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Welfare is the provision of a minimal level of wellbeing and social support for all citizens. In most developed countries, welfare is largely provided by the government, in addition to charities, informal social groups, religious groups, and inter-governmental organizations. In the end, this term replaces "charity" as it was known for thousands of years, being the voluntary act of providing for those who temporarily or permanently could not provide for themselves.

Forms[link]

This section requires expansion.

This unreferenced section requires citations to ensure verifiability.

Welfare can take a variety of forms, such as monetary payments, subsidies and vouchers, or housing. Welfare can be provided by governments, non-governmental organizations, or a combination of the two. Welfare programs may be funded directly by governments, or in social insurance models, by the members of the Welfare scheme.

Welfare systems differ from country to country, but Welfare is commonly provided to individuals who are unemployed, those with illness or disability, the elderly, those with dependent children, and veterans. A person's eligibility for Welfare may also be constrained by means testing or other conditions.

In a more general sense, Welfare also means the well-being of individuals or a group - in other words, their health, happiness, safety, prosperity, and fortunes.

Subsidy Subsidizing a good is one way of redistributing wealth to the poor. It is money that is paid usually by a government to keep the price of a product or service low or to help a business or organization to continue to function. In a budget constraint between ‘all other goods’ and a ‘subsidized good’, the maximum amount of ‘all other goods will remain the same but the budget constraint will shift outward for the ‘subsidized good’ because the cost of the ‘subsidized good’ is reduced for the consumer and so they have the ability to consume more of said good. Some people do not want to use subsidies because they want the poor to consume the subsidized good or service in a specific way or because subsidizing goods (such as health care) can lead to an over consumption of the good.

Voucher A voucher is like a subsidy that can only be consumed in a specific way like a school voucher or section 8 housing. For instance, families who receive school vouchers may only use them to send their children to schools to help pay tuition costs. Schools then exchange the voucher for cash. Similarly, in section 8 housing, families with this voucher can only use the voucher to pay a portion of their living costs in specified units or in a private sector. In a budget constraint between ‘all other goods’ and a ‘voucher good’ our budget constraint will shift out parallel to an amount equal to the amount of the voucher but the money we have to spend on ‘all other goods’ remains capped at the same amount we had to spend before the voucher. Voucher programs can make us worse off because of the cap on our ability to spend on ‘all other goods’ our indifference curves could limit us.

Direct Cash This is straight cash with no restrictions on how it can be consumed. Direct cash may cause greater budget constraint because the recipient can spend the cash subsidy on all ‘other goods’ or on a ‘subsidized good’. Direct cash increases the entire budget constraint and shifts the indifference curves outward allowing us to maximize individual utility.

Provision and funding[link]

This section requires expansion.

Welfare may be provided directly by governments or their agencies, by private organizations, or by a combination. The term Welfare state is used to describe a state in which the government provides the majority of Welfare services; the phrase also describes those services collectively.

Welfare may be funded by governments out of general revenue, typically by way of redistributive taxation. Social insurance-type Welfare schemes are funded on a contributory basis by the members of the scheme. Contributions may be pooled to fund the scheme as a whole, or reserved for the benefit of a particular member. Participation in such schemes is either compulsory, or the program is subsidized heavily enough that most eligible individuals choose to participate.

Examples of social insurance programs include the Social Security and Medicare programs in the United States.^[1]

Some opponents of Welfare argue that it affects work incentives. They also argue that the taxes levied can also affect work incentives. A good example of this would be the reform of the Aid to Families with Dependent Children (AFDC) program. Per AFDC, some amount per recipeint is guaranteed. However, for every dollar the recipient earns the monthly stipend is decreased by an equivalent amount. For most persons, this reduces their incentive to work. This program was replaced by Temporary Aid to Needy Families (TANF). Under TANF, people were required to actively seek employment while receiving aid and they could only receive aid for a limited amount of time. However, states can choose the amount of resources they will devote to the program. Some people believe this is how we should reform Medicaid.^[2]

History[link]

In the Roman Empire, social Welfare to help the poor was enlarged by the Caesar Trajan.^[3] Trajan's program brought acclaim from many, including Pliny the Younger.^[4]

In Jewish tradition, charity (represented by tzedakah) is a matter of religious obligation rather than benevolence. Contemporary charity is regarded as a continuation of the Biblical Maaser Ani, or poor-tithe, as well as Biblical practices, such as permitting the poor to glean the corners of a field and harvest during the Shmita (Sabbatical year). Voluntary charity, along with prayer and repentance, is believed to ameliorate the consequences of bad acts.

Distributing alms to the poor, abbey of Port-Royal des Champs c. 1710

The Song dynasty (c.1000AD) government supported multiple forms of social Welfare programs, including the establishment of retirement homes, public clinics, and pauper's graveyards ^[5]

According to Robert Henry Nelson, "The medieval Roman Catholic Church operated a far-reaching and comprehensive Welfare system for the poor..."^[6][7]

The concepts of Welfare and pension were put into practice in the early Islamic law^{[8][not in citation given]} of the Caliphate as forms of Zakat (charity), one of the Five Pillars of Islam, since the time of the Rashidun caliph Umar in the 7th century. The taxes (including Zakat and Jizya) collected in the treasury of an Islamic government were used to provide income for the needy, including the poor, elderly, orphans, widows, and the disabled. According to the Islamic jurist Al-Ghazali (Algazel, 1058–1111), the government was also expected to store up food supplies in every region in case a disaster or famine occurred.^[8][9] (See Bayt al-mal for further information.)

There is relatively little statistical data on Welfare transfer payments before the High Middle Ages. In the medieval period and until the Industrial Revolution, the function of Welfare payments in Europe was principally achieved through private giving or charity. In those early times, there was a much broader group considered to be in poverty as compared to the 21st century.

Early Welfare programs in Europe included the English Poor Law of 1601, which gave parishes the responsibility for providing Welfare payments to the poor.^[10] This system was substantially modified by the 19th-century Poor Law Amendment Act, which introduced the system of workhouses.

It was predominantly in the late 19th and early 20th centuries that an organized system of state Welfare provision was introduced in many countries. Otto von Bismarck, Chancellor of Germany, introduced one of the first Welfare systems for the working classes. In Great Britain the Liberal government of Henry Campbell-Bannerman and David Lloyd George introduced the National Insurance system in 1911,^[11] a system later expanded by Clement Attlee. The United States did not have an organized Welfare system until the Great Depression, when emergency relief measures were introduced under President Franklin D. Roosevelt. Even then, Roosevelt's New Deal focused predominantly on a program of providing work and stimulating the economy through public spending on projects, rather than on cash payment.

Welfare systems[link]

France[link]

Solidarity is a strong value of the French Social Protection system. The first article of the French Code of Social Security describes the principle of solidarity. Solidarity is commonly comprehended in relations of similar work, shared responsibility and common risks. Existing solidarities in France caused the expansion of health and social security.

Germany[link]

The Welfare state has a long tradition in Germany dating back to the industrial revolution. Due to the pressure of the workers' movement in the late 19th century, Reichskanzler Otto von Bismarck introduced the first rudimentary state social insurance scheme. Today, the social protection of all its citizens is considered a central pillar of German national policy. 27.6 percent of Germany's GDP is channeled into an all-embracing system of health, pension, accident, longterm care and unemployment insurance, compared to 16.2 percent in the US. In addition, there are tax-financed services such as child benefits (Kindergeld, beginning at €184 per month for the first and second children, €190 for the third and €215 for each child thereafter, until they attain 25 years or receive their first professional qualification),^[12] and basic provisions for those unable to work or anyone with an income below the poverty line.^[13]

Since 2005, reception of full unemployment pay (60-67% of the previous net salary) has been restricted to 12 months in general and 18 months for those over 55. This is now followed by (usually much lower) Arbeitslosengeld II (ALG II) or Sozialhilfe, which is independent of previous employment (Hartz IV concept).

Under ALG II, a single person receives €379 per month plus the cost of 'adequate' housing and health insurance. ALG II can also be paid partially to supplement a low work income.

Canada[link]

Canada has a Welfare state in the European tradition; however, it is not referred to as "Welfare", but rather as "social programs". In Canada, "Welfare" usually refers specifically to direct payments to poor individuals (as in the American usage) and not to healthcare and education spending (as in the European usage).^[14]

The Canadian social safety net covers a broad spectrum of programs, and because Canada is a federation, many are run by the provinces. Canada has a wide range of government transfer payments to individuals, which totaled $145 billion in 2006.^[15] Only social programs that direct funds to individuals are included in that cost; programs such as medicare and public education are additional costs.

Generally speaking, before the Great Depression, most social services were provided by religious charities and other private groups. Changing government policy between the 1930s and 1960s saw the emergence of a Welfare state, similar to many Western European countries. Most programs from that era are still in use, although many were scaled back during the 1990s as government priorities shifted towards reducing debt and deficits.

Italy[link]

The Italian Welfare state's foundations were laid along the lines of the corporatist-conservative model, or of its Mediterranean variant. Later, in the 1960s and 1970s, increases in public spending and a major focus on universality brought it on the same path as social-democratic systems. These policies proved to be financially unsustainable, as public debt and inflation grew alarmingly, preventing the Welfare state from developing completely. In the 1990s, efforts moving towards decentralization and privatization were used in an attempt to cope with European pressures for economic stability, which were finally reached by 2001.

Sweden[link]

Sweden has been categorised by some observers^[who?] as a middle way between a capitalist economy and a socialist economy.^{[citation needed]} Supporters of this system assert that Sweden has found a way of achieving high levels of social equality, without stifling entrepreneurialism. The perspective has been questioned by supporters of economic liberalization in Sweden.

Government pension payments are financed through an 18.5% pension tax on all taxed incomes in the country, which comes partly from a tax category called a public pension fee (7% on gross income), and 30% of a tax category called employer fees on salaries (which is 33% on a netted income). Since January 2001 the 18.5% is divided in two parts: 16% goes to current payments, and 2.5% goes into individual retirement accounts, which were introduced in 2001. Money saved and invested in government funds, and IRAs for future pension costs, are roughly 5 times annual government pension expenses (725/150).

Japan[link]

In Japan, the Oita district ruled on October 18, 2010, that foreigners with permanent residency have no rights to Welfare benefits.^{[16][dead link]}

United States[link]

President Roosevelt signs the Social Security Act, August 14, 1935

The Welfare system in the United States began in the 1930s, during the Great Depression. After the Great Society legislation of the 1960s, for the first time a person who was not elderly or disabled could receive need-based aid from the federal government.^{[17][dubious – discuss]} Aid could include general Welfare payments, health care through Medicaid, food stamps, special payments for pregnant women and young mothers, and federal and state housing benefits.^[17] In 1968, 4.1% of families were headed by a woman receiving Welfare assistance; by 1980, the percentage increased to 10%.^[17] In the 1970s, California was the U.S. state with the most generous Welfare system.^[18] Virtually all food stamp costs are paid by the taxpayers.^[19] In 2008, 28.7 percent of the households headed by single women were considered poor.^[20] The poverty rate for single-mother families in 2010 jumped to 40.7% compared to 8.8% for married-couple families.^[21] California, with 12% of the U.S. population, has one-third of the nation's welfare recipients.^[22]

In 1996, the Personal Responsibility and Work Opportunity Reconciliation Act changed the structure of Welfare payments and added new criteria to states that received Welfare funding. After reforms, which President Clinton said would "end Welfare as we know it,"^[19] amounts from the federal government were given out in a flat rate per state based on population.^{[23][dead link]} Each state must meet certain criteria to ensure recipients are being encouraged to work themselves out of Welfare. The new program is called Temporary Assistance for Needy Families (TANF).^[24][25] It encourages states to require some sort of employment search in exchange for providing funds to individuals, and imposes a five-year lifetime limit on cash assistance.^[19][24][26] In FY 2009, white families comprised 31.2% of TANF families, black families comprised 33.3%, and 28.8% were Hispanic.^[25]

In a 2011 article, Forbes reported, "The best estimate of the cost of the 185 federal means tested Welfare programs for 2010 for the federal government alone is nearly $700 billion, up a third since 2008, according to the Heritage Foundation. Counting state spending, total Welfare spending for 2010 reached nearly $900 billion, up nearly one-fourth since 2008 (24.3%)".^[27]

Latin America[link]

This section needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (March 2010)

History[link]

The 1980s marked a change in the structure of Latin American social protection programs. Social protection embraces three major areas: social insurance, financed by workers and employers; social assistance to the population’s poorest, financed by the state; and labor market regulations to protect worker rights.^[28] Although diverse, recent Latin American social policy has tended to concentrate on social assistance.

The 1980s had a significant effect on social protection policies. Prior to the 1980s, most Latin American countries focused on social insurance policies involving formal sector workers, assuming that the informal sector would disappear with economic development. The economic crisis of the 1980s and the liberalization of the labor market led to a growing informal sector and a rapid increase in poverty and inequality. Latin American countries did not have the institutions and funds to properly handle such a crisis, both due to the structure of the social security system, and to the previously implemented structural adjustment policies (SAPs) that had decreased the size of the state.

New Welfare programs have integrated the multidimensional, social risk management, and capabilities approaches into poverty alleviation. They focus on income transfers and service provisions while aiming to alleviate both long- and short-term poverty through, among other things, education, health, security, and housing. Unlike previous programs that targeted the working class, new programs have successfully focused on locating and targeting the very poorest.

The impacts of social assistance programs vary between countries, and many programs have yet to be fully evaluated. According to Barrientos and Santibanez, the programs have been more successful in increasing investment in human capital than in bringing households above the poverty line. Challenges still exist, including the extreme inequality levels and the mass scale of poverty; locating a financial basis for programs; and deciding on exit strategies or on the long-term establishment of programs.^[28]

Latin America’s most recent shift in social policies[link]

The economic crisis of the 1980s led to a shift in social policies, as understandings of poverty and social programs evolved (24). New, mostly short-term programs emerged. These include:^[29]

• Argentina: Jefes y Jefas de Hogar
• Bolivia: Bonosol
• Brazil: Bolsa Escola and Bolsa Familia
• Chile: Chile Solidario
• Ecuador: Bono de Desarollo Humano
• Honduras: Red Solidaria
• Mexico: Oportunidades (earlier known as Progresa)
• Panama: Red de Oportunidades
• Peru: Juntos

Major aspects of current social assistance programs[link]

• Conditional cash transfer (CCT) combined with service provisions. Transfer cash directly to households, most often through the women of the household, if certain conditions are met (e.g. children’s school attendance or doctor visits) (10). Providing free schooling or healthcare is often not sufficient, because there is an opportunity cost for the parents in, for example, sending children to school (lost labor power), or in paying for the transportation costs of getting to a health clinic.
• Household. The household has been the focal point of social assistance programs.
• Target the poorest. Recent programs have been more successful than past ones in targeting the poorest. Previous programs often targeted the working class.
• Multidimensional. Programs have attempted to address many dimensions of poverty at once. Chile Solidario is the best example.

Critiques[link]

Income transfers can be either conditional or unconditional. There is no substantial evidence that conditional transfers are more effective than unconditional ones. Conditionalities are sometimes critiqued for being paternalistic and unnecessary.

Current programs have been built as short-term rather than as permanent institutions, and many of them have rather short time spans (around five years). Some programs have time frames that reflect available funding. One example of this is Bolivia’s Bonosol, which is financed by proceeds from the privatization of utilities—an unsustainable funding source. Some see Latin America’s social assistance programs as a way to patch up high levels of poverty and inequalities, partly brought on by the current economic system.

Others argue that the effectiveness of the programs relies on the ability of mostly free-trade oriented economic systems to address poverty.

See also[link]

Look up welfare in Wiktionary, the free dictionary.

Wikimedia Commons has media related to: Welfare

References[link]

• R.M. Blank (2001). "Welfare Programs, Economics of," International Encyclopedia of the Social & Behavioral Sciences, pp. 16426–16432, Abstract.
• Sheldon Danziger, Robert Haveman, and Robert Plotnick (1981). "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature 19(3), pp. 975-1028.
• R.H. Haveman (2001). "Poverty: Measurement and Analysis," International Encyclopedia of the Social & Behavioral Sciences, pp. 11917–11924. Abstract.
• Steven N. Durlauf et al., ed. (2008) The New Palgrave Dictionary of Economics, 2nd Edition:

"social insurance" by Stefania Albanesi. Abstract.

"social insurance and public policy" by Jonathan Gruber Abstract.

"Welfare state" by Assar Lindbeck. Abstract.

• Nadasen, Premilla, Jennifer Mittelstadt, and Marisa Chappell, Welfare in the United States: A History with Documents, 1935–1996. (New York: Routledge, 2009). 241 pp. ISBN 978-0-415-98979-4

Notes[link]

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]