Friedman, Milton

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Friedman, Milton

(1912-) an American economist who advocates the virtues of the free market system and the need to minimize government regulations of markets in his book, Capitalism and Freedom (1962).

Friedman has attacked Keynesian policies of government fine-tuning of AGGREGATE DEMAND, arguing that such policies accentuate business uncertainty and can destabilize the economy. Instead, he suggests that governments should gradually expand the MONEY SUPPLY at a rate equal to the long-run increase in national output in order to eliminate inflationary tendencies in the economy. In an economy experiencing a high inflation rate, Friedman acknowledges that a sharp reduction in the rate of growth of money supply would deflate demand and cause unemployment to rise. He argues, however, that such a rise in unemployment would be temporary, for once people lower their expectations about future inflation rates, full employment can be restored. Friedman's monetarist ideas had considerable influence among governments in the 1980s.

Friedman also looked at the relationship between consumption and income, rejecting the Keynesian idea that as peoples’ incomes rise they will spend a smaller proportion of them and save a larger share. Instead, he argued that consumption is a constant fraction of the consumer's PERMANENT INCOME and that as long-term income rises the proportion of it spent remains the same. See MONETARISM.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
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