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 the U.S. history. A striking conclusion of their research was regarding the way in which money supply fluctuations are 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. During 1975, two years after the military coup that brought military dictator President Augusto Pinochet to power and ended the government of Salvador Allende, the economy of Chile experienced a severe crisis. Friedman and Arnold Harberger accepted an invitation of a private Chilean foundation to visit Chile and speak on principles of economic freedom.[72] He spent seven days in Chile giving a series of lectures at the Universidad Católica de Chile. and the (Nationa) University of Chile. 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." Econometrician David Hendry criticized part of Friedman's and Anna Schwartz's 1982 Monetary Trends.[86] When asked about it during an interview with Icelandic TV in 1984, Friedman said that the critique applied to a different problem than that which he and Schwartz had tackled, and was thus not relevant,[87] and also pointed to the (as of 1984) lack of consequential peer review amongst econometricians on Hendry's work.[88] In 2006, Hendry stated that Friedman was guilty of "serious errors" of misunderstanding that meant "the t-ratios he reported for UK money demand were overstated by nearly 100 per cent", and said that, in a paper published in 1991 with Neil Ericsson,[89] he had refuted "almost every empirical claim [...] made about UK money demand" by Friedman and Schwartz.[90] A 2004 paper updated and confirmed the validity of the Hendry--Ericsson findings through 2000.[91] After Friedman's death in 2006, Keynesian Nobel laureate Paul Krugman praised Friedman as a "great economist and a great man," and acknowledged his many, widely accepted contributions to empirical economics. But Krugman criticized Friedman, 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."[92] In her book The Shock Doctrine, author and social activist 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. Based on the extent to which the application of what she calls "neoliberal policies" has contributed to income disparities and inequality,[93] both Klein and Noam Chomsky have suggested that the primary role of what they call "neoliberalism" was as an ideological cover for capital accumulation by multinational corporations.[94] Chilean economist Orlando Letelier asserted that Pinochet's dictatorship resorted to oppression because of popular opposition to Chicago School policies in Chile.[95] After a 1991 speech on drug legalisation, Friedman answered a question on his involvement with the Pinochet regime, saying that he was never an advisor to Pinochet but that a group of his students at the University of Chicago were involved in Chile's economic reforms. Friedman credited these reforms with high levels of economic growth and with the establishment of democracy that has subsequently occurred in Chile. http://en.wikipedia.org/wiki/Milton_friedman Image By Meiselman, Ellen (http://www.flickr.com/photos/ellenm1/6096649165/) [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

• published: 20 Jul 2014
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