique, Milton Friedman believed in the virtue of capitalism that breeds freedom. According to Ashford (2010), a binary economic critique based on Friedman's free-market, the capitalist system, and private enterprise is the vital condition that results in freedom. By comprehending various economics and private property principles, one can analyze and appraise economic prowess in a plutocracy, underemployment, and capital markets. Friedman believed that a binary economic strategy helps create a more democratic and prolific market system, one branded by sustainability, supply prosperity, and economic power that yields personal freedom, common in capitalist economies.
The binary economics model relies on the fundamental economic propositions. The more amount of capital acquired with the earnings of monetary value, the more the likeability of it plowing back profit and thus increases production. Therefore, capital and labor are the ultimate binary factors of production. Technology helps in making capital produce more as compared to labor. These teachings guided Friedman as he sought to define productivity, distinguishing it from binary economics. He defines productivity as the ratio found with the output involving the production factors divided by labor input. This also contributed to the value of work done, which generally means a productive capacity. The use of the binary approach saw labor and capital being treated as independent variables of production, paying attention to the work done by each factor. Friedman agreed that binary productiveness does not refute that labor and capital are necessary to invent, maintain, repair, or design operations, and capital is generally for financing purposes.
According to Friedman, capital has a significant contribution to the growth and development of economics rather than increasing individuals' production rate. Capital has great returns because society's economic function is to yield more with capital production with less labor consumption. Capital tends to provide more productiveness and bring a growing capacity to dispense freedom and income. Adam Smith was also in the conventional school of economics that depicted that capital's principal role always makes labor more industrious. This explains the reason why per capita fiscal growth is an outcome of the elevation of human output. When production is elevated, it permits the inclusion of investment in capital, payment of desirable wages, and equitable distribution, ultimately promoting economic stability.
The growth of binary helped Friedman develop the fundamental principle of economics that the demand for capital goods depends on how consumers demand certain products. It creates a pattern that progressively boosts capital acquisition, which leads to a wide demand for production-based consumer products in the future. He concluded that a wide and even distribution of income and capital acquisition strengthens future capital creation, leading to more profits and desirable future earnings. Friedman believed that when more capital and labor are employed, there tend to be greater projections of maintainable economic growth. He argued that all capital returns are interrelated with the wage rate, scarcity, interest rate, and marginal productivity of labor and capital. There is a positive relationship that exists when the growth and distribution of capital make individuals more productive.
However, Milton Friedman's arguments on the scope of social responsibility have been criticized by various scholars. Friedman misses the mark in proving that social responsibility in corporate enterprises is by nature a prejudicial and socialist practice. According to Mulligan (1986), Friedman's case is in many ways questionable in its paradigm, having to miss a logical cogency, and the critical premise is based on falsehood. He further attests that proposing a different paradigm, one responsible for various business operations, should always be committed to social responsibility, which forms an integral component in operation and strategic enterprise management policies. Friedman had confidence in that individuals who are tasked with decision making should not be coerced with the mandate of being socially responsible in acting as the firm executives, but should focus on ensuring the company increases its profits.
To Friedman, the doctrine of social responsibility was a socialist doctrine that was negative and undesirable since he believed in capitalism's virtue. Corporate heads were not to show any form of social responsibility as it seemed unfair to promote taxation that lacked representation. He had made several contributions to the floating of exchange rates and relied on the notion that people could not tax themselves to prosperity. To Friedman, social responsibility was more undemocratic since it invests much on governmental prowess in an individual who lacks any general and legal mandate to govern. Due to his lack of interest in politics and being a presidential advisor, social responsibility was not to sit well with him. Friedman viewed organizations practicing social responsibility as doing an act that seemed unwise. In essence, it did not provide for the allowance of checks and balances in the wide scope of governmental power that usually turned it to discretion.
Corporate social responsibility seemed a violation of Friedman's trust and integrity as employees are employed by the business owners and must always serve their superiors' interests. He viewed the act as disrespectful to the people who ensured employees could satisfy their unlimited human wants. Similarly, social responsibility appeared to be futile as the corporate executives are not likely to anticipate their deeds' social magnitudes, and many costs will be incurred by the consumers, employees, and stakeholders. According to Friedman, socialism was intolerable since it differed from his notion of advocating for social responsibility and working in a free market policy. He argues that the doctrine of shared responsibility does not diverge in attitude from the most explicitly collectivist principle. Friedman's views on social responsibility were biased and offered an undesirable paradigm towards social responsibility in the corporate world.
Similarly, Hetzel (2007) narrated Milton Friedman's significant contributions in the field of economics. He argued that Friedman developed two concrete hypotheses that differentiated him from the prevailing intellectual mainstream. The first hypothesis is that central banks are the main reason for both inflation and deflation. The second hypothesis is that the market works effectively to assign resources responsible for maintaining macroeconomic equilibrium. Because of these great successes in analyzing his ideologies, Hetzel (2007) stated that Friedman shaped the understanding of the century's huge economic transformations that contributed to major public policies. These policies made him stand out as the vital intellectuals of the 20th century.
Hetzel (2017) argued that in the late 1940s, Friedman subscribed to the idea of macroeconomic stabilization ideologies that thrived vital guidelines instead of discretionary government interventions. In his 1940 article, Hetzel proposed that "A Monetary and Fiscal Framework for Economic Stability." The article proposes that a state-run countercyclical budget framework with the monetization of inadequacies and demonetization of excess with the budget balance over the cycle. From this assumption, Hetzel (2007) stated that Friedman became a quantity theorist when he assumed that velocity is always a stable factor. Friedman argued that velocity could be forecasted due to empirical analysis that demonstrated that it relied on the least number of factors and, in a way, proposed by economic theory. Friedman's analysis of quantity theory became important during the Great Depression because it demonstrated the irrelevance and powerlessness of central banks in stimulating expenditure. Many intellectuals realized that money growth is a huge determinant of inflation and exemplified the phenomena of exchange as the best option for the Keynesian autonomous expenditure evaluation for assessing output.
Hetzel (2007) demonstrated that Milton Friedman is the father of quantity theory. Friedman insisted that money matters in an economy because it tends to determine price behavior when it is created. Friedman offered the empirical analysis to the theory by learning historical examples; the situation proved that money is the causal variable in the relationship. Friedman argued that prices and stock of cash have shifted together and can be seen from numerous years of history, for nations in each part of the world and the broad diversity of money arrangements.
Additionally, according to Hetzel (2017), Friedman was the great defendant of free markets. He shifted from the intellectual agreement and beliefs that an increasing standard of living is due to central planning. He argued that the increased standard of living lies in free markets. Friedman insisted that free-market policies would solve economics's challenges in his articles, such as Capitalism and Freedom. Friedman proposed the flexibility of free markets instead of pegged exchange rates. He also highlighted that there should be the elimination of the 1970s price controls on energy, voluntary in the army sector, and auction of government bonds. Friedman believed there had been the eradication of usury law, flax taxes, free trade, index of tax code inflation, and negative income tax. There has also been the elimination of vouchers, especially in charter schools. Some of his failures include the legalization of drugs and eradicating postal monopolies on the first-class email's issuance.
From Hetzel's (2007) analysis, Friedman's success is due to his personal elements of a theoretician and the empiricist. A theoretical think exclusively has the ability to comprehend the world around one in terms of the progress of a few abstract. An empiricist thinks inclusively and has the capability to comprehend the world around them and develop empirical regularities through extensive analysis. These aspects are the main reason why he developed two concrete hypotheses that are still subject to debate to date. In many ways, Friedman was an optimist and libertarian innovator, but his economic investigations were always stuck in practical realism. According to Schwarzer (2018), Friedman brilliantly told Richard Heffner, coordinator of "The Open Mind," in an interview: "One of the boundless errors is to critic strategies and programs by their purposes rather than their outcomes."
References
Ashford, R. (2010). Milton Friedman’s capitalism and freedom: A binary economic critique. Journal of Economic Issues , 44 (2), 533-542. https://www.tandfonline.com/doi/abs/10.2753/JEI0021-3624440226
Fujita, N. (2017). John R. Commons and Gunnar Myrdal on Institutional Economics: Their Methods of Social Reform. In Contemporary Meanings of John R. Commons’s Institutional Economics (pp. 99-117). Springer, Singapore. https://link.springer.com/chapter/10.1007/978-981-10-3202-8_5
Hetzel, R. L. (2007). The contributions of Milton Friedman to economics. FRB Richmond Economic Quarterly , 93 (1), 1-30. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2186647
Krugman, P. (2007). Who was Milton Friedman? New York Review of Books , 54 (2), 27. http://www.barrybeck.com/forms/friedman.pdf
Mulligan, T. (1986). A critique of Milton Friedman's essay ‘the social responsibility of business is to increase its profits’. Journal of Business Ethics , 5 (4), 265-269. https://link.springer.com/article/10.1007/BF00383091
Popov, G. (1990). The Rebellion against Keynesianism: Milton Friedman. Problems in Economics , 33 (5), 99-103. https://www.tandfonline.com/doi/pdf/10.2753/PET1061-1991330599
Schwarzer, J. A. (2018). Retrospectives: Cost-Push and Demand-Pull Inflation: Milton Friedman and the" Cruel Dilemma". Journal of economic perspectives , 32 (1), 195-210. https://www.aeaweb.org/articles?id=10.1257/jep.32.1.195
