Milton Friedman -- a Living Economic Legend Even those individuals who consider him to be a negative influence upon economic theory cannot deny the impact of Milton Friedman had in deflating the once-uniform confidence economists invested in Keynesian theories of macroeconomics after Keynes' theories of government spending were credited with ending the Great Depression. Unlike Keynes, who advocated sharp, short-term increases in government spending to ameliorate the effects of a recession, Friedman argued against government intervention in the economy. Friedman claimed that the forces of a free market and the Federal Reserve Bank's gradual, continuous increase in the money supply would promote economic growth and thus counter the dangers of a recession. (Silk, 2005) This was at the heart of Friedman's 1957 contributions to economics, called the "Permanent Income Hypothesis" in consumption, that suggested that the more money existed in the economy, the more individuals were willing to spend, in contrast to Keynes' belief that recessions encouraged hoarding, regardless of the money supply, because of the fear of unemployment. ("Milton...
("Milton Friedman: 1976 Winner of the Nobel Prize in Economics." The Nobel Prize Internet Archive) Friedman is best known for founding what is known as the "Chicago School" of economics during the 1960s, perhaps one of the better known American "schools" of economics.
Keynesian Theory Neoclassical economists are naturally more reluctant than Keynesians to concede that capitalism as a system might be dysfunctional or that markets might be irrational and inefficient, leading to cycles of boom and bust, mass poverty and unemployment, which happened in the 1930s and is happening again today. One of the main assumptions in the classical model is 'full employed equilibrium' or in other words 'absence of involuntary unemployment.' The
US Economy Hypothetical Economic Scenarios: response to five proposed fluctuations in the U.S. Economy, As viewed through a Keynesian Lens Overview of Keynesian Theory and the Current U.S. Economic Situation: Even Keynes' critics call him the greatest and most influential economist of the 20th century. For this reason, he is known as 'the father of modern economics.'" ("Keynesian Economics, an Overview," The Great Depression Homepage, 2003) Keynes has been credited for the generally high employment
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