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Why Did Milton Friedman Win the Nobel Prize? A Consideration of His Early Work on Stabilization Policy

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  • James Forder
  • Hugo Monnery

Abstract

One of the aspects of Milton Friedman’s work which won him the Nobel Prize was “his demonstration of the complexity of stabilization policy.” We consider the question of what that meant, suggesting that his early 1950s “formal analysis” of the effects of full-employment policy was his most important contribution in the area. We address the question of the relation of that piece to his other thinking, particularly on the length and variability of lags in the economic system. Since 1976 the “formal analysis” has been relatively little noted, and we suggest that the prominence given to stories about the Phillips curve are part of the reason, and that another part is that in making the case for policy rules Friedman himself downplayed the formal aspect of his thinking in favour of a more ad hoc empirical one.

Suggested Citation

  • James Forder & Hugo Monnery, 2019. "Why Did Milton Friedman Win the Nobel Prize? A Consideration of His Early Work on Stabilization Policy," Econ Journal Watch, Econ Journal Watch, vol. 16(1), pages 130–145-1, March.
    • Handle: RePEc:ejw:journl:v:16:y:2019:i:1:p:130-145
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    References listed on IDEAS

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    1. James Forder, 2018. "What was the message of Friedman’s Presidential Address to the American Economic Association? [Duelling presidential addresses: the Keynesian response to Milton Friedman’s ‘The role of monetary pol," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(2), pages 523-541.
    2. Forder, James, 2014. "Macroeconomics and the Phillips Curve Myth," OUP Catalogue, Oxford University Press, number 9780199683659.
    3. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    4. Milton Friedman, 1947. "Lerner on the Economics of Control," Journal of Political Economy, University of Chicago Press, vol. 55(5), pages 405-405.
    5. A. Smithies, 1942. "The Behavior of Money National Income Under Inflationary Conditions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 57(1), pages 113-128.
    6. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    7. Milton Friedman, 1961. "The Lag in Effect of Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 69(5), pages 447-447.
    8. Sargent, Thomas J. & Wallace, Neil, 1976. "Rational expectations and the theory of economic policy," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 169-183, April.
    9. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76(4), pages 678-678.
    10. J. M. Culbertson, 1960. "Friedman on the Lag in Effect of Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 68(6), pages 617-617.
    11. Fischer, Stanley, 1990. "Rules versus discretion in monetary policy," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 21, pages 1155-1184, Elsevier.
    12. Glasner, David, 2017. "Rules versus discretion in monetary policy historically contemplated," Journal of Macroeconomics, Elsevier, vol. 54(PA), pages 24-41.
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    Cited by:

    1. Jean-Bernard Chatelain & Kirsten Ralf, 2020. "How macroeconomists lost control of stabilization policy: towards dark ages," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 27(6), pages 938-982, November.

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    More about this item

    Keywords

    monetary policy;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals

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