Economics Assignment: Analyzing Milton Friedman's Economic Theories

This economics essay provides a synthesis of several papers analyzing the contributions of Milton Friedman. It delves into Friedman's views on free market economics, contrasting them with Keynesian perspectives and exploring his theory of money and critique of government intervention. The essay examines Friedman's stance on the social responsibility of businesses, challenging his arguments and providing counter-perspectives. It also highlights Friedman's influence on economic thought, particularly his challenge to Keynesianism and his emphasis on price mechanisms. The essay analyzes Friedman’s contributions to the field of economics, discussing his impact on monetary policy and his views on the role of government in the economy. The paper provides a balanced view of Friedman's contributions to economics, including his critique of Keynesian economics, his theories on monetary policy, and his views on the social responsibility of businesses.

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ECONOMICS ASSIGNMENT

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Contents
Introduction................................................................................................................................3
Synthesis of the chosen article...................................................................................................3
Milton Friedman's Capitalism and Freedom: A Binary Economic Critique..............................3
The Contributions of Milton Friedman to Economics...............................................................3
A Critique of Milton Friedman’s Essay “The Social Responsibility of Business Is to Increase
Its Profits....................................................................................................................................5
The Rebellion against Keynesianism: Milton Friedman. Problems of Economics...................7
Conclusion..................................................................................................................................8
Reference....................................................................................................................................9

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Introduction
Milton Friedman is one of the notable economists of the world that has contributed
significantly to the literature of economics. There are several contributions of Friedman that
includes Friedman’s theory of money market and economics. The objective of this paper is to
present a synthesis of several papers related to the works of Milton Friedman in the field of
economics.
Synthesis of the chosen article
Milton Friedman's Capitalism and Freedom: A Binary Economic Critique
Milton Friedman has a different version of market economics than Keynesian economics. He
believed that full freedom is only achieved when the private enterprises of the market operate
in the free market and decide the quantity of production for the economy. The conception of a
free economy provided by Milton Friedman is flawed and results in autocracy (Cord &
Hammond, 2016). This paper has shown the way that the theory of Milton Friedman has
deviated from the other classical economists. According to classical economists, the free
market operates with the help of the invisible hand and in case of any change in the market, it
adjusts itself. Milton Friedman also had this view of the market that can be seen from the
theories posited by him. However, the view of Milton Friedman was somewhat different from
the classical school of thought and that can lead to plutocracy in the economy (Ashford,
2010). Plutocracy means where the wealthier section of the economy controls the government
and the policies. In that case, the unemployment in the economy may rise along with the
inequality in the economy.
The conception of Milton Friedman in terms of free-market operation and government can
also lead to underemployment and lack of freedom as well. The paper advances to criticize
the approach of Milton Friedman using a binary economic benchmark. The paper finds out
that the flawed assumption of Milton Friedman reduces the robustness of the model and
creating changes in the model the economic system can be made more systematic, free and
more sustainable (Bordo & Rockoff, 2013). The omission of the assumption of Milton
Friedman for the models can also result in better economic performance and prosperity as
well.

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The Contributions of Milton Friedman to Economics
This paper states that Milton Friedman was one of the notable faces of classical economics
till 1970 when the Keynesian school of economics failed miserably in explaining and
controlling the stagflation in the world economy. Milton Friedman challenged the theoretical
orthodoxy of Keynesians and kept on debating about the accuracy of that school of thought.
Economics is a subject where the solution can be found through arguments and debates
within the scope of economic professions. Therefore Milton Friedman's unending debate
regarding the failure of the economy led to the creation of another school of thought in the
field of economics that help run the economy in the present day (Hetzel, 2007). The objective
of this paper is to provide background information regarding the economic views of Milton
Friedman during the year 1950-60. Milton Friedman also allowed the economic society to
conclude that the economic system during that time failed due to the changes in the free
market and its characteristics due to the emergence of the monopoly power of the sellers of
the market. The monopoly power had provided the sellers with a huge control over the prices
of the goods and the services that further resulted in the lack of control of the customers of
the market (Singh, 2013). Being a classical economist the Milton Friedman stated that
government intervention is not required in this case as the price mechanism will eventually
bring the economy at the equilibrium. The Keynesian school of thought had given a view of
the operation of the free market with the help of the government. Milton Friedman
contributed through his conception of the free market and provided a model that would help
the economy to bounce back.
Milton Friedman's view of the free market and the need of no governance in terms of the
market operations had attracted lots of criticism even after the stagflation. His view was that
the price theory is the biggest mechanism in the literature of economics that would solve all
the economic problems and there is no need for the government to interfere in these cases.
The paper stated that with this view, Milton Friedman kept on debating with the economists
of other schools of thought (Mansell, 2015). Income from Independent Professional Practice
is one of the books authored by Milton Friedman that establishes the need for the pricing
theory to correct a failed market. In the paper, he compared the profession of dentists and
medical professionals. He found and stated that medical professionals like doctors have a
better return for their investment in education compared to that of the dentist. This is because
in the field of dentistry the government controls the market entry and exits that further
increases the cost of education and hence the return of the investment are low (Ebenstein,

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2014). This way, he said the intervention of the government in different parts of the economy,
was reducing the potential of the economy that further led to the stagnant economic
performance in many parts of the world.
Milton Friedman along with Stigler in the year 1946 also criticized the government's move of
rent control as well. They said that rent control is counterproductive for the economy as a
whole and can reduce the economic prosperity of a country. In addition to that there are other
contributions of Milton Friedman in case of public policy as well (Schwarzer, 2018). For
example, in the work of Dollar and Deficit, he showed the ill impacts of government policies
on inflation control objectives. The overvaluation of the exchange rate that results from the
intervention of the government can reduce the productivity of the resources of the economy
(Kiran, 2015). This further reflects the economic growth rate of different countries and the
world as a whole. Apart from that, the contribution of Milton Friedman is also notable in the
field of monetary economics as well. He posited the theory of money where he stated that
inflation is the result of expansionary monetary policies of the government. He also stated
that there have been instances in the real-life where monetary policy was not required and
despite that, it has been used putting downward pressure on the inflation rate and upward
pressure on the exchange rate of the economy (Adjei, 2018). Therefore, Milton Friedman had
a positive approach towards handling the economic problem and he had stated that ways of
criticizing the orthodox theories of economics were unrealistic. These views of the economist
also reflected in the theories and the models that were established by him.
A Critique of Milton Friedman’s Essay “The Social Responsibility of Business Is to
Increase Its Profits
This paper, on the other hand, considers the view of Milton Friedman in the field of social
responsibility of the businesses in the market. In his controversial essay, he said that the
social responsibilities of the businesses that can be seen in the market are unfair and
socialistic (Mulligan, 1986). In addition to that, the paper also stated that, in an economy,
agents such as the customers and the businesses are not altruist and hence a social
responsibility is not natural. This paper questions the basic paradigm of Milton Friedman and
the models and the theories that are based on this basic paradigm. This is also the reason that
he proposed a different paradigm for the socialistic behaviors of the economic agents. It
stated that the socialistic behaviors of the economic agents are unnatural and they are
affecting the free operations of the market.

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Milton Friedman had provided several explanations for the paradigm that his actions were
based on. First and foremost is that it is not democratic for a profit-making organization to
engage in social responsibility as that would use the power given by the government to the
organization without the mandate. Friedman also stated that social responsibility actions are
violations of the nature of profit-seeking organizations (Boaz, 2015). The executives who
engage themselves in social responsibility are breaching the norms of the profit-making
organizations. Profit-making organizations provide a salary to the executives for protecting
the profit-making interests of the company. Furthermore, he also suggested that the social
responsibility actions of the organizations are futile as the contribution of the organization is
futile and has a tiny impact on society (Clapp & Rowlands, 2014). Rather, through this
process, the executives or the organizations as a whole put the burden on the stakeholders of
the businesses thereby reducing their power to re-adjust the economy in case of market
failure.
The paper has the objective to assess the claims of Milton Friedman. The paper shows that
the paradigm of Milton Friedman is valid in some of the cases. For example, the social
responsibility expenditures are undertaken without the permission of the stockholders of the
company (Hammond, 2013). Therefore they can sometimes go against the interest of the
stockholders and the other agents related to businesses. In addition to that, the paper also
states that the view of the economist in the case of lack of support from the board members
and the stakeholders of the businesses can also be valid in some of the cases. It states that the
paradigm of Milton Friedman can be true if the social responsibility actions have no indirect
benefit for the commercial organization (Moore, 2014). However, the paper also states that
there is always an indirect benefit in every action of the organization in terms of social
responsibility. The paper shows that empirically it has been seen that the social responsibility
of commercial organizations has resulted in an improved reputation of the company in the
market. Therefore it is not valid to say that investment on social responsibility needs to be
done at the individual level in order to avoid any leak of resources of the commercial
organization.
The paper challenges the views of Milton Friedman in the context of the social responsibility
of the commercial organization. It says that there is no basis for the paradigm that the social
responsibilities of the executives are taxing to the management of the organization. This lies
in the counter paradigm that, social responsibility carried out the businesses indirectly helps
the businesses in the future (Boettke & Candela, 2016). The paper also challenges the views

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of Milton Friedman that social responsibility reduces the capacity of the free market to
allocate the resources of the economy. The social responsibility makes the process manual
and helps the economy to get the benefit of redistribution. However, the paper validates the
claim of the economist that the doctrine of social responsibility matches with the principles of
socialism. Socialism provides the government or an organization to have control over the
market overpowering the forces of supply and demand. This has been consistent in the views
of Milton Friedman and hence is true as per the belief of the economist.
The Rebellion against Keynesianism: Milton Friedman. Problems of Economics
Milton Friedman is one of the notable economists of the world that started as a Keynesian
economist and then changed to a more classical school. In his lifetime, Milton Friedman
criticized the intervention of the government in the free market and the socialistic behaviors
of the government. He stated that the basic tenets of Keynesian economics are that it brings
the notion of borrowing as the government for the betterment of the economy as a whole.
This borrowing nature of the government to provide support to the market is socialistic in
nature and does not go with the interest of the market agent (Popov, 1990). When the
government borrows in order to provide the additional infrastructure to the country, it
increases the interest rates in the market that further reduces the purchasing power of the
customers of the market and hence the aggregate demand for the goods and the services
reduces. Therefore the intervention from the side of the government actually shrinks the size
of the economy. Furthermore, Milton Friedman also stated that the process of government
borrowing from the private sector of the same economy is detrimental to economic growth
(Orlitzky, 2015). This is due to the fact that when the government borrows capital from the
financial market of the domestic economy it reduces the availability of capital in the financial
market itself. This results in the liquidity crunch and further reduces the money supply in the
economy like the previous case.
Milton Friedman's remark on inflation going out of control is a by-product of government
intervention had attracted criticism as well. According to him, when the government or the
central bank regulates the money supply in the economy forcefully against the force of supply
and demand, it creates a pressure on the price level of the market that increases the inflation
level in the long run. He stated that hidden momentum states in this case and the inflation
increases after a few periods of implementation of the monetary policies (Ferrero et al. 2014).
Milton Friedman also contributed to the economic literature with his criticism of the work of

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the government as well. In this book, he stated that the increase in government spending in
case of recession increases the aggregate demand for the goods and the services. However,
after the retrieval of the economy this increased expenditure of the government will require
higher tax from the side of the government that can further reduce the productivity of the
resources. He stated that the intervention power of the government in the market affairs
create interest groups around the government that lobby the government for developing
policies in favour of the interest group. Therefore hampering the free market reduces the
efficiency and leads to a wrong allocation of the resources. In addition to that, Milton
Friedman criticised saying that the intervention of the government is different from the
endogenous changes in the market. While the free market has the capability to influence the
operation of the market in the short run, actions of the government reflects after the time lag
that further results in the inflation. Lastly, Milton Friedman pointed out that the expansionary
policies of the government only increases the inflation level in the market and there is not
impact of the aggregate demand in the unemployment rate. The stagflation of 1970
consolidated the views of the classical economist such as Milton Friedman regarding the fact
that, Phillips curve trade off does not work in the real life. Therefore Milton Friedman and
other supply side economists talked about the reforms in the supply side in order to provide
the economy enough support so that the free market gets back its power to control the
economy and allocate the resources in the most effective way.
Conclusion
Therefore, the synthesis allows fetching information from different article and journals
related to the topic. The paper finds out that Milton Friedman was a major classical
economist that criticized the socialistic purpose of the government. Some of the works related
to the contribution of Milton Friedman also stated the wrong paradigms of the economist as
well. Nevertheless, the contribution of Milton Friedman in the economic literature is
immense as can be seen from the synthesis of the resources.

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Reference
Adjei, S. K. (2018). Inflation Determinants-Milton Friedman’s Theory and the Evidence from
Ghana, 1965-2012 (Using ARDL Framework). International Journal of Applied
Econo-mics, Finance and Accounting, 3(1), 21-36.
Ashford, R. (2010). Milton Friedman's Capitalism and Freedom: A Binary Economic
Critique. Journal of Economic Issues, 44(2), 533-542.
Boaz, D. (Ed.). (2015). The libertarian reader: Classic & contemporary writings from Lao-
Tzu to Milton Friedman. Simon and Schuster.
Boettke, P. J., & Candela, R. (2016). Milton Friedman, James Buchanan, and Constitutional
Political Economy.
Bordo, M. D., & Rockoff, H. (2013). The influence of Irving Fisher on Milton Friedman’s
monetary economics. Journal of the History of Economic Thought, 35(2), 153-177.
Clapp, J., & Rowlands, I. H. (2014). Corporate social responsibility. Essential concepts of
global environmental governance, 42.
Cord, R. A., & Hammond, J. D. (Eds.). (2016). Milton Friedman: Contributions to
Economics and Public Policy. Oxford University Press.
Ebenstein, L. (2014). The Increasingly Libertarian Milton Friedman: An Ideological
Profile. Econ Journal Watch, 11(1).
Ferrero, I., Michael Hoffman, W., & McNulty, R. E. (2014). Must Milton Friedman embrace
stakeholder theory?. Business and Society Review, 119(1), 37-59.
Hammond, J. D. (2013). Milton Friedman [Ideological Profiles of the Economics
Laureates]. Econ Journal Watch, 10(3), 325-332.
Hetzel, R. L. (2007). The contributions of Milton Friedman to economics. FRB Richmond
Economic Quarterly, 93(1), 1-30.
Kiran, S. (2015). Corporate social responsibility and firm profitability: A case of oil and gas
sector of Pakistan. City University Research Journal, 5(1).

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Mansell, S. (2015). Book review: rejoinder to Veldman’s review of capitalism, corporations
and the social contract: A critique of stakeholder theory (Vol. 22, No. 2, pp. 271-
275). Sage UK: London, England: Sage Publications
Moore, C. (2014). Corporate social responsibility and creating shared value. Heifer
International, 1-6.
Mulligan, T. (1986). A critique of Milton Friedman's essay ‘the social responsibility of
business is to increase its profits’. Journal of Business Ethics, 5(4), 265-269.
Orlitzky, M. (2015). The politics of corporate social responsibility or: why Milton Friedman
has been right all along. Annals in Social Responsibility, 1(1), 5-29.
Popov, G. (1990). The Rebellion Against Keynesianism: Milton Friedman. Problems in
Economics, 33(5), 99-103.
Schwarzer, J. A. (2018). Retrospectives: Cost-Push and Demand-Pull Inflation: Milton
Friedman and the" Cruel Dilemma". Journal of Economic Perspectives, 32(1), 195-
210.
Singh, R. K. (2013). Corporate social responsibility: A business solution for sustainable and
inclusive development. Prabandhan: Indian Journal of Management, 6(12), 5-17.