% of GDP in social expenditures in OECD states, 2001.

A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those unable to avail themselves of the minimal provisions for a good life. The general term may cover a variety of forms of economic and social organization."^[1]

Modern welfare states include countries such as Iceland, Sweden, Norway, Denmark and Finland^[2] which employ a system known as the Nordic model. The welfare state involves a transfer of funds from the state, to the services provided (i.e. healthcare, education) as well as directly to individuals ("benefits"). The welfare state is funded through redistributionist taxation and is often referred to as a type of "mixed economy".^[3]

Etymology[link]

The German term (Sozialstaat, "social state") has been used since 1870 to describe state support programs being developed by the German Sozialpolitiker—"Social Politicians" and implemented through Bismarck's conservative reforms.^[4]

Despite early attempts to use an equivalent phrase in English,^[5] the term was uncommon until William Temple popularized it during the Second World War, contrasting wartime Britain's welfare state with the "warfare state" of Nazi Germany.^[6]

The Italian term "social state" (Stato sociale) has the same origin.^{[citation needed]} The Swedish welfare state is called Folkhemmet (literally; the folk home) and goes back to the 1936 compromise between the Trade unions and big companies. It is a mixed economy, built on strong unions and a strong system of Social security and universal health care. The term "Wohlfahrtsstaat", a direct translation from English, is used in Germany to describe Sweden. In Spanish and many other languages, an analogous term is used: estado del bienestar; translated literally: "state of well-being". In Portuguese, two similar phrases exist: estado do bem-estar social, which means "state of social well-being", and estado de providência, which means "providing state", as in the state should provide citizens their demands in order to achieve people's well-being. In Brazil, it is referred to as previdência social, translated as social providence.

History of welfare states[link]

Germany[link]

In Germany Chancellor Otto von Bismarck created the modern welfare state by building on a tradition of welfare programs in Prussia and Saxony that began as early as in the 1840s, and by winning the support of business. In the 1880s he introduced old age pensions, accident insurance, medical care and unemployment insurance that formed the basis of the modern European welfare state. His paternalistic programs won the support of German industry because its goals were to win the support of the working classes for the Empire and reduce the outflow of immigrants to America, where wages were higher but welfare did not exist.^[7][8] Bismarck further won the support of both industry and skilled workers by his high tariff policies, which protected profits and wages from American competition, although they alienated the liberal intellectuals who wanted free trade.^[9][10]

The United States[link]

Although the United States lagged far behind European countries in instituting concrete social welfare policies, the earliest and most comprehensive philosophical justification for the welfare state was produced by the American sociologist Lester Frank Ward (1841–1913) whom the historian Henry Steele Commager called "the father of the modern welfare state". Reforms like those instituted by Bismarck were strongly opposed by conservative thinkers such as the very influential English philosopher and evolutionary theorist Herbert Spencer who argued that coddling the poor and unfit would simply allow them to reproduce and delay social progress. Ward set out to systematically dismantle Spencer's arguments which he saw as delaying and paralyzing progressive government action. Central to Ward's theories was his belief that a universal and comprehensive system of education was necessary if a democratic government was to successfully function. Ward's writings had a profound influence on a young generation of progressive thinkers and politicians whose work culminated in President Franklin D. Roosevelt's New Deal welfare state policies of the 1930s.^[11]

Modern model[link]

Modern welfare programs differed from previous schemes of poverty relief due to their relatively universal coverage. The development of social insurance in Germany under Bismarck was particularly influential. Some schemes were based largely in the development of autonomous, mutualist provision of benefits. Others were founded on state provision. The term was not, however, applied to all states offering social protection. The sociologist T.H. Marshall identified the welfare state as a distinctive combination of democracy, welfare and capitalism. Examples of early welfare states in the modern world are Germany, all of the Nordic Countries, the Netherlands, Uruguay and New Zealand and the United Kingdom in the 1930s.

Changed attitudes in reaction to the Great Depression were instrumental in the move to the welfare state in many countries, a harbinger of new times where "cradle-to-grave" services became a reality after the poverty of the Depression. During the Great Depression, it was seen as an alternative "middle way" between communism and capitalism.^[12] In the period following the Second World War, many countries in Europe moved from partial or selective provision of social services to relatively comprehensive coverage of the population.

The activities of present-day welfare states extend to the provision of both cash welfare benefits (such as old-age pensions or unemployment benefits) and in-kind welfare services (such as health or childcare services). Through these provisions, welfare states can affect the distribution of wellbeing and personal autonomy among their citizens, as well as influencing how their citizens consume and how they spend their time.^[13][14]

United Kingdom[link]

The United Kingdom, as a modern welfare state,^[15] started to emerge with the Liberal welfare reforms of 1906–1914 under Liberal Prime Minister Herbert Asquith.^[16] These included the passing of the Old-Age Pensions Act in 1908, the introduction of free school meals in 1909, the 1909 Labour Exchanges Act,^[16] the Development Act 1909, which heralded greater Government intervention in economic development,^[17] and the enacting of the National Insurance Act 1911 setting up a national insurance contribution for unemployment and health benefits from work.^[18]

In December 1942, the Report of the Inter-Departmental Committee on Social Insurance and Allied Services was published, known commonly as the Beveridge Report after its chairman, Sir William Beveridge, proposing a series of measures to aid those who were in need of help, or in poverty. Beveridge recommended to the government that they should find ways of tackling the five giants, being Want, Disease, Ignorance, Squalor and Idleness. He argued to cure these problems, the government should provide adequate income to people, adequate health care, adequate education, adequate housing and adequate employment. It proposed that 'All people of working age should pay a weekly National Insurance contribution. In return, benefits would be paid to people who were sick, unemployed, retired or widowed.'

The basic assumptions of the report were that the National Health Service would provide free health care to all citizens. The Universal Child Benefit was a scheme to give benefits to parents, encouraging people to have children by enabling them to feed and support a family. One theme of the report was the relative cheapness of universal benefits. Beveridge quoted miners' pension schemes as some of the most efficient available, and argued that a state scheme would be cheaper to run than individual friendly societies and private insurance schemes, as well as being cheaper than means-tested government-run schemes for the poor.

The report's recommendations were adopted by the Liberal Party, Conservative Party and then by the Labour Party.^[19] Following the Labour election victory in the 1945 general election many of Beveridge's reforms were implemented through a series of Acts of Parliament. On 5 July 1948, the National Insurance Act, National Assistance Act and National Health Service Act came into force, forming the key planks of the modern UK welfare state. The cheapness of what was to be called National Insurance was an argument alongside fairness, and justified a scheme in which the rich paid in and the state paid out to the rich, just as for the poor. In the original scheme, only some benefits called National Assistance were to be paid regardless of contribution. Universal benefits paid to rich and poor such as child benefit were particularly beneficial after the Second World War when the birth rate was low. Universal Child Benefit may have helped drive the baby boom.

Before 1939, most health care had to be paid for through non government organisations – through a vast network of friendly societies, trade unions and other insurance companies which counted the vast majority of the UK working population as members. These friendly societies provided insurance for sickness, unemployment and invalidity, therefore providing people with an income when they were unable to work. Following the implementation of Beveridge's recommendations, institutions run by local councils to provide health services for the uninsured poor, part of the poor law tradition of workhouses, were merged into the new national system. As part of the reforms, the Church of England also closed down its voluntary relief networks and passed the ownership of thousands of church schools, hospitals and other bodies to the state.^[20]

Welfare systems continued to develop over the following decades. By the end of the 20th century parts of the welfare system had been restructured, with some provision channelled through non-governmental organizations which became important providers of social services.^[21]

Oil countries[link]

Saudi Arabia,^[22][23] Brunei, Kuwait, Qatar, Bahrain, Oman, and the United Arab Emirates have become welfare states exclusively for their citizens. All foreign nationals, including legal residents and legal long term employees are prohibited from partaking in the benefits of the welfare state.

Three worlds of the welfare state[link]

According to Esping-Andersen (1990),^[24] there are three ways of organizing a welfare state instead of only two.^[25]

Esping-Andersen categorised three different types of welfare states in the 1990 book 'The Three Worlds of Welfare Capitalism'. Though increasingly criticised (for a review of the debate on the Three worlds of Welfare Capitalism see Art and Gelissen [2002] and Ferragina and Seeleib-Kaiser[2011]), these classifications remain the most commonly used in distinguishing types of modern welfare states, and offer a solid starting point in such analysis. It has been argued that these typologies remain a fundamental heuristic tool for welfare state scholars, even for those who claim that in-depth analysis of a single case is more suited to capture the complexity of different social policy arrangements. Welfare typologies have the function to provide a comparative lens and place even the single case into a comparative perspective (Ferragina and Seeleib-Kaiser 2011).^[26]

Esping-Andersen (1990) constructed the welfare regime typology acknowledging the ideational importance and power of the three dominant political movements of the long 20th century in Western Europe and North America, that is Social Democracy, Christian Democracy (conservatism) and Liberalism (Stephens 1979; Korpi 1983; Van Kersbergen 1995; Ferragina and Seeleib-Kaiser 2011).

1. The ideal Social-Democratic welfare state is based on the principle of universalism granting access to benefits and services based on citizenship. Such a welfare state is said to provide a relatively high degree of autonomy, limiting the reliance of family and market (Ferragina and Seeleib-Kaiser 2011).^[27] In this context, social policies are perceived as 'politics against the market' (Esping-Andersen 1985).
2. Christian-democratic welfare states are based on the principle of subsidiarity and the dominance of social insurance schemes, offering a medium level of decommodification and a high degree of social stratification.
3. The liberal regime is based on the notion of market dominance and private provision; ideally, the state only interferes to ameliorate poverty and provide for basic needs, largely on a means-tested basis. Hence, the decommodification potential of state benefits is assumed to be low and social stratification high (Ferragina and Seeleib-Kaiser 2011).^[27]

Based on the decommodification index Esping-Andersen divided into the following regimes 18 OECD countries (Esping-Andersen 1990: 71):

1. Social Democratic: Denmark, Finland, the Netherlands, Norway and Sweden
2. Christian Democratic: Austria, Belgium, France, Germany, Spain and Italy;
3. Liberal: Australia, Canada, Japan, Switzerland and the US;
4. Not clearly classified: Ireland, New Zealand and the United Kingdom.

These 18 countries can be placed on a continuum from the most purely social-democratic, Sweden, to the most liberal country, the United States (Ferragina and Seeleib-Kaiser 2011).^[28]

Rothstein argues that in the first model, the state is primarily concerned with directing the resources to “the people most in need”. This requires a tight bureaucratic control over the people concerned. Under the second model, the state distributes welfare with as little bureaucratic interference as possible, to all people who fulfill easily established criteria (e.g. having children, receiving medical treatment, etc.). This requires high taxation. This model was constructed by the Scandinavian ministers Karl Kristian Steincke and Gustav Möller in the 30s and is dominant in Scandinavia. The third model is similar to the one found in Britain (Beveridge model) and is based more on citizenship and a certain level of welfare ‘as a right’, which may then be modified according to needs.

Effects on poverty[link]

Empirical evidence suggests that taxes and transfers considerably reduce poverty in most countries, whose welfare states commonly constitute at least a fifth of GDP.^[29][30] Most "welfare states" have considerably lower poverty rates than they had before the implementation of welfare programs.

Welfare expenditure[link]

There is very little correlation between economic performance and welfare expenditure.^[31]

The table does not show the effect of expenditure on income inequalities, and does not encompass some other forms of welfare provision (such as occupational welfare).

The table below shows, first, welfare expenditure as a percentage of GDP for some (selected) OECD member states, with and without public education,^[32] and second, GDP per capita (PPP US$) in 2001:

Figures from the OECD^[33] and the UNDP.^[34]

Criticisms of welfare[link]

The notion, and the extent of, the modern welfare state has been criticized on economic, social, and ideological grounds from both the Left and the Right of the political spectrum.

See also[link]

Models:

• Swedish welfare state
• Third way
• Nordic model
• European welfare state
• American welfare state
• Welfare State (United Kingdom)

Transfer of wealth:

• Transfer payment
• Redistribution (economics)
• Tax rates of Europe
• Cloward–Piven strategy

Housing:

• Public housing
• Housing estate
• Council house

Technology:

• Welfare Management System

Notes[link]

References[link]

• Arts, Wil and Gelissen John; "Three Worlds of Welfare Capitalism or More? A State-of-the-art report"; Journal of European Social Policy, vol. 12 (2), pp. 137–158 (2002).
• Esping-Andersen, Gosta; Politics against markets, Princeton, NJ: Princeton University Press (1985).
• Esping-Andersen, Gosta; "The Three Worlds of Welfare Capitalism", Princeton NJ: Princeton University Press (1990).
• Ferragina, Emanuele and Seeleib-Kaiser, Martin; Welfare Regime Debate: Past, Present, Futures?; Policy & Politics, Vol. 39 (4), pp. 583–611 (2011).http://www.ingentaconnect.com/content/tpp/pap/2011/00000039/00000004/art00010.
• Korpi, Walter; "The Demcoratic Class Struggle"; London: Routledge (1983).
• Stein Kuhnle Survival of the European Welfare State 2000 Routledge ISBN 0-415-21291-X
• Stephens, John D. "The Transition from Capitalism to Socialism"; Urbana, IL: University of Illinois Press (1979).
• Van Kesbergen "Social Capitalism"; London: Routledge (1995).

External links[link]

• Center for Public Policy
• Social Policy Virtual Library
• Social Sciences Information Gateway
• Race and Welfare in the United States
• The Welfare State: A Critique
• Shavell's criticism of social justice programmes
• Kaplow's criticism of social justice programmes.
• García Calvo's Analysis of Welfare Society
• World report on Welfare State
• Journal containing free daily information on welfare policies at local, national and EU level

Data and statistics[link]

• OECD - Health Policy and Data: Health Division Website
• OECD - National Accounts: Statistics Portal
• OECD - Social Expenditure database (SOCX) Website

Milton Friedman

Chicago School of Economics
Born	(1912-07-31)July 31, 1912 Brooklyn, New York
Died	November 16, 2006(2006-11-16) (aged 94) San Francisco, California
Nationality	American
Institution	Hoover Institution (1977–2006) University of Chicago (1946–77) Columbia University (1937–41, 1943–45, 1964–65) NBER (1937–40)
Field	Economics
Alma mater	Columbia University (Ph.D.), 1946, University of Chicago (M.A.), 1933 Rutgers University (B.A.), (1932)
Opposed	John Maynard Keynes, John Kenneth Galbraith, Murray Rothbard
Influences	Adam Smith, Irving Fisher, Frank Knight, Murray Rothbard, Jacob Viner, Harold Hotelling, Arthur Burns, Friedrich Hayek, Homer Jones, Ludwig von Mises, Henry Simons, George Stigler
Influenced	Margaret Thatcher, Alan Greenspan, David D. Friedman, Anna J. Schwartz, Ben Bernanke, Gary Becker, Thomas Sowell, Harry Markowitz, Chicago Boys, William F. Buckley, Jr., Cato Institute
Contributions	Price theory, Monetarism, applied macroeconomics, floating exchange rates, volunteer military, Permanent income hypothesis, Friedman test
Awards	John Bates Clark Medal (1951) Nobel Memorial Prize in Economics (1976) Presidential Medal of Freedom (1988) National Medal of Science (1988)
Signature

Milton Friedman (July 31, 1912 – November 16, 2006) was an American economist, statistician, and author who taught at the University of Chicago for more than three decades. He was a recipient of the Nobel Memorial Prize in Economic Sciences, and is known for his research on consumption analysis, monetary history and theory, and the complexity of stabilization policy.^[1] As a leader of the Chicago school of economics, he influenced the research agenda of the economics profession. A survey of economists ranked Friedman as the second most popular economist of the twentieth century behind John Maynard Keynes,^[2] and The Economist described him as "the most influential economist of the second half of the 20th century…possibly of all of it."^[3]

Friedman's challenges to what he later called "naive Keynesian" (as opposed to New Keynesian) theory^[4] began with his 1950s reinterpretation of the consumption function, and he became the main advocate opposing activist Keynesian government policies.^[5] In the late 1960s he described his own approach (along with all of mainstream economics) as using "Keynesian language and apparatus" yet rejecting its "initial" conclusions.^[6] During the 1960s he promoted an alternative macroeconomic policy known as "monetarism". He theorized there existed a "natural" rate of unemployment, and argued that governments could increase employment above this rate (e.g., by increasing aggregate demand) only at the risk of causing inflation to accelerate.^[7] He argued that the Phillips curve was not stable and predicted what would come to be known as stagflation.^[8] Friedman argued that, given the existence of the Federal Reserve, a constant small expansion of the money supply was the only wise policy.^[9]

Friedman was an economic adviser to conservative President Ronald Reagan. His political philosophy extolled the virtues of a free market economic system with minimal intervention. He once stated that his role in eliminating U.S. conscription was his proudest accomplishment, and his support for school choice led him to found The Friedman Foundation for Educational Choice. In his 1962 book Capitalism and Freedom, Friedman advocated policies such as a volunteer military, freely floating exchange rates, abolition of medical licenses, a negative income tax, and education vouchers.^[10] His ideas concerning monetary policy, taxation, privatization and deregulation influenced government policies, especially during the 1980s. His monetary theory influenced the Federal Reserve's response to the global financial crisis.^[11]

Milton Friedman's works include many monographs, books, scholarly articles, papers, magazine columns, television programs, videos, and lectures, and cover a broad range of topics of microeconomics, macroeconomics, economic history, and public policy issues. His books and essays were widely read, and have had an international influence, including in Communist countries.^{[12][13][14][15]}

Early life[link]

Friedman was born in Brooklyn, New York, to recent Jewish immigrants Jenő Friedman and Sára Landau from Beregszász in Austria-Hungary (now Berehove in Ukraine), both of whom worked as dry goods merchants. Shortly after Milton's birth, the family relocated to Rahway, New Jersey. A talented student, Friedman graduated from Rahway High School in 1928, just before his 16th birthday.^[16][17]

Friedman graduated from Rutgers University in New Jersey, where he specialized in mathematics and initially intended to become an actuary. During his time at Rutgers, Friedman became influenced by two economics professors, Arthur F. Burns and Homer Jones, who convinced him that modern economics could help end the Great Depression. After graduating from Rutgers in 1932, Friedman was offered two scholarships to do graduate work; one being Mathematics at Brown University and the other being Economics at the University of Chicago.^[18]Friedman chose the latter, thus earning an M.A. in 1933. He was strongly influenced by Jacob Viner, Frank Knight, and Henry Simons. It was at Chicago that Friedman met his future wife, economist Rose Director. During 1933–34 he had a fellowship at Columbia University, where he studied statistics with renowned statistician and economist Harold Hotelling. He was back in Chicago for 1934–35, spending the year working as a research assistant for Henry Schultz, who was then working on Theory and Measurement of Demand. That year, Friedman formed what would prove to be lifelong friendships with George Stigler and W. Allen Wallis.^[19]

Public service[link]

Friedman was initially unable to find academic employment, so during 1935, he followed his friend W. Allen Wallis to Washington, where Franklin D. Roosevelt's New Deal was "a lifesaver" for many young economists.^[20] At this stage, Friedman said that he and his wife "regarded the job-creation programs such as the WPA, CCC, and PWA appropriate responses to the critical situation," but not "the price- and wage-fixing measures of the National Recovery Administration and the Agricultural Adjustment Administration."^[21] Foreshadowing his later ideas, he believed price controls interfered with an essential signaling mechanism to help resources be used where they were most valued. Indeed, Friedman later concluded that all government intervention associated with the New Deal was "the wrong cure for the wrong disease," arguing that the money supply should simply have been expanded, instead of contracted.^[22] In the publication Monetary History of the United States by Friedman and Anna Schwartz, they argue that the Great Depression was caused by monetary contraction, which was the consequence of poor policymaking by the Federal reserve and the continuous crises of the banking system.^[23]

During 1935, he began work for the National Resources Committee, which was then working on a large consumer budget survey. Ideas from this project later became a part of his Theory of the Consumption Function. Friedman began employment with the National Bureau of Economic Research during autumn 1937 to assist Simon Kuznets in his work on professional income. This work resulted in their jointly authored publication Incomes from Independent Professional Practice, which introduced the concepts of permanent and transitory income, a major component of the Permanent Income Hypothesis that Friedman worked out in greater detail in the 1950s. The book hypothesizes that professional licensing artificially restricts the supply of services and raises prices.

During 1940, Friedman was appointed an assistant professor teaching Economics at the University of Wisconsin–Madison, but encountered antisemitism in the Economics department and decided to return to government service.^[24][25] Friedman spent 1941–43 working on wartime tax policy for the Federal Government, as an advisor to senior officials of the United States Department of the Treasury. As a Treasury spokesman during 1942 he advocated a Keynesian policy of taxation. He helped to invent the payroll withholding tax system, since the federal government badly needed money in order to fight the war.^[26] He later said, "I have no apologies for it, but I really wish we hadn't found it necessary and I wish there were some way of abolishing withholding now."^[27]

Academic career[link]

Early years[link]

In 1943, Friedman joined the Division of War Research at Columbia University (headed by W. Allen Wallis and Harold Hotelling), where he spent the rest of World War II working as a mathematical statistician, focusing on problems of weapons design.^[28]

During 1945, Friedman submitted Incomes from Independent Professional Practice (co-authored with Kuznets and completed during 1940) to Columbia as his doctoral dissertation. The university awarded him a Ph.D. during 1946. Friedman spent the 1945–46 academic year teaching at the University of Minnesota (where his friend George Stigler was employed). On February 12, 1945, his son, David D. Friedman was born.

University of Chicago[link]

University of Chicago

During 1946, Friedman accepted an offer to teach economic theory at the University of Chicago (a position opened by departure of his former professor Jacob Viner to Princeton University). Friedman would work for the University of Chicago for the next 30 years. There he helped build an intellectual community that produced a number of Nobel Prize winners, known collectively as the Chicago School of Economics.

At that time, Arthur Burns, who was then the head of the National Bureau of Economic Research, asked Friedman to rejoin the Bureau's staff. He accepted the invitation, and assumed responsibility for the Bureau's inquiry into the role of money in the business cycle. As a result, he initiated the "Workshop in Money and Banking" (the "Chicago Workshop"), which promoted a revival of monetary studies. During the latter half of the 1940s, Friedman began a collaboration with Anna Schwartz, an economic historian at the Bureau, that would ultimately result in the 1963 publication of a book co-authored by Friedman and Schwartz, A Monetary History of the United States, 1867–1960.

Friedman spent the 1954–55 academic year as a Fulbright Visiting Fellow at Gonville and Caius College, Cambridge. At the time, the Cambridge economics faculty was divided into a Keynesian majority (including Joan Robinson and Richard Kahn) and an anti-Keynesian minority (headed by Dennis Robertson). Friedman speculates that he was invited to the fellowship because his views were unacceptable to both of the Cambridge factions. Later his weekly columns for Newsweek magazine (1966–84) were well read and increasingly influential among political and business people.^[29] From 1968 to 1978, he and Paul Samuelson participated in the Economics Cassette Series, a biweekly subscription series where the economist would discuss the days' issues for about a half hour at a time.^[30]

Friedman was an economic adviser to Republican presidential candidate Barry Goldwater during 1964.

Nobel memorial prize and retirement[link]

In 1976 Friedman won the Nobel Memorial Prize in Economics "for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy."^[1] During the banquet speech he made a reference to “the Prize in Economic Sciences in Memory of Alfred Nobel”. In that he was the first recipient to do so, and it wasn’t until 2006 that a recipient of the prize called it by its proper name.^[31] During 1977, at age 65, Friedman retired from the University of Chicago after teaching there for 30 years. He and his wife moved to San Francisco where he became a visiting scholar at the Federal Reserve Bank of San Francisco. From 1977 on, he was affiliated with the Hoover Institution at Stanford University. During the same year, Friedman was approached by the Free To Choose Network and asked to create a television program presenting his economic and social philosophy. The Friedmans worked on this project for the next three years, and during 1980, the ten-part series, titled Free to Choose, was broadcast by the Public Broadcasting Service (PBS). The companion book to the series (co-authored by Milton and his wife, Rose Friedman), also titled Free To Choose, was the bestselling nonfiction book of 1980 and has since been translated into 14 foreign languages.

Friedman served as an unofficial adviser to Ronald Reagan during his 1980 presidential campaign, and then served on the President's Economic Policy Advisory Board for the rest of the Reagan Administration. During 1988, he received the National Medal of Science and Reagan honored him with the Presidential Medal of Freedom. Milton Friedman is known now as one of the most influential economists of the 20th century.^[32][33] Throughout the 1980s and 1990s, Friedman continued to write editorials and appear on television. He made several visits to Eastern Europe and to China, where he also advised governments. He was also for many years a Trustee of the Philadelphia Society.^[34][35][36]

Scholarly contributions[link]

Economics[link]

Friedman was best known for reviving interest in the money supply as a determinant of the nominal value of output, that is, the quantity theory of money. Monetarism is the set of views associated with modern quantity theory. Its origins can be traced back to the 16th-century School of Salamanca or even further; however, Friedman's contribution is largely responsible for its modern popularization. He co-authored, with Anna Schwartz, A Monetary History of the United States (1963), which was an examination of the role of the money supply and economic activity in U.S. history. A striking conclusion of their research was one regarding the role of money supply fluctuations as contributing to economic fluctuations. Several regression studies with David Meiselman during the 1960s suggested the primacy of the money supply over investment and government spending in determining consumption and output. These challenged a prevailing but largely untested view on their relative importance. Friedman's empirical research and some theory supported the conclusion that the short-run effect of a change of the money supply was primarily on output but that the longer-run effect was primarily on the price level.

Friedman was the main proponent of the monetarist school of economics. He maintained that there is a close and stable association between price inflation and the money supply, mainly that price inflation should be regulated with monetary deflation and price deflation with monetary inflation. He famously quipped that price deflation can be fought by "dropping money out of a helicopter."^[37]

Friedman's arguments were designed to counter popular claims that price inflation at the time was the result of increases in the price of oil, or increases in wages: as he wrote,

Inflation is always and everywhere a monetary phenomenon.

—Milton Friedman, 1963.^[38]

Friedman rejected the use of fiscal policy as a tool of demand management; and he held that the government's role in the guidance of the economy should be restricted severely. Friedman wrote extensively on the Great Depression, which he termed the Great Contraction, arguing that it had been caused by an ordinary financial shock whose duration and seriousness were greatly increased by the subsequent contraction of the money supply caused by the misguided policies of the directors of the Federal Reserve.

The Fed was largely responsible for converting what might have been a garden-variety recession, although perhaps a fairly severe one, into a major catastrophe. Instead of using its powers to offset the depression, it presided over a decline in the quantity of money by one-third from 1929 to 1933 ... Far from the depression being a failure of the free-enterprise system, it was a tragic failure of government.

—Milton Friedman, Two Lucky People, 233

Friedman also argued for the cessation of government intervention in currency markets, thereby spawning an enormous literature on the subject, as well as promoting the practice of freely floating exchange rates. His close friend George Stigler explained, "As is customary in science, he did not win a full victory, in part because research was directed along different lines by the theory of rational expectations, a newer approach developed by Robert Lucas, also at the University of Chicago."^[39]

Friedman was also known for his work on the consumption function, the permanent income hypothesis (1957), which Friedman himself referred to as his best scientific work.^[40] This work contended that rational consumers would spend a proportional amount of what they perceived to be their permanent income. Windfall gains would mostly be saved. Tax reductions likewise, as rational consumers would predict that taxes would have to increase later to balance public finances. Other important contributions include his critique of the Phillips curve and the concept of the natural rate of unemployment (1968). This critique associated his name, together with that of Edmund Phelps, with the insight that a government that brings about greater inflation cannot permanently reduce unemployment by doing so. Unemployment may be temporarily lower, if the inflation is a surprise, but in the long run unemployment will be determined by the frictions and imperfections of the labor market.

Friedman's essay "The Methodology of Positive Economics" (1953) provided the epistemological pattern for his own subsequent research and to a degree that of the Chicago School. There he argued that economics as science should be free of value judgments for it to be objective. Moreover, a useful economic theory should be judged not by its descriptive realism but by its simplicity and fruitfulness as an engine of prediction. That is, students should measure the accuracy of its predictions, rather than the "soundness of its assumptions. His argument was part of an ongoing debate among such statisticians as Jerzy Neyman, Leonard Savage, and Ronald Fisher.^[41]

Statistics[link]

One of his most famous contributions to statistics is sequential sampling. "Friedman did statistical work at the Division of War Research at Columbia. He and his colleagues came up with a sampling technique, known as sequential sampling, which became, in the words of The New Palgrave Dictionary of Economics, 'the standard analysis of quality control inspection.' The dictionary adds: 'Like 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.'"^[42]

Public policy positions[link]

Federal reserve[link]

Friedman believed that if the money supply was to be centrally controlled (as by the Federal Reserve) that the preferable way to do it would be with a mechanical system that would keep the quantity of money increasing at a steady rate. However, instead of government involvement at all, he was open to a "real," non-government, gold standard where money is produced by the private market: "A real gold standard is thoroughly consistent with [classical] liberal principles and I, for one, am entirely in favor of measures promoting its development." He did however add this caveat, "Let me emphasize that this note is not a plea for a return to a gold standard.... I regard a return to a gold standard as neither desirable nor feasible—with the one exception that it might become feasible if the doomsday predictions of hyperinflation under our present system should prove correct."^[43] He said the reason that it was not feasible was because "there is essentially no government in the world that is willing to surrender control over its domestic monetary policy." However, it could be done if "you could re-establish a world in which government's budget accounted for 10 percent of the national income, in which laissez-faire reigned, in which governments did not interfere with economic activities and in which full employment policies had been relegated to the dustbin..."^[43]

He was critical of the Federal Reserve's influence on the economics profession. In a 1993 letter to University of Texas economics professor and former House Banking Committee investigator Robert Auerbach, Friedman wrote:

I cannot disagree with you that having something like 500 economists is extremely unhealthy. As you say, it is not conducive to independent, objective research. You and I know there has been censorship of the material published. Equally important, the location of the economists in the Federal Reserve has had a significant influence on the kind of research they do, biasing that research toward noncontroversial technical papers on method as opposed to substantive papers on policy and results.^[44]

School choice[link]

In his 1955 article "The Role of Government in Education" Friedman proposed supplementing publicly operated schools with privately run but publicly funded schools through a system of school vouchers.^[45] Reforms similar to those proposed in the article were implemented in, for example, Chile in 1981 and Sweden in 1992.^[46] In 1996 Friedman, together with his wife, founded the The Foundation for Educational Choice to advocate school choice and vouchers.

Conscription[link]

Milton Friedman was a major proponent of a volunteer military, stating that the draft was "inconsistent with a free society."^[47][48] In Capitalism and Freedom, he argued that conscription is inequitable and arbitrary, preventing young men from shaping their lives as they see fit.^[49] During the Nixon administration he headed the committee to research a conversion to paid/volunteer armed force. He would later state that his role in eliminating the conscription in the United States was his proudest accomplishment.^[9] Friedman did, however, believe a nation could compel military training as a reserve in case of war time.^[49]

Libertarianism and the Republican party[link]

He served as a member of President Reagan's Economic Policy Advisory Board during 1981. During 1988, he received the Presidential Medal of Freedom and the National Medal of Science. He said that he was a libertarian philosophically, but a member of the U.S. Republican Party for the sake of "expediency" ("I am a libertarian with a small 'l' and a Republican with a capital 'R.' And I am a Republican with a capital 'R' on grounds of expediency, not on principle.") But, he said, "I think the term classical liberal is also equally applicable. I don't really care very much what I'm called. I'm much more interested in having people thinking about the ideas, rather than the person."^[50]

Public goods and monopoly[link]

Friedman was supportive of the state provision of some public goods that private businesses are not considered as being able to provide. However, he argued that many of the services performed by government could be performed better by the private sector. Above all, if some public goods are provided by the state, he believed that they should not be a legal monopoly where private competition is prohibited; for example, he wrote:

There is no way to justify our present public monopoly of the post office. It may be argued that the carrying of mail is a technical monopoly and that a government monopoly is the least of evils. Along these lines, one could perhaps justify a government post office, but not the present law, which makes it illegal for anybody else to carry the mail. If the delivery of mail is a technical monopoly, no one else will be able to succeed in competition with the government. If it is not, there is no reason why the government should be engaged in it. The only way to find out is to leave other people free to enter.

—Milton Friedman, Friedman, Milton & Rose D. Capitalism and Freedom, University of Chicago Press, 1982, 29

Welfare[link]

Friedman made newspaper headlines by proposing a negative income tax to replace the existing welfare system, and then opposing a bill to implement it because the bill proposed to supplement the existing system rather than replace it.

Drugs[link]

Friedman also supported libertarian policies such as legalization of drugs and prostitution. During 2005, Friedman and more than 500 other economists advocated discussions regarding the economic benefits of the legalization of marijuana.^[51]

Economic freedom[link]

Michael Walker of the Fraser Institute and Friedman hosted a series of conferences from 1986 to 1994. The goal was to create a clear definition of economic freedom and a method for measuring it. Eventually this resulted in the first report on worldwide economic freedom, Economic Freedom in the World. This annual report has since provided data for numerous peer-reviewed studies and has influenced policy in several nations.

Along with sixteen other distinguished economists he opposed the Copyright Term Extension Act and filed an amicus brief in Eldred v. Ashcroft.^[52] He supported the inclusion of the word "no-brainer" in the brief.^[53]

Friedman argued for stronger basic legal (constitutional) protection of economic rights and freedoms in order to further promote industrial-commercial growth and prosperity and buttress democracy and freedom and the rule of law generally in society.^[54]

Honors, recognition, and influence[link]

Friedman allowed the Cato Institute to use his name for its biannual Milton Friedman Prize for Advancing Liberty beginning in 2001. A Friedman Prize was given to the late British economist Peter Bauer during 2002, Peruvian economist Hernando de Soto during 2004, Mart Laar, former Estonian Prime Minister during 2006 and a young Venezuelan student Yon Goicoechea during 2008. His wife Rose, sister of Aaron Director, with whom he initiated the Friedman Foundation for Educational Choice, served on the international selection committee. Friedman was also a recipient of the Nobel Prize in Economics.

Hong Kong[link]

Friedman once said, "If you want to see capitalism in action, go to Hong Kong."^[55] He wrote in 1990 that the Hong Kong economy was perhaps the best example of a free market economy.^[56]

One month before his death, he wrote the article "Hong Kong Wrong – What would Cowperthwaite say?" in the Wall Street Journal, criticizing Donald Tsang, the Chief Executive of Hong Kong, for abandoning "positive noninterventionism."^[57] Tsang later said he was merely changing the slogan to "big market, small government," where small government is defined as less than 20% of GDP. In a debate between Tsang and his rival, Alan Leong, before the 2007 Chief Executive election, Leong introduced the topic and jokingly accused Tsang of angering Friedman to death.

Chile[link]

During 1975, two years after the military coup that ended the government of Salvador Allende, the economy of Chile experienced a severe crisis. Friedman accepted the invitation of a private foundation to visit Chile and speak on principles of economic freedom. He spent seven days in Chile giving a series of lectures. One of the lectures was entitled "The Fragility of Freedom," and according to Friedman, "dealt with precisely the threat to freedom from a centralized military government."^[58] Friedman encapsulated his philosophy in a lecture at Universidad Católica de Chile, saying: "free markets would undermine political centralization and political control."^[59]

Friedman also met with military dictator President Augusto Pinochet during his visit. He never served as an adviser to the Chilean government, but did write a letter to Pinochet outlining what Friedman considered the two key economic problems of Chile. The letter listed a series of monetary and fiscal measures deemed a "shock program" to end hyperinflation and promote a market economy.^[60] His letter suggested (among other, more specific prescriptions) that a brief period of cutting government spending would reduce its fiscal deficit and thus reduce the rate of increase of the quantity of money in the country that was driving inflation. The economist did however admit his knowledge of Chile was "too limited to enable [him] to be precise or comprehensive" and that the measures he outlined were "to be taken as illustrative."^[60] Friedman felt that there might be a brief period ("measured in months") of higher unemployment, followed by recovery once inflation was tamed. His letter also suggested that cutting spending to reduce the fiscal deficit would result in less transitional unemployment than raising taxes to do so. Later, Friedman said he believed that market reforms would undermine Pinochet.^[61] Chilean graduates of the Chicago School of Economics and its new local chapters had been appointed to important positions in the new government soon after the coup, which allowed them to advise Pinochet on economic policies in accord with the School's economic doctrine.

According to his critics, Friedman did not criticize Pinochet's dictatorship at the time, nor the assassinations, illegal imprisonments, torture, or other atrocities that were well known by then.^[62] In his 1980 documentary Free to Choose, he said the following: "Chile is not a politically free system, and I do not condone the system. But the people there are freer than the people in Communist societies because government plays a smaller role. ... The conditions of the people in the past few years has been getting better and not worse. They would be still better to get rid of the junta and to be able to have a free democratic system."^[63][64] In 1984 Friedman stated that he has "never refrained from criticizing the political system in Chile."^[58]

Friedman defended his activity in Chile on the grounds that, in his opinion, the adoption of free market policies not only improved the economic situation of Chile but also contributed to the amelioration of Pinochet's rule and to the eventual transition to a democratic government during 1990. That idea is included in Capitalism and Freedom, in which he declared that economic freedom is not only desirable in itself but is also a necessary condition for political freedom. He stressed that the lectures he gave in Chile were the same lectures he later gave in China and other socialist states.^[65] During the 2000 PBS documentary The Commanding Heights (based on the book), Friedman continued to argue that criticism over his role in Chile missed his main contention that freer markets resulted in freer people, and that Chile's unfree economy had caused the military government. Friedman suggested that the economic liberalization he advocated caused the end of military rule and a free Chile.^[66]

Iceland[link]

Friedman visited Iceland during the autumn of 1984, met with important Icelanders and gave a lecture at the University of Iceland on the "tyranny of the status quo." He participated in a lively television debate on August 31, 1984 with socialist intellectuals, including Ólafur Ragnar Grímsson, who later became the president of Iceland.^[67] When they complained that a fee was charged for attending his lecture at the University and that hitherto, lectures by visiting scholars had been free-of-charge, Friedman replied that previous lectures had not been free-of-charge in a meaningful sense: Lectures always have related costs. What mattered was whether attendees or non-attendees covered those costs. Friedman thought that it was fairer that only those who attended paid. In this discussion Friedman also stated that he did not receive any money for delivering that lecture.

Estonia[link]

Although Friedman never visited Estonia, his book Free to Choose exercised a great influence on that nation's then 32-year-old prime minister, Mart Laar, who has claimed that it was the only book on economics he had read before taking office. Laar's reforms are often credited with responsibility for transforming Estonia from an impoverished Soviet Republic to the "Baltic Tiger." A prime element of Laar's program was introduction of the flat tax. Laar won the 2006 Milton Friedman Prize for Advancing Liberty, awarded by the Cato Institute.^[68]

United Kingdom[link]

Milton Friedman influenced the thinking of Alan Walters and Patrick Minford, two of Margaret Thatcher's main macroeconomic advisers. See the book Margaret Thatcher's Revolution: How it Happened and What it Meant, edited by Subroto Roy & John Clarke, Continuum 2005

Criticism[link]

Keynesian criticism[link]

During the financial crisis of 2007–2010, several Keynesian economists such as James Galbraith and Joseph Stiglitz blamed the free market philosophy of Friedman and the Chicago school for the economic turmoil.^[69]

After Friedman's death in 2006, Keynesian Nobel laureate Paul Krugman, praised Friedman as a "great economist and a great man," but criticized him by writing that "he slipped all too easily into claiming both that markets always work and that only markets work. It's extremely hard to find cases in which Friedman acknowledged the possibility that markets could go wrong, or that government intervention could serve a useful purpose."^[70]

Austrian school criticism[link]

In 1971, libertarian economist Murray Rothbard criticized Friedman's efforts to make the government more efficient as detrimental to individual liberty, concluding "...as we examine Milton Friedman’s credentials to be the leader of free-market economics, we arrive at the chilling conclusion that it is difficult to consider him a free-market economist at all."^[71] Friedman's position on governmental control of money changed since 1971 when this criticism was made.^[72] In a 1995 interview in Reason magazine he said the "difference between me and people like Murray Rothbard is that, though I want to know what my ideal is, I think I also have to be willing to discuss changes that are less than ideal so long as they point me in that direction." He said he actually would "like to abolish the Fed," and points out that when he has written about the Fed it is simply his recommendations of how it should be run given that it exists.^[9]

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Other criticism[link]

In her book The Shock Doctrine: The Rise of Disaster Capitalism, journalist and author Naomi Klein criticized Friedman's ideology and the principles that guided the economic restructuring that followed the military coups in countries such as Chile and Indonesia, drawing analogies between the way that Friedman proposed using the social "shock" of the coups to create an economic "blank slate" with Ewen Cameron's controversial medical experiments that used electroshock therapy to create a mental "blank slate" in patients with mental disorders.^[73] Based on the extent to which the application of neoliberal policies has contributed to income disparities and inequality,^[74] both Klein and Noam Chomsky have suggested that the primary role of neoliberalism was as an ideological cover for capital accumulation by multinational corporations.^[75] Chilean economist Orlando Letelier asserted that Pinochet's dictatorship resorted to oppression because of popular opposition to Chicago School policies in Chile.^[76] Klein's book has been criticized. In the October 2008 issue of Reason magazine, Swedish historian Johan Norberg called her book a "disastrous ... polemic" and criticized the book as exaggerating some facts and ignoring others, subjecting Friedman to "the most malevolent distortions of a thinker's ideas in recent history." Norberg states that "Friedman's view was the opposite of what Klein claims" and "twists [the] relationship [between Friedman and Pinochet's regime] beyond recognition," concluding that "Klein is dead wrong about Friedman."^[77] Tom Redburn wrote that Klein "accuses Friedman of being the godfather of a Mafia-like gang", stated that "her argument constantly overreaches because her goal is not really to tame capitalism so much as to taunt it", and that Klein is "blind to the necessary role of entrepreneurial capitalism in overcoming the inherent tendency of any established social system to lapse into stagnation."^[78]

Personal life[link]

According to a 2007 article in Commentary magazine, his "parents were moderately observant [Jews], but Friedman, after an intense burst of childhood piety, rejected religion altogether."^[79] He described himself as an agnostic.^[80]

Friedman wrote extensively of his life and experiences, especially in 1998 in his memoirs with his wife Rose, titled Two Lucky People. He died of heart failure at the age of 94 years in San Francisco on November 16, 2006.^[81][82] He was survived by his wife (who died on August 18, 2009) and their two children, David, who is a philosopher and anarcho-capitalist economist, and Janet. David's son, Patri Friedman, is the executive director of the Seasteading Institute.^[83]

See also[link]

liberalism portal

• Works of Milton Friedman
• Friedman–Savage utility function
• Friedman rule
• Friedman's k-percent rule
• Friedman test
• List of economists
• List of Jewish Nobel laureates
• List of notable Presidential Medal of Freedom recipients
• History of economic thought

Notes[link]

Bibliography[link]

References[link]

• Bernanke, Ben (2004), Essays on the Great Depression, Princeton University Press, ISBN 0-691-11820-5 
• Butler, Eamonn. Milton Friedman (Harriman Economic Essentials) (2011)
• Ebenstein, Alan O. Milton Friedman: a biography (2007)
• Friedman, Milton (1999), Two Lucky People: Memoirs, University of Chicago Press, ISBN 0-226-26415-7 
• Wood, John Cunningham, and Ronald N. Wood, ed. (1990) Milton Friedman: Critical Assessments, v. 3. Scroll to chapter-preview links. Routledge.

Further reading[link]

• Friedman, Milton (1948). "A Monetary and Fiscal Framework for Economic Stability," American Economic Review, 38(3), pp. 245-264. Also in Friedman (1953), pp. 133–56.
• Friedman, Milton (1953). Essays in Positive Economics, University of Chicago Press. Chapter- preview links.
• Friedman, Milton (1959). A Program for Monetary Stability. Fordham University Press. New York. TOC chapter-preview links.
• Friedman, Milton (1963). A Monetary History of the United States, 1867-1960. Princeton University Press. ISBN 0-691-00354-8. 
• "The Role of Monetary Policy." American Economic Review, Vol. 58, No. 1 (Mar., 1968), pp. 1–17 JSTOR presidential address to American Economics Association
• Ebenstein, Lanny (January 23, 2007). Milton Friedman: A Biography. Palgrave Macmillan. ISBN 1-4039-7627-9. 
• Enlow, Robert (September 25, 2006). Liberty & Learning: Milton Friedman's Voucher Idea at Fifty. Cato Institute. ISBN 1-930865-86-4. 
• Friedman, Milton (November 15, 2002). Capitalism and Freedom. University of Chicago Press. ISBN 0-226-26421-1. 
• Friedman, Milton (November 26, 1990). Free to Choose: A Personal Statement. Harvest Books. ISBN 0-15-633460-7. 
• Friedman, Milton (February 1, 2008). Milton Friedman on Economics: Selected Papers. University of Chicago Press Journals. ISBN 0-226-26349-5. 

External links[link]

Find more about Milton Friedman on Wikipedia's sister projects:
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	News stories from Wikinews
	Quotations from Wikiquote

• Works by or about Milton Friedman in libraries (WorldCat catalog)
• Milton Friedman at the Internet Movie Database
• Appearances on C-SPAN
  • Booknotes interview with Friedman on the 50th Anniversary Edition of F.A. Hayek's Road to Serfdom, November 20, 1994.
  • In Depth interview with Friedman, September 3, 2000
• A film clip "The Open Mind - Living Within Our Means (1975)" is available for free download at the Internet Archive [more]
• A film clip "The Open Mind - A Nobel Laureate on the American Economy (1977)" is available for free download at the Internet Archive [more]
• Milton Friedman on Charlie Rose
• Milton Friedman collected news and commentary at The New York Times
• The Milton Friedman papers at the Hoover Institution Archives
• Selected Bibliography for Milton Friedman at the University of Chicago Library
• Inflation and Unemployment 1976 lecture at NobelPrize.org
• Profile and Papers at Research Papers in Economics/RePEc
• Milton Friedman at Econlib
• Milton Friedman, Commanding Heights, PBS, October 1, 2000, interview, profile and video
• Becker Friedman Institute at the University of Chicago
• "Free To Choose" (1980) a PBS TV Series by Milton Friedman
• Milton Friedman at the Cato Institute
• Free to Choose Network
• The Foundation for Educational Choice
• Milton Fridman at Scarlett
• Milton Friedman:Why Not a Volunteer Army?, New Individualist Review, Spring 1967
• The Social Responsibility of Business is to Increase its Profits, Milton Friedman, The New York Times Magazine, September 13, 1970
• Interview with Milton Friedman, Dominic Streatfeild, May 25, 2000, source material for Cocaine: An Unauthorised Biography
• Milton Friedman vs. The Fed Bailout by Michael Hirsh, Newsweek, July 17, 2009
• Four Deformations of the Apocalypse, David Stockman, The New York Times, July 31, 2010
• The Case for Free Trade by Milton and Rose Friedman
• How to Cure Inflation : Milton Friedman