Milton Friedman, whose ideas influenced both Thatcher and Reagan, has died at the age of 94. But what did he really stand for?
One of the most influential economists of our time died on Thursday at the age of 94. Milton Friedman was a Nobel Prize winner, and had the ear of world leaders such as Thatcher and Reagan.
While he is often referred to as 'the father of monetarism', his libertarian beliefs were also at home in the school of supply-side economics -- the idea that governments should facilitate an efficient and free market with a minimum of intervention.
Monetarism thrived in the 1980s as a response to the inflationary Keynesian economics of the post-war decades. Whereas Keynes advocated fiscal measures -- taxation and state spending -- to regulate demand in the economy, Friedman saw inflation as the main problem and the supply of money (i.e. interest rates) as the means to control it:
"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output".
In other words, inflation is caused by too much money chasing too few goods.
While both monetarism and Keynesianism focused on demand in the economy, the monetarist approach also involved creating the right conditions for the private sector to create economic growth. Therefore it came to be implemented along with supply-side reforms that were intended to roll back the power of the state, promoting deregulation and privatisation. Friedman, too, was a big believer in personal freedom and small government.
As economic advisor to the Reagan administration, and a significant influence on the Thatcher government, Friedman shaped world economies. The concept of using interest rates to control inflation, while letting currency exchange rates fluctuate, is now almost taken for granted in most major economies.
More controversially, Friedman's free trade agenda included doing business with regimes that were less than free. He supported trade with apartheid South Africa, advocated lifting embargoes on Cuba, and was generally supportive of the Pinochet's economic policies in Chile. He saw free society as coming as a consequence of free trade, rather than being a prerequisite for it.
You can read his short autobiography on the Nobel Prize website.
More:
The Wisdom Of JK Galbraith
