when friedman won the nobel prize in 1976 the committee cited a book on monetarism that he and his colleague anna schwartz had published in 1963 a monetary history of the united states 1867 1960 in this book friedman used highly detailed theoretical and empirical analysis of the role of money in the u s economy since the civil war to make the anti keynesian case that control of the money supply was a primary tool of economic management as it had been throughout pre keynesian economics 
the argument against monetary policy had been dominant since the great depression in the 1930s when the massive economic crisis made interest rates so low that there was no incentive to invest and keynesians believed that any additional cash pumped into the economy would have just been held by individuals and banks without jumpstarting the economy in that context keynesians successfully advocated fiscal policy over monetary policy to pull the economy out of the great depression the most controversial position in friedman s 1967 book targeted this keynesian approach to the great depression and became quite influential with economists and the general public in it he argued that the government namely the federal reserve made the great depression worse by not enacting monetary policies in the book friedman claimed that if the federal reserve had prevented the dramatic drop in money supply by bailing out banks in the early 1930s it could have prevented the wave of bank failures that made people decide to hold cash rather than make deposits and made banks hold deposits rather than make loans to revive the economy one of the reasons that an anti government economist like friedman would advocate any government action at all is that monetary policy is the least interventionalist and ideally apolitical action that the government can take in the economy for example the federal reserve is a central bank so it controls the monetary base the total currency in circulation and in bank vaults as well as bank deposits at the federal reserve per friedman all the federal reserve had to do to increase the money supply was to create more monetary base and then let market forces play out with no further government involvement in contrast keynesian fiscal policies required much more government involvement in the economy for example a government funded public works project to increase employment would not only be administered by government officials but it could also be used to serve political ends neo keynesian critics of the book include paul krugman who despite calling a monetary history a vast work of extraordinary scholarship took exception to friedman s argument that the federal reserve made the great depression worse by not enacting monetary policies in fact the fed did increase the monetary aggregate under its control also known as the monetary base so krugman considers it highly debatable to say that the fed could have prevented the crash of the money supply that in turn triggered the collapse of spending that deepened the depression money supply is a different monetary aggregate that includes currency plus bank deposits that can be used as cash krugman also cautioned that what friedman claimed in the book that the federal reserve had turned a cyclical recession into a major depression by failing to bail out the banks was widely misinterpreted by some economists and the public as friedman believing that the federal reserve had caused the great depression which made the depression a failure of big government rather than a failure of unrestricted free markets real world application of monetarismfriedman first introduced monetarism in his 1959 book a program for monetary stability and for the next three decades monetarism was a major topic of economic debate in subsequent publications and public appearances over the next 25 years he made the case for controlling the money supply so effectively that his reputation as an economist was defined to a large extent by the monetarism doctrine he created however by the 1980s in the wake of notable failures of major monetary policy initiatives in the real world some of his staunchest proponents began to reverse their support of monetarism when an avowed monetarist in the u k prime minister margaret thatcher enacted monetary policy to control inflation in the early 1980s the inflation rate jumped to 23 monetarism was abandoned by 1982 in the u s when the federal reserve attempted monetarism by steadily growing the money supply to control inflation in the late 1970s the painful recession of 1981 1982 resulted by 1982 the u s had abandoned monetarism in practice and in 1986 the new york times reported that beryl sprinkel president reagan s chief economist and one of the most tenacious partisans of monetarism had publicly disavowed the theory of note when asked about the failed u s attempt friedman said that what happened wasn t a failure of monetarism but an execution failure by the federal reserve which he said had focused on interest rates instead of money monetarism would work if the fed plugged the policy into a computer and relied mostly on the computer to steer the economy in this context critics have attributed friedman s strong advocacy of monetarism to a primarily partisan motivation monetarism served his unilateral anti government agenda because he believed that the federal reserve should grow the money supply at a steady low fixed rate without even small deviations in response to economic conditions monetary policy could be on autopilot and government officials would have no control at all the public face of free marketsin 1976 when friedman was awarded the nobel prize in economic sciences for his work on consumption analysis monetary history and theory and the complexity of stabilization policy it marked the turning of the tide away from three decades of keynesian economics and toward the chicago school of economics he had co founded with this international validation of his theories and the major intellectual victory of his prediction of stagflation in the late 1970s friedman became the new public face of free markets after three decades of keynesian dominance friedman reshaped academic thought in economics around a laissez faire free market emphasis on prices inflation and human incentives a direct counter to keynes focus on employment interest and public policy over the next three decades friedman and his colleagues at the chicago school of economics argued against deficit spending and expansionary fiscal policy and for monetarism deregulation in most areas of the economy and a return to the free market small government principles of classic economists such as adam smith friedman the public intellectualone of friedman s most significant accomplishments was the extent to which his theories influenced government policy and public opinion as well as economic research as the nobel committee noted in 1976 it is very rare for an economist to wield such influence directly and indirectly not only on the direction of scientific research but also on actual policies at his death in 2006 federal reserve chairman ben bernanke said among economic scholars milton friedman had no peer the direct and indirect influences of his thinking on contemporary monetary economics would be difficult to overstate friedman s range as a spokesperson was equally impressive in addition to having the ear of powerful politicians and writing academic papers he reached the public through popular books columns and television appearances from debating highly technical economic principles at the academic level to communicating the economic benefits of free markets and small government to television audiences in direct plain language few public intellectuals in any field have been as effective during friedman s landmark interviews on phil donahue s show in 1979 and 1980 the host said his guest was a man who will never be accused of making economics confusing and told friedman the nice thing about you is that when you speak i almost always understand you in addition to lectures on college campuses friedman had a 10 series television program entitled free to choose based on his best selling book with the same name economist walter block sometimes a friendly agitator of friedman memorialized his contemporary s 2006 death by writing milton s valiant witty wise eloquent and yes i ll say it inspirational analysis must stand out as an example to us all communicating economics to the massesone measure of the extent to which friedman has shifted the center of debate about the proper role of government in the economy is the fact that certain of his core ideas have become popular wisdom in many ways friedman was an idealist and libertarian activist but his economic analysis was always grounded in practical reality he famously told richard heffner host of the open mind in an interview one of the great mistakes is to judge policies and programs by their intentions rather than their results many of friedman s most controversial positions were based on this principle he opposed raising the minimum wage because he felt it unintentionally harmed young and low skilled workers particularly minorities he also opposed tariffs and subsidies because they unintentionally harmed domestic consumers his famous 1989 open letter to then drug czar bill bennett called for the decriminalization of all drugs mostly because of the devastating unintended effects of the drug war this letter lost friedman a swath of conservative supporters who he said failed to recognize that the very measures you favor are a major source of the evils you deplore the most famous excerpt from friedman s writings and speeches is inflation is always and everywhere a monetary phenomenon he defied the intellectual climate of his era and reasserted the quantity theory of money as a viable economic tenet in a 1956 paper titled studies in the quantity theory of money friedman found that in the long run increased monetary growth increases prices but does not really affect output friedman s work busted the classic keynesian dichotomy on inflation which asserted that prices rose from either cost push or demand pull sources it also put monetary policy on the same level as fiscal policy in a 1980 newsweek column milton friedman said if you put the federal government in charge of the sahara desert in five years there d be a shortage of sand though perhaps poetic this famous quote illustrates friedman s often doctrinaire opposition to government intervention into the economy the sahara desert has in fact long been largely owned by various african national governments and has never experienced a shortage of sand friedman was a vocal critic of government power and was convinced free markets operated better on grounds of morality and efficiency in terms of the actual economics friedman rested on a few truisms and basic incentive based analyses he offered that no bureaucrat would or could spend money as wisely or as carefully as the taxpayers from whom it was taken he spoke often of regulatory capture the phenomenon where powerful special interests co opt the very agencies designed to control them to friedman government policy is created and carried out through force and that force creates unintended consequences that do not come from voluntary trade the political power of government creates an incentive for the wealthy and devious to misuse it helping to generate what friedman dubbed government failure friedman loved pointing out government failures in a way that proved his arguments about unintended consequences and the bad incentives of government policy he exposed how president richard nixon s wage and price controls led to gasoline shortages and higher unemployment he railed against the interstate commerce commission icc and federal communications commission fcc for creating de facto monopolies in transportation and media famously he contended that the combination of public schooling minimum wage laws drug prohibition and welfare programs had unintentionally forced many inner city families into cycles of crime and poverty did friedman say that greed is good friedman did not say that greed is good that is a line from the 1987 movie wall street but he did write a famous article in the new york times in 1970 titled the social responsibility of business is to increase profits that article has been called the inspiration for the greed is good excesses of activist investors who push companies to create shareholder value at all costs and to the exclusion of all other considerations including investing in employees and delivering value to customers was friedman a libertarian walter block said that friedman called himself a small l libertarian and he was clearly aligned with the libertarian principles of small less intrusive government and deregulation throughout his career 