Milton Friedman Essay, Research Paper

Milton Friedman is known as one of the top economic experts in the universe. He has a Ph. D. from Columbia University, won a Baronial Memorial Prize in economic science and has besides been awarded many honorary grades by other Universities in the United States. As you can state, Milton Friedman has played a important portion in assisting to work out the economic system jobs of the universe. You? ve likely heard all about his achievements and awards he has received, but what about how Milton Friedman played a really of import function in assisting us acquire into a immense national debt? This paper will discourse how Milton Friedman played a negative function in our economic system.

When the Great Depression hit worldwide, it was up to the economic experts to explicate it and to invent a remedy for it. A individual named John Maynard Keynes came up with an account to the economic slack that was so simple people did non believe it would work. Keynes account was something like this ; in a normal economic system, there is a high degree of employment, and everyone is passing their net incomes as usual. This means there is a round flow of money in the economic system, as my disbursement becomes portion of your net incomes, and your disbursement becomes portion of my net incomes. Suppose something happens to change consumers assurance in the economic system. Disquieted consumers may so seek to endure the coming economic adversity by salvaging their money, but because my disbursement is portion of your net incomes, my determination to stash money makes things worse for you and you, reacting to your ain hard times, will get down stashing money excessively, doing things even worse for me. So really, everything is related. Peoples hoard money in hard times, but times become more hard when people hoard money. That was fundamentally how Keynes explained the recession. He besides came up with a solution to it.

The remedy for this, was for the cardinal bank to spread out the money supply. Keynes said, & # 8220 ; by seting more measures in people & # 8217 ; s custodies, consumer assurance would return, people would pass, and the round flow of money would be reestablished ( Keynes, 232 ) . & # 8221 ; That was the remedy and account to the recession, but what about the depressions? Keynes believed that depressions were recessions that had fallen into a & # 8220 ; liquidness trap ( Keynes, 240 ) . & # 8221 ; A liquidness trap is when people hoard money and garbage to pass no affair how much the authorities attempts to spread out the money supply. In these fortunes, Keynes believed that the authorities should make what people were non, fundamentally, spend.

In seven short old ages, under the Keynesian policy, the U.S. went from the greatest depression it has of all time known to the greatest economic roar it has of all time known. The success of Keynesian economic sciences was so amazing that about all capitalist authoritiess around the universe started utilizing it. And the consequence was the extinction of the economic depression! Before World War II, eight U.S. recessions worsened into depressions ( 1807, 1837, 1873, 1882, 1893, 1920, 1933, and 1937 ) . Since World War II, under Keynesian policies, there have been nine recessions ( 1945-46, 1949, 1954, 1956, 1960-61, 1970, 1973-75, 1980-83, 1990-92 ) , but non one has turned into a depression. The success of Keynesian economic sciences was such that even Richard

Nixon one time said, “We are all Keynesians now ( Keynes, 289 ) .”

Well, that was the theory the authoritiess were utilizing at the clip to command the economic system. Obviously there were some people who objected against usage of this theory. One of them was Milton Friedman.

He believed that the lone map the authorities should be allowed is to command the circulation of hard currency. Although he accepted Keynes & # 8217 ; definition of recessions, he rejected the remedy. He believed that the authorities should border out of the concern of spread outing or undertaking the money supply. It should maintain the money supply steady, spread outing it somewhat each twelvemonth merely to let for the growing of the economic system and a few other basic factors. Inflation and unemployment would set themselves harmonizing to market demands. In other words, Milton wanted the authorities to maintain the money supply steady and lone addition it by 3-5 per centum each twelvemonth to let growing for the economic system. Inflation and unemployment would purportedly set themselves to the market demands, therefore giving the economic system low rising prices and high stableness. He called this theory Monetarism.

Milton preached Monetarism for a long period of clip until it was eventually tried in Great Britain during the 80? s. His theory was a large catastrophe. Milton? s theory did non work. For about seven old ages, the Bank of England tried its best to do it work. Harmonizing to monetarist theory, the British economic system should hold enjoyed low rising prices and high stableness. But in fact, it went berserk. The economic system sank into deep recession. Although rising prices came down, this was at the monetary value of lifting unemployment, which soared from 5.4 to 11.8 per centum. Between 1979 and 1984, fabricating end product fell 10 per centum, and fabrication investing fell 30 per centum. Finally, the Bank of England had to abandon monetarism, which it did in 1986. During this clip period, Milton was an adviser to Ronald Reagan. He had besides convinced Reagan to seek out his theory. Well, under the Monetarism policy, authorities adoption and disbursement exploded under Reagan, with the national debt lifting to $ 3 trillion by the clip he left office. Paul Volcker, Chairman of the Federal Reserve Board, battled rising prices during the terrible recession of 1980-82

through the Keynesian method of raising involvement rates and fastening the money supply. When rising prices looked defeated in 1982, he instantly got rid of the involvement rate and flooded the economic system with money. A few months subsequently, the economic system came to life, in a recovery that would last over seven old ages. The American experience was in direct contrast to Great Britain & # 8217 ; s. As a consequence, most economic experts abandoned monetarist theory.

In the terminal, Milton? s Monetary theory was proven impracticable. Alternatively of assisting fight the recession, Milton helped set us in it. After reading this paper, one would believe that Milton Friedman is a bad economic experts, but the truth is, he is a extremely intelligent adult male. Even though he was partially responsible for seting our economic system into a recession during the Reagan disposal, he is besides responsible for assisting our economic system through many other adversities. Although Milton Friedman is considered as one of the universes greatest Economists, we all make errors sometimes right?