A Case Study of the Pioneers
Chapter 5: Milton Friedman and Monetarism
5. Milton Friedman and monetarism The research of Nobel Laureate Milton Friedman (b. 1912) played a pivotal role in the evolution of the laissez-faire maxim during the years of the Keynesian orthodoxy. In response to changes in both the political and professional environments, Friedman succeeded in placing the neoclassical case for laissez-faire on a new theoretical foundation. As he developed his case, Friedman alluded to both the ideological and the analytic influences Knight, Simons and Hayek had on his thinking. Yet in actuality, Friedman’s theoretical case for laissez-faire represented a sharp discontinuity from the research of these individuals, as evident in his adoption of positivistic methods of analysis, his replacement of indeterminate uncertainty with determinate risk, and his Keynesian-inspired reinterpretation of the quantity theory of money. To understand the transformation Friedman made in the neoclassical case for laissez-faire he inherited from Knight, Simons and Hayek, it is necessary first to consider the environment that surrounded his intellectual development. Friedman came of age as an economist during the 1930s and 1940s, an era different from that of the early professional years of Knight, Simons and Hayek. Events external to the discipline of economics contributing to this change included the Depression, World War II and the beginning of the Cold War. Internal events included provocative extensions of neoclassical economics, a restyling of the economics profession, the rise of econometrics and the application of positivism to the method of economics. During the 1930s economists undertook extensions of the neoclassical model that had the...
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