Wealth

Part 20 - Friedman

https://www.youtube.com/watch?v=rQLBitV69Cc 

Milton Friedman (1912 - 2006), an American economist who received the 1976 Nobel prize in Economic Sciences, promoted a free market economic system and believed that a government should not be involved unless absolutely necessary for the survival of its people. He pointed out that the best of a country's abilities derived from its free markets while its failures came from government intervention.

Friedman wrote extensively on the Great Depression, referring to the period between 1929 and 1933 as the Great Contraction. He concluded that far from being a failure of the free-enterprise system, it was a tragic failure of government. 

All government intervention associated with the New Deal was the wrong cure for the wrong disease, he argued. The money supply should simply have been expanded, instead of contracted. He believed the Great Depression was caused by a severe monetary contraction due to banking crises and poor policy on the part of the Federal Reserve that was largely responsible for converting what might have been an ordinary recession, 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.Friedman stated that inflation could be avoided by regulating the growth rate of available money. 'Inflation was always and everywhere a monetary phenomenon'. 

 He maintained that the Federal Reserve System should not regulate the money supply. Instead, a computer program should control the money supply by automatically buying and selling securities in response to market signals.

He also believed fractional reserve banking should be ended, forcing banks to have 100% reserves backing deposits and preventing them from making loans greater than deposits, thereby eliminating the creation of private money. Money should be created solely by the government. Friedman also argued that governments should cease intervening in currency markets.

He theorized that there was a "natural" rate of unemployment and that unemployment below this rate would cause inflation to accelerate. His preferred policy was a small, steady expansion of the money supply and his monetary theory influenced the Federal Reserve's response to the global financial crisis of 2007–2008).

Friedman advocated a volunteer military (he regarded his role in eliminating conscription in the United States as his most satisfying accomplishment). 

 In 1953, he argued for freely floating exchange rates, permitting automatic adjustments and allow countries to avoid balance of payments crises. He also advocated the abolition of medical licenses, a negative income tax and school vouchers (school choice) and he opposed the war on drugs.

Milton Friedman believed that, "the two basic functions of a government are to protect the nation against foreign enemy and to protect citizens against its fellows." 

He also argued that many of the services performed by government could be performed better by the private sector. So there was no way to justify the present public monopoly of the U.S. post office.  (The Deutsche Bundespost, a German state-run business founded in 1947, was initially the second largest federal employer. It was dissolved in 1995 and broken into three publicly traded corporations: German Post, German Telecom and German Post Bank).

Friedman disagreed with "naive Keynesian" theory that people modified household consumption expenditures to match their existing income levels. Friedman's research suggested that current income was not the only factor affecting people's household expenditures and introduced the term "permanent income", which was the average of a household's expected income over several years. He also defined how to predict consumption smoothing, which contradicted Keynes' marginal propensity to consume idea.

Friedman's views were grounded in a belief that while "market forces ... accomplish wonderful things", they "cannot ensure a distribution of income that enables all citizens to meet basic economic needs". He argued the advantages of a negative income tax that would fit directly into the tax system, would be less costly, and would reduce the administrative burden of implementing a social safety net but only if it replaced the current systems of welfare programs rather than augment them.

During 1980's, the ten-part series, Free to Choose, co-authored by Milton and his wife, Rose Friedman, was broadcast by the Public Broadcasting Service (PBS). The companion book to the series was the bestselling nonfiction book of 1980 and was translated into 14 languages. A striking conclusion of their research concerned the way money supply fluctuations contribute to economic fluctuations.

Milton Friedman warned against businesses becoming 'governmental in nature' or 'simultaneously legislator, executive and jurist' while neglecting their original reason for operating (which is simply to make a profit for shareholders who own the business). This was bad for society as business executives were notoriously muddle-headed in matters outside of their businesses. Short-sighted speeches may make them famous but it supported the anti-business propagandists opinion that profits are somehow wicked and immoral, instead of the only way to measure the performance of a business.

Chief Justice Marshall ruled that corporations were invented and given special privileges, such as limited liability, to overcome the problems caused by the short lives of partnerships and sole proprietorships. They were intended to provide a benefit to society instead of acting a part of government for which they have no expertise.