Walters, Alan, “Friedman, Milton,” The New Palgrave: A Dictionary of Economics, Vol. 2 (E to J), John Eatwell et al., eds. (Macmillan Press, 1987), pp. 422–427.

Early Years

Born 31 July 1912 in New York City, Friedman was the son of a poor immigrant dry-goods merchant, who died when Friedman was 15. Friedman was clearly outside the East-coast establishment of the United States, although he did spend a year on graduate studies at the Ivy League school of Columbia. He graduated (BA) at Rutgers University in 1932 and completed his AM at Chicago the following year. After the fellowship at Columbia in 1933–4, he returned to Chicago as a research assistant to Henry Schultz to work on demand analysis until 1935, when he joined the staff of the National Resources Committee. From 1937 he started [a] long association with the National Bureau of Economic Research which persisted until 1981. From 1938 he began another long association—with Rose Director, as his wife, which produced, inter alia, a son and a daughter.

In 1940 there followed a brief period as visiting professor of economics at Wisconsin. Then after a two-year stint (1941–3) in the Treasury in the division of tax research, he became the associate director of the statistical research group in the division of war research at Columbia University until the end of World War II. He then spent a year as associate professor at the University of Minnesota, before returning to Chicago as professor of economics in 1946, the year in which he received a Ph.D. from Columbia. His teachers at Rutgers were Homer Jones and Arthur Burns; at Chicago, Frank Knight, Lloyd Mints and Jacob Viner; and at Columbia, Harold Hotelling, J.M. Clark and Wesley Mitchell.

Superficially this record does not seem impressive. Yet it encompasses what some scholars, particularly statisticians, would regard as Friedman’s most impressive contributions. Inspired by Hotelling’s work on the rank correlation coefficient, his first seminal contribution was the development (1937) of the use of rank order statistics to avoid making the assumption of normality in the analysis of variance. After fifty years this article is still regarded as one of the two or three critical papers in the development of non-parametric methods in the analysis of variance, and it was followed by a discussion of the efficiency of tests of significance of ranked data. It is not surprising that these papers have been of considerable practical use, since they were largely a development of Friedman applying his mind to the practical problems he encountered in analysing incomes and consumer expenditure at the National Bureau and in Washington. Even at this early stage Friedman’s work bears the imprint that readily identifies all his subsequent work. It is seemingly “simple,” eschewing complexities and complications, concentrating on essentials: all combined into a lucid exposition.

The detailed analysis of data on incomes and expenditures was Friedman’s main occupation during these years. With the exception of Kuznets, Mitchell and Burns, it is difficult to find any eminent economist who acquired such a grounding in the basic empirical material of economics. It is characteristic of all his work that the organization of such data would suggest theoretical developments and new ways of arranging the material, and above all new insights into the economic process. His first published article (1934) was on a method of using the separability of the utility function to measure price elasticities from budgetary data. This exploration of new insights into old data was particularly evident in his book (1945; with Kuznets as joint author) on incomes from private professional practice; there one sees the first signs of the permanent income hypothesis and, indeed, the perceptive reader may guess what is likely to follow. In this book, which Friedman submitted as a doctoral thesis, he argued that the process of state licensure enabled the medical profession more effectively to limit entry into their profession and so enabled them to exploit their patients, keeping fees high and competitors out. The fact that the argument was tightly constructed and buttressed with convincing evidence generated the most vehement opposition and animosity from that proud profession, which appears unabated four decades later.

The wartime service in the statistical research group, although an interlude in Friedman’s basic work on incomes and expenditures, generated one of the most remarkable advances in statistical theory since the seminal contributions of Sir Ronald Fisher. The group was a galaxy, consisting of Abraham Wald, Allen Wallis, Jacob Wolfowitz, Harold Hotelling and many other distinguished statisticians. The sampling inspection of wartime production of munitions etc[.] was a tedious process of selecting a sample of a given size and testing to see the fraction of good ones in the batch. Friedman together with Allen Wallis and a Captain Schuyler, observed that testing a given size of sample was clearly wasteful. The process of testing itself gave information which enabled one to determine the degree of confidence achieved. Thus instead of continuing to test up to a fixed size of sample, the testing could be halted whenever a predetermined level of confidence in the decision had been reached. Friedman formulated the basic idea of what later came to be called “sequential sampling” and caught the interest and imagination of Wald, who developed and proved the theorem underlying the probability ratio test and eventually produced the influential book Sequential Analysis. The ideas were adapted very rapidly and sequential analysis became the standard method of quality control inspection. Like so many of Friedman’s contributions, in retrospect it seems remarkably simple and obvious to apply basic economic ideas to quality control; that however is a measure of his genius.

At the end of World War II, it is clear that Friedman could have continued his work as a statistician. He would have achieved a stature probably as great as that of his most influential teacher, Harold Hotelling. Alternatively he had all the basic qualifications to take the lead in developing the burgeoning field of econometrics, with its great emphasis on the adaptation of statistical theory to modelling economic phenomena. He chose neither. His excursions into statistics were utilitarian rather than speculative, and he could see little to be gained by the endless sharpening of statistical knives which was the stuff of econometrics during those years following World War II. In this decade, his contributions to statistics were even more intimately linked with his strong belief, implanted largely by Mitchell, that economics could acquire plausibility only by being subjected to empirical verification. In spite of the predilections of many economists, Friedman believed that economics should be viewed as an empirical science.


This decade at Chicago, much influenced by the wisdom of Frank Knight, witnessed the rapid development of economics as a positive science with its own methodology. The prevailing view of economic theory, as developed by Lionel (later Lord) Robbins, was that the veracity of theory could be tested primarily by the correspondence between the assumptions and the facts. In his “Methodology of Positive Economics” (in Essays in Positive Economics, 1953), Friedman argued per contra that even if one could specify empirical correlates for the assumptions (and this cannot be done in cases where the assumptions are “ideal types” such as homo economicus), that is irrelevant for judging the usefulness of the theory. Only by the correspondence of the predictions and facts should theories be provisionally accepted or rejected. Results, not assumptions, should be the main focus of our scientific activity in understanding the real world. This approach applied the new philosophy of science, developed by Karl Popper, to economics and by implication to associated social sciences. To countless students, Friedman provided an agenda for what Imre Lakatos later called a progressive research programme. The simplicity of a theory in its ability to explain a lot in exchange for a little input and the degree of “surprise” in the prediction were the hallmarks of the new approach to theory. But it was in the efficacy and power of the empirical tests that substantial progress was to be made.

In subsequent years the “Methodology …” has been the subject of enormous controversy. There is general agreement that in applying the theory one cannot dismiss the factual basis of the assumptions in quite such a cavalier manner. Furthermore, no one would be rash enough to declare a (refutable) theory discredited if there were a single or a few counter examples to contradict the predictions. Such absolutism has given way to more subtle interpretations depending, as Lakatos argued, on the new and surprising insights to be obtained. Most theories coexist with small subsets of anomalous results that strictly should discredit them, and yet they remain useful theories and superior to any suggested alternative. But there is no doubt that the substance of Friedman’s “Methodology …” has not merely stood the test of time but has also had a profound and lasting effect on the profession.

The application of this methodological approach reached its apotheosis in what most academic economists would regard as Friedman’s greatest work: A Theory of the Consumption Function (1957). The fundamental proposition that emerged from Keynes’s General Theory was that households expanded their consumption spending by an amount less than the increase in their current income, and that this relationship was sufficiently stable to form the basis for the multiplier through which an increase in autonomous expenditure at the macro level generated a considerably larger increase in real aggregate demand. Since the regularity and predictability of the consumption function was central for the Keynesian control of the economy, it was with trepidation that many observers found that there were considerable inconsistencies between the patterns of household behaviour, particularly from the cross section data of household surveys and the time series of the historical record. Certainly it appeared that the data were quite inconsistent with the Keynesian consumption function. Friedman showed that the Keynesian concept of household behaviour was fundamentally flawed, and that the statistical results suffered from the regression fallacy. People adjusted their consumption with respect to variations in their long-term expected (or “permanent”) income, and paid little heed to transitory variations. This basis idea was not new—indeed it can be found in the 18th-century writings of Bernoulli—but Friedman’s development showed his genius for simplicity and for the insights of thinking concretely.

But the main quality of A Theory of the Consumption Function was the incomparable amassing, organization and interpretation of the evidence. The relatively low propensities to consume evident in the cross section data were shown to be entirely consistent with the much higher propensities that emerged from analyses of aggregate time series, when both sets of figures were interpreted in the form of the permanent income hypothesis. Because of the transitory component in the cross section samples of households, the variance of measured income exceeded the variance of permanent income, and so the slope of the regression of consumer spending on income was much lower than in the aggregate time series regressions, where the transitory component was trivially small. The permanent income hypothesis adequately passed the acid test of using little to explain much.

The integrity of scholarship was demonstrated by the diligent search to find evidence that would discredit the permanent income hypothesis. It was not, and is not, normal practice to scour the literature and statistical evidence for material that might discredit a theory. But Friedman used the hypothesis in the most imaginative way to forecast, for example, the values of regression coefficients for different groups with varying fractions of transitory to permanent income. And he left instructions for other researchers to guide them in tests to be made with further analyses of different data. One of the great contributions of this book was to give a new standard for empirical economics generally. Clearly this was how it should be done. The second important effect was the introduction of the concept of permanent income into virtually every field of applied economics, such as monetary economics, housing, transportation and international trade. It was a new way of thinking about chance variations and people’s decisions in the real world.

A particularly fruitful theoretical approach to the utility analysis of risk and the measurement of utility, based on the work of von Neumann and Morgenstern, appeared in two papers with L.J. Savage (1948, 1952). Using axioms which most observers would regard as acceptable and reasonable, these papers showed that choice under conditions of uncertainty could be represented as a simple process of maximizing expected utility. Thus the utilities of each of the chance outcomes were weighted by the probability of that outcome, and the sum gave an index of expected utility which, given the axioms, would be maximized by choosing from the alternative uncertain prospects. Again the basic idea was not new (it was developed originally by Bernoulli in solving the St. Petersburg Paradox), but Friedman and Savage discovered new insights and implications with wide-ranging applications. Apart from rationalizing the widespread practice of simultaneous gambling and insuring, the hypothesis had a profound effect on the theory and practice of portfolio selection. For the pure economic theorist it offered the attractive proposition that, up to an arbitrary linear transformation of origin and scale, utility should be regarded as a cardinal magnitude.

Subsequent discussion (particularly by Maurice Allais) suggested that one of the axioms (the so-called “strong independence axiom” which asserted that the preference order would not be affected by mixing theses outcomes with equiprobable alternative outcomes) was clearly implausible and violated frequently in practical decisions. Research suggested also that in some fields, for example in air passenger insurance, the expected utility hypothesis was discredited. Nevertheless the hypothesis still forms a cornerstone of all work—and particularly practical work—in choice among risky alternatives. With some minor exceptions, these papers mark the last contributions of Friedman to the pure theory of statistics and decision making. Many statisticians regard the diversion of such a fertile mind from its natural field as a great shame and loss.

The gain to empirical economics—and during these years, particularly to the theory of price—was, one suspects, worth the loss. The reformulation of Marshallian demand theory, as a practical instrument of analysis (1949) was an exercise in meticulous scholarship in the history of thought but one which also argued for approaching demand analysis as a positive rather than a normative discipline, an approach which he attributed to [Alfred] Marshall. But the analysis of economic policy, and particularly a critique of the logical structure of the arguments and the empirical evidence adduced to support proposals on economic policy, became increasingly important. Thus the critique of the arguments showing the inferiority of excise taxes compared with alternative income taxes (1952) exposed basic methodological weaknesses in what were the standard treatments of the day.

The demonstration of the uses, as well as some abuses, of the theory of price was one of the highlights of Friedman’s lectures, from 1946 to 1976 (with a gap from 1963 to 1973), at the graduate school of the University of Chicago. The exploitation of demand and supply as an “engine of discovery” reached out well beyond those conventionally defined limits of the subject. In these lectures Friedman gave full rein to his persistence and determination fearlessly to pursue the argument, with subtlety and imagination, wherever it led. To the students it opened up new vistas—such as the theory of human capital—and exciting ways of unravelling puzzles and resolving problems. In his hands, economics had both power and point, reality and relevance (e.g. 1962). A distinct from much economic work, where complicated ideas are developed in a simple way, Friedman showed how to interpret simple ideas in a most sophisticated way.

This characterized his work on money which, with the inauguration of his monetary workshop in 1951 began to be a major interest for Friedman himself and the distinguished students and faculty that he inspired. The motivations for studying money were firmly implanted when Friedman was at the Treasury dealing with wartime inflation management, but the immediate incentive was the request from the National Bureau to contribute a study on money for Wesley Mitchell’s project on long-term business cycles. Monetary policy as a main tool of macroeconomic management was consistent with a wide degree of free unfettered enterprise and so had an obvious appeal to the liberal (which will be used here in the 19th-century sense) Friedman. The prevailing Keynesian orthodoxy, with its emphasis on expanding the public sector, appeared to threaten the liberal society. The post-Keynesian contempt for money was a tempting target difficult to resist. But undoubtedly Friedman’s imagination had been challenged by the Chicago School’s preference (particularly by Knight and Simons) for rules rather than authorities in macroeconomic as well as microeconomic policy. The uncertainties of the economic environment would be much reduced if the Federal Reserve Board followed simple rules. Friedman first suggested (1948) a counter-cyclical rule of financing recession-induced increases in the federal budget deficit by money creation and correspondingly by retiring money during a boom-induced surplus. The empirical evidence that he explored in subsequent years, however, led him to formulate the rule of a fixed and known expansion of the money stock, rather than indulging in counter-cyclical operations in vain attempts to stabilize the economy. Whatever his motives however (and one should note that motives are quite irrelevant in judging substantive propositions), for the next thirty years Friedman’s work was focused on money. At last monetary economics was to be interpreted as part of the central corpus of price theory; it was to be integrated into economics.

The Monetary Revolution and the Rise of Monetarism, 1956–1975

In the late 1950s, to anyone subjected to the Anglo-Saxon schools of economics during the previous two decades, any attempt to revive monetary economics appeared to be foolhardy, like flogging a decomposing horse. The Radcliffe Committee, advised by the most eminent economists, had reported in 1959 that the quantity of money was of little or no interest since the velocity of circulation had no limits. The quantity theory of money was subject to particular scorn as a mere identity without content. As Friedman was to point out, however, all theory consists of tautologies; all that theory does is to rearrange the implications of the axioms to produce interesting, even surprising, consequences. But they remain empty and devoid of substantive as distinct from speculative content, until they have been tested against a wide body of facts.

Of course for many years the quantity theory of money had been tested against experience and data and over several critical periods of change. The most distinguished exponents of such tests had included Irving Fisher and Keynes himself, as well as the irrepressible Clark Warburton. Yet the methodology was murky, the statistics slim, and interrelationships between data and theory obscure. In Studies in the Quantity Theory of Money(1956), Friedman and his co-authors re-defined the quantity theory in terms of statements specifying a degree of stability in the demand for money. It was proposed that the demand for money by the individual household would be a stable function of its money income (later thought to be permanent income or wealth) and the cost of holding money represented by the rate of interest and the expected rate of inflation.

Friedman’s presentation of the theory of the demand for money in the first essay in Studies is one of his most widely quoted papers, primarily because it is thought to show that in presenting the money demand function as a portfolio decision with respect to alternative assets, rather than a demand related to the flow of transactions and income, Friedman was a closet Keynesian. Substantively this was a side issue; the main point was the stability of demand, particularly with respect to nominal income or wealth. Unfortunately this first essay was not one of Friedman’s better expositions. The other essays in Studies, particularly that of Cagan on hyperinflations and Selden on velocity, however, established the value of examining nominal income and inflation in the context of the demand for money. The quantity theory in its new reborn Chicago form has passed its first tests.

The unknowns, however, remained legion. The vexed question of the nature of the regime controlling the supply of money, and how to interpret the problem of identifying the demand function in the data were to persist, in the eyes of many critics, as the major weakness in such studies. Was the stock of money reacting passively to changes in nominal income (or wealth) or were prices and output responding to endogenous changes in the supply of money? The Chicago workshop averred that the answer to such questions could be obtained only by painstaking research into the history of the monetary process. Undoubtedly there were occasions when the money stock passively responded to changes in nominal income, but equally obvious were instances where the money supply changed for reasons quite independent of past or contemporaneous movements in money incomes. The role of the balance of payments and the exchange rate regime was clearly recognized, and it is not difficult to discover the genesis of the monetary theory of the balance of payments in “Real and Pseudo Gold Standards” (1961) and other essays in Dollars and Deficits (1968).

Although the detailed development of the history of the money supply process and the relationships with gold and exchange rates were to appear in the monumental A Monetary History of the United States, 1867–1960(1963), Friedman had already made it perfectly clear that a stable growth of the money supply was unlikely to be feasible under a regime of fixed exchange rates. His advocacy of flexible exchange rates (in 1953) followed logically on his views of the efficacy of free markets. Friedman was one of the very few economists (Gottfried Haberler and Egon Sohmen were among them) who clearly showed that the ambient dollar shortage was merely a consequence of fixed exchange rates and divergent monetary policies. His analysis was amply justified when by the 1960s, due to the change in monetary policies, the dollar shortage had turned into a dollar glut.

Yet in spite of the increasing attention paid to the balance of payments and the money supply process generally, the prime focus of Friedman’s work remained the examination of the effects of monetary variations on nominal income, prices and output. The main questions were: (a) what was the relative importance of monetary compared with fiscal variations (the Keynes vs Monetarist debate); (b) what was the time pattern of adjustment; and (c) could expansionary financial or fiscal policies affect real output in the short or long run? The answers which evolved from Friedman’s were: to (a) although an increased fiscal deficit had an impact effect on nominal income this soon disappeared, whereas after a lag the increased rate of money growth permanently augmented the rate of inflation; to (b), the adjustment of nominal income to an increased rate of monetary growth involves lags that are “long and variable”; and to (c), in the long run additional monetary growth affects only the rate of inflation and has virtually no effect on either the level of output or its growth rate. In essence Friedman found that variations in the rate of growth of the money supply had short-run effects, sometimes as in 1931 of a devastating magnitude, on real output as well as on prices; but in the long run (more than three years) the only substantial effect was on prices.

Over the 1960s and 1970s the results of Friedman’s research for the long run were widely accepted. The logic as well as the data were appealing: nominal variations (in money) have nominal effects (on prices) and no real effects (on output). But such agreement did not readily extend to his short run claims of first, the impotence of fiscal policy in countering cyclical oscillations and shocks; and secondly the large but unpredictable effects of monetary variation on real output and employment. The claims of Keynesian economists for the stability and size of the fiscal multipliers continued, but it is noteworthy that estimates of the size of the multipliers, except for those produced by the Cambridge (England) School, were substantially reduced in the 1980s. (One is not able to determine whether the economists or the economies have become less Keynesian and more monetarist.)

One of the abiding criticisms of Friedman’s work on money (much of it in joint authorship with Anna Schwartz) is that it has no theoretical structure—or more charitably that such theoretical structure as exists is implicit rather than explicit. Processes of monetary transmissions as he describes them are alleged to be “black boxes” with no precise specification of the way in which money works its magic. Friedman attempted to produce a theoretical underpinning for his approach to research in Milton Friedman’s Monetary Framework (1974) by producing a seven-equation basic model of the (closed) economy. The critical difference between the Keynesian and classical model was the choice of the last equation; the Keynesians chose to specify the price level as fixed by exogenous forces and the level of output as a variable determined by the level of aggregate demand, whereas the classical economists held that the level of real output was fixed by technology, skill, etc. and that the price level was determined by the model. With this simple model, Friedman was able to highlight the differences of method and approach as primarily different views about the size and stability of the coefficients of the system. In principle, at least, such issues could be resolved by appeals to the evidence. But in one respect the Framework made little progress—this was in providing a sound basis for the dynamics of the adjustment, through output, price and interest-rate effects, to the new long-run equilibrium. The transmission mechanism and dynamics remain enshrouded in the gloom of a black box.

Yet in spite of what many theoretical economists considered to be drastic limitations for sound theoretical developments, in the most important and influential paper in macroeconomics in the post-war years, his presidential address to the American Economic Association, Friedman showed that the view of macroeconomic policy as a trade-off between unemployment and inflation was fundamentally flawed (1968). In the long run there was no such tradeoff, while in the short run the trade-off took place only during the adjustment to the new inflationary environment, and then only because people were temporarily surprised by the new environment. The overriding objective of contractual arrangements was to fix real wages and prices. Money served as a veil, sometimes seductive but always obscuring underlying reality. The so-called Phillips Curve was a short-term temptation rather than a long-term choice.

Friedman caught opinion at ebb and turned it into a flood. Throughout the 1960s the trade-off between unemployment and inflation appeared more and more illusory. Unemployment went up but inflation did not go down; it also increased. Into the 1970s and particularly during the great inflationary recession of 1974/75, when both inflation and unemployment reached new highs in most OECD countries, it appeared that only Friedman’s view made any sense. Like Keynes’s General Theory, it was one of the few contributions that changed both the approach of professional economists and the policies adopted by finance ministers. Sometime during the 1970s most governments recognized that the road to fuller employment did not lie over the high sierra of soaring inflation. Doctrinally, economists took into their toolbox the Friedman concept of a “natural rate” of unemployment where inflation would neither accelerate nor decelerate. (The word “natural” usually being considered either normative or even desirable was generally eschewed in favour of the term “non-accelerating inflation rate of unemployment” or NAIRU.)

The natural level of unemployment was held to be determined by the nature of labour markets, such as the conventions of wage contracts, the degree of mobility, the level of unemployment benefits, the marginal utility of income, and many other “structural” factors which are independent of the rate of inflation. As in the case of the permanent income hypothesis, to which it is distantly related, the concept had applications in fields far from labour markets. At the same time it provided one of the many missing links between the macroeconomics of aggregate output and inflation and the microeconomics of industrial adjustment and resource allocation. Again in retrospect it all seems obvious; but that merely measures the magnitude of the contribution.

By any standards—even those of Keynes and the General Theory—Friedman’s contribution to monetary analysis and policy must be ranked very high. Every economist, finance minister and banker felt his influence. But, as an accomplishment of the intellect, one suspects that most of Friedman’s peers would still regard his work on the consumption function as the maximum maximorum of his contributions to economics. Friedman’s monetary analysis did not have that sense of comprehensiveness and structural balance that are the hallmarks of his work on consumer spending. One closed A Theory of the Consumption Function, not with the feeling that nothing more need be said, but that whatever was discovered in the future must fit neatly into this superb and satisfying framework. The architecture could accommodate, and indeed so far has shaped and absorbed all new contributions. The Monetary History and the Framework, however, although probably more influential in doctrine and policy, did not provide the commodious and harmonic form of the Consumption Function. A number of awkward corners left one wondering what to do. And since the theoretical plans were left obscure, sometimes there were questions whether the superstructure would really hold up. But this does not belittle theMonetary History so much as praise the Consumption Function.


The award of the Nobel Prize [in] Economic [Science], long overdue in 197[6], at last recorded that Friedman’s great contributions had even penetrated the Swedish academies. Inevitably Friedman’s rise to stardom had given many more opportunities to persuade electorate through the medium of the popular press (primarily in the columns of Newsweek from 1966 to 1984) and television (in the popular PBS and BBC series Free to Choose in 1980). His contributions to persuasive journalism delighted many, infuriated some, and made all his serious readers, if not wiser, then certainly better informed. In all these popular articles the high professional standards of integrity were maintained. But at the same time Friedman continued with his scholarly work on monetary analysis (again mainly with Anna Schwartz as co-worker). The main output, after more than 20 years of effort, was Monetary Trends in the United States and the United Kingdom, Their Relation to Income, Prices and Interest Rates, 1867-1975 (1982).

The main methodological decision lying behind this study was that since there was too much inexplicable variation in short-run variations in income and money, it was best to ignore these and concentrate on comparing the cyclical phase averages. These would screen out the short-term effect and would enable an analysis to be made of the underlying long-term money-income-interest relationships. Even for this team of Friedman and Schwartz, the treatment of the data and the integrity of their analysis reached new heights of meticulous scholarship.

Yet, considering the enormous value of the input of time and energy, the results are, as the authors confess, hardly worth the cost. For the most part the study confirms, and demonstrates with comparative data for the USA and the UK, the basic propositions on velocity, real income, prices and interest rates that had emerged in the History.

In his scholarly work in the decade 1976–85, it may be claimed that Friedman has fallen prey to the same temptations that affected Alfred Marshall. For many years of his mature professional career, Marshall spent much of his time revising and refining his great Principles [of Economics]. In retrospect it seemed to be a great loss to scholarship that Marshall did not leave the Principles well alone and turn to his projected study of the economics of the state. The opportunity was missed. It would be, however, a travesty to draw a close parallel between Friedman and Marshall in their mature years. Perhaps with the example of Marshall in mind, Friedman has generally launched his studies on the profession and then left them largely to fend for themselves. (The only exception is the textbook Price Theory: A Provisional Text (1962), which was revised in 1976.) Yet there is a sense in which Friedman, trapped by his immense success in monetary economics, has been prevented from deploying his mind in scholarly work in other fields of economics.

The possibilities are revealed in Friedman’s more popular writings on issues such as public spending, price and rent control, taxation, and many issues in microeconomics. Characteristic flashes of insight and phrase, together with the innovations of approach—especially the simplifications—give the professional reader a tantalizing taste of what might have been yet another great contribution to economic science. Many economists have always believed that, in spite of his great strides in money, Friedman’s relative advantage was always in the study of price theory and its manifest applications. There is the measure of the man.

The Public Image of Friedman

The conventional view of Friedman is that he has been one of the most ardent and most effective advocates of free enterprise and monetarist policies over the four decades 1945 to 1985. If far short of his wishes, the success of his advocacy has by any objective standard been enormous. Opinion in Western countries, even among the clerisy, has moved decisively in its preference for those economic freedoms that he has so eloquently advocated.

It is not possible to parcel out any neat attribution of influence on these great changes in attitude and policy. Friedman himself would probably give by far the largest weight to the experience of the 1970s, particularly the disappointments over failure to restrain the growth of government spending and the great inflation from 1965 to 1981. The explanation of these events and the development of an alternative strategy with institutions that would ensure individual economic liberty and freedom from inflation have been, in the public perception, Friedman’s great contribution to the reforms. In his appearances in the various media he has been a great persuader, his role being critical in promoting such ideas as an all-volunteer army, the voucher schemes for education and health, and indexing income tax. In effectiveness, breadth and scope, his only rival among the economists of the 20th century is Keynes.

Selected Works

1934. Professor Pigou’s method for measuring elasticities of demand from budgetary data.Quarterly Journal of Economics1, November, 151–63.

1937. The use of ranks to avoid the assumption of normality implicit in the analysis of variance. Journal of the American Statistical Association32, December, 675–701.

1940. A comparison of alternative tests of significance for the problem of m rankings.Annals of Mathematical Statistics11, March, 86–92.

1945. (With Simon Kuznets.) Income from Independent Professional Practice. New York: National Bureau of Economic Research.

1948a. (With L.J. Savage.) The utility analysis of choices involving risk. Journal of Political Economy 56, August, 279–304.

1948b. (With H.A. Freeman, F. Mosteller, and W. Allen Wallis.) Sampling Inspection. New York: McGraw-Hill.

1949. The Marshallian demand curve.Journal of Political Economy 57, December, 463–95. Reprinted in (1953).

1952. (With L.J. Savage.) The expected utility hypothesis and the measurability of utility.Journal of Political Economy 60, December, 463–74.

1953. Essays in Positive Economics. Chicago: University of Chicago Press.

1956. (ed.) Studies in the Quantity Theory of Money. Chicago: University of Chicago Press.

1957a. (With Gary S. Becker.) A statistical illusion in judging Keynesian models. Journal of Political Economy 65, February, 64–75.

1957b. A Theory of the Consumption Function. Princeton: Princeton University Press.

1959. A Program for Monetary Stability. New York: Fordham University Press.

1962a. Capitalism and Freedom. Chicago: University of Chicago Press.

1962b. Price Theory: A Provisional Text. Chicago: Aldine Publishing Co.

1963a. (With Anna J. Schwartz.) A Monetary History of the United States, 1867–1960. Princeton: Princeton University Press for the National Bureau of Economic Research.

1963b. (With David Meiselman.) The relative stability of monetary velocity and the investment multiplier in the United States, 1897–1958. In Stabilization Policies, a series of studies prepared for the Commission on Money and Credit, Englewood Cliffs, NJ: Prentice-Hall, 165–268.

1967. (With Robert V. Roosa.)The Balance of Payments: Free versus Fixed Exchange Rates. AEI Rational Debate Seminar. Washington, DC: American Enterprise Institute.

1968a. The role of monetary policy. (Presidential Address, American Economic Association, 29 December 1967.) American Economic Review 58, March, 1–17. Reprinted in (1969).

1968b. Dollars and Deficits: Inflation, Monetary Policy and the Balance of Payments. Englewood Cliffs, NJ: Prentice-Hall.

1969. The Optimum Quantity of Money and Other Essays. Chicago: Aldine Publishing Co.

1970. (With Anna J. Schwartz.) Monetary Statistics of the United States. New York: Columbia University Press for the National Bureau of Economic Research.

1972a. (With Wilbur J. Cohen.) Social Security: Universal or Selective? AEI Rational Debate Seminar. Washington, DC: American Enterprise Institute.

1972b. An Economist’s Protest: Columns on Political Economy. Glen Ridge, NJ: Thomas Horton & Daughters.

1973. Money and Economic Development. Horowitz Lectures of 1972. New York: Praeger.

1974. Milton Friedman’s Monetary Framework: A Debate with His Critics. Edited and with an Introduction by Robert J. Gordon, Chicago: University of Chicago Press.

1976. Price Theory. Chicago: Aldine Publishing Co. Revised and enlarged version of the 1962 edition.

1978. Tax Limitation, Inflation and the Role of Government. Dallas: Fisher Institute.

1980. (With Rose Friedman.) Free to Choose. New York: Harcourt Brace Jovanovich.

1982. (With Anna J. Schwartz.) Monetary Trends in the United States and the United Kingdom. Chicago: University of Chicago Press, for the National Bureau of Economic Research.

1984. (With Rose Friedman.)Tyranny of the Status Quo. San Diego, New York, and London: Harcourt Brace Jovanovich.