Milton Friedman, A.M. ’33, Nobel laureate, professor emeritus in economics at the University of Chicago, and one of the most prominent economists of the past century, died in San Francisco Thursday morning of heart failure. He was 94.
Friedman’s vigorous advocacy of a smaller central government and an unhampered free market helped shape conservative thought in the 20th century, and his ideas influenced world leaders such as Margaret Thatcher, Augusto Pinochet, and Ronald Reagan.
“He was clearly the most important economist of the 20th century,” Gary Becker, a Nobel laureate and professor of economics at the University, said in a statement. “He had enormous influence in economic science and indirectly on public policy.”
With his 1957 book A Theory of the Consumption Function, Friedman became a vocal critic of economist John Maynard Keynes, whose work in the earlier half of the 20th century led to the creation of macroeconomics. Friedman’s book showed that individual consumption was a function of the individual’s expected lifetime earnings and not the individual’s current income, as Keynes had claimed.
Defying the Keynesian tradition that had dominated the field of economics, Friedman used his position on the U of C faculty to initiate a movement now commonly known as the “Chicago School of Economics.”
Unlike Keynes, who believed that it was the federal government’s responsibility to maintain the economy through periods of recession and inflation, Friedman called for minimal governmental interference with the economy. Instead, supply and demand should be the primary regulators of economic activity, Friedman and his U of C colleagues argued.
“He was a truly revolutionary thinker. People do not realize how revolutionary, because so many of his ideas that were thought to be crazy when he suggested them eventually came to be seen as obvious,” wrote Steven Levitt, professor of economics at the University, on his blog, Freakonomics.
Levitt cited Friedman’s early support for school choice and a volunteer army as examples.
In 1968, Karl Brunner coined the term “monetarism” to describe Friedman’s revolutionary macroeconomic theories and doctrines. Friedman’s landmark 1963 book, A Monetary History of the United States, co-authored with economist Anna Schwartz, argued that inflation could be controlled by using interest rates to restrict the supply of money.
“Milton Friedman was a very great figure in economic science and in public life,” said Robert J. Lucas, professor of economics at the University, in a statement. “His research on monetary economics and consumer behavior earned him one of the early Nobel Prizes and deeply influenced generations of economists. His tireless defense of classical economic liberalism had an enormous influence on political thinking around the world. It is hard to think of a question of economic policy in the last 50 years on which he did not make a thoughtful and valuable contribution.”
Friedman famously challenged the notion that an inverse relationship existed between the rate of inflation and the rate of unemployment. His theories were proven correct when, in the 1970s, the American economy entered a period of “stagflation,” marked by high rates of both inflation and unemployment.
British Prime Minister Margaret Thatcher, who faced double-digit inflation upon entering office in 1979, heeded Friedman’s advice by raising taxes and interest rates. By 1982, the inflation rate had once again returned to the single digits, after a severe but temporary rise in unemployment, as Friedman had predicted.
“Incomes in the United States and the United Kingdom are now about 30 percent above incomes on the continent of Europe,” Lucas said in an e-mail interview. “This has a lot to do with Reagan’s and Thatcher’s curbing of the worst excesses of the welfare state, and that in turn has everything to do with Milton Friedman’s influence.”
Friedman received a B.A. from Rutgers University in 1932, an M.A. from the University of Chicago in 1933, and a Ph.D. in economics from Columbia University in 1946. From 1946 to 1976, Friedman served as a professor of economics at the U of C, where he made his greatest contributions to the field.
Although Friedman lived in California since 1977, he remained closely associated with the U of C and visited the campus in 2002 to attend an economics conference held in his honor.
Friedman won the John Bates Clark Medal in 1951, awarded biannually by the American Economic Association to the most promising economist under the age of 40. He was awarded the Nobel Memorial Prize in Economic Sciences in 1976 for his “achievements in the fields of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy.”
In 1988, Friedman was awarded both the National Medal of Science and the Presidential Medal of Freedom.
“There has never been one single Chicago school of economics, but rather several,” said Allen Sanderson, a senior lecturer in economics at the University, in an e-mail interview. “He [and his colleagues T. W. Schultz, George Stigler, and D. Gale Johnson] in a sense took the torch from Viner, Knight, and Hayek, and then passed it to Becker, Lucas, Fogel, and others, who will, in turn… pass it along to the next generation of Chicago economists. So in terms of insistence upon the highest possible scholarship, Milton Friedman established a tone and a standard which continues to this day, and that is perhaps his most important local contribution.”
Friedman is survived by his wife, Rose, with whom he co-wrote three books, and their two children.