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.Thenational currency of a nation with a large trade deficit will fall,thereby making its exports cheaper and imports more expensive.Finally, flexible exchange rates keep inflation from being exportedfrom one country to another.Under a system of fixed exchange rates,countries experiencing inflation will buy more foreign-made goodsbecause they are cheaper.This will increase the spending for goods inother nations and will lead to greater inflation in other nations.Withflexible exchange rates, this would not happen.Countries experien-cing inflation would see the value of their currency fall, and so for-eign nations would not be subject to higher-priced imports.In addition to these many contributions to macroeconomics,Friedman has made several other important contributions to eco-nomics.He was involved in one of the two main methodological orphilosophical disputes in the history of economics (for details on theother methodological dispute see Menger).One frequent criticismmade about economists is that they always make unrealistic assump-tions whenever they study the economy.A favorite joke abouteconomists concerns several professionals stranded on a desertedisland with many cans of food, but no way to open them up.After allthe other castaways fail to use their professional know-how to openthe food cans, the economist comes to the rescue: Let s assume wehave a can opener, he proudly suggests.In a controversial essay, Friedman (1953, pp.3 43) defends thismethodology and argues that the realism of assumptions does notmatter in scientific analysis.According to Friedman, all theoryinvolves abstraction, and so all the assumptions of a theory have to be,240 MILTON FRIEDMAN (1912 )in one sense, unrealistic.The only important thing is whether theimplications of the theory are true; that is, whether the theory worksand makes good predictions.If the theory is supported by the data, itdoes not matter whether the assumptions of the theory are com-pletely accurate.On the other hand, if data does not support thetheory, the theory has to be discarded even if it employs realisticassumptions.Although many economists have raised objectionsagainst this position, Boland (1979) has persuasively made the casethat Friedman was right in arguing that theories are meant to be toolsand that economic assumptions can be unrealistic as long as theywork well and help to predict economic performance.As noted earlier, Friedman s work has not only been directed at felloweconomists.He has also written extensively for a larger audience.Thiswork has argued for individual freedom and against all forms of gov-ernment intervention in the economy.Friedman (1962a, 1979) arguesthat capitalism is the best economic system because it promotes politicalfreedom, and because the market can help offset political power.Friedman s more popular writings have also had a clear policyslant.He has opposed all government controls on economic activitybecause they are obtrusive to individual decision-making.Friedman(1975) has argued against wage and price controls, against rent con-trols (Friedman 1946), against tariffs and other restrictions to inter-national trade (Friedman 1979), and against minimum wage laws.Healso opposed a number of popular government programs such associal security (because it breaks down family bonds and is actually atransfer from the less well-off to the wealthy who tend to live longerand therefore collect benefits for longer), and government support forhigher education (because the money primarily benefits those whoare well off).On the other hand, Friedman has supported the all-volunteer army (Friedman 1975, ch.8) and has advocated that allparents be given vouchers and allowed to select the school wherethey will send their children (Friedman 1979, ch.4).Milton Friedman is the rare economist who has managed to spantwo very different worlds.On the one hand, he is regarded as a giantwithin the economics profession, and is one of the two or three mostreferenced and revered economic figures of the twentieth century.This work has stressed the importance of money and the importanceof markets to improve economic well-being.At the same time,Friedman has written voluminously for the general public.This workhas stressed the importance of individual decision-making and freedom,and made Friedman one of the two or three best known and mostrecognized economists of the late twentieth century.241 MILTON FRIEDMAN (1912 )Works by FriedmanRoofs or Ceilings? The Current Housing Problem, with George Stigler, Irvington-on-Hudson, New York, Foundation for Economic Education, 1946Income from Independent Professional Practice, with Simon Kuznets, New York,National Bureau of Economic Research, 1946Essays in Positive Economics, Chicago, University of Chicago Press, 1953Studies in the Quantity Theory of Money, Chicago, University of Chicago Press,1956A Theory of the Consumption Function, Princeton, New Jersey, PrincetonUniversity Press, 1957Capitalism and Freedom, Chicago, University of Chicago Press, 1962a Should There Be an Independent Monetary Authority?, in In Search of AMonetary Constitution, ed.Leland B [ Pobierz całość w formacie PDF ]
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.Thenational currency of a nation with a large trade deficit will fall,thereby making its exports cheaper and imports more expensive.Finally, flexible exchange rates keep inflation from being exportedfrom one country to another.Under a system of fixed exchange rates,countries experiencing inflation will buy more foreign-made goodsbecause they are cheaper.This will increase the spending for goods inother nations and will lead to greater inflation in other nations.Withflexible exchange rates, this would not happen.Countries experien-cing inflation would see the value of their currency fall, and so for-eign nations would not be subject to higher-priced imports.In addition to these many contributions to macroeconomics,Friedman has made several other important contributions to eco-nomics.He was involved in one of the two main methodological orphilosophical disputes in the history of economics (for details on theother methodological dispute see Menger).One frequent criticismmade about economists is that they always make unrealistic assump-tions whenever they study the economy.A favorite joke abouteconomists concerns several professionals stranded on a desertedisland with many cans of food, but no way to open them up.After allthe other castaways fail to use their professional know-how to openthe food cans, the economist comes to the rescue: Let s assume wehave a can opener, he proudly suggests.In a controversial essay, Friedman (1953, pp.3 43) defends thismethodology and argues that the realism of assumptions does notmatter in scientific analysis.According to Friedman, all theoryinvolves abstraction, and so all the assumptions of a theory have to be,240 MILTON FRIEDMAN (1912 )in one sense, unrealistic.The only important thing is whether theimplications of the theory are true; that is, whether the theory worksand makes good predictions.If the theory is supported by the data, itdoes not matter whether the assumptions of the theory are com-pletely accurate.On the other hand, if data does not support thetheory, the theory has to be discarded even if it employs realisticassumptions.Although many economists have raised objectionsagainst this position, Boland (1979) has persuasively made the casethat Friedman was right in arguing that theories are meant to be toolsand that economic assumptions can be unrealistic as long as theywork well and help to predict economic performance.As noted earlier, Friedman s work has not only been directed at felloweconomists.He has also written extensively for a larger audience.Thiswork has argued for individual freedom and against all forms of gov-ernment intervention in the economy.Friedman (1962a, 1979) arguesthat capitalism is the best economic system because it promotes politicalfreedom, and because the market can help offset political power.Friedman s more popular writings have also had a clear policyslant.He has opposed all government controls on economic activitybecause they are obtrusive to individual decision-making.Friedman(1975) has argued against wage and price controls, against rent con-trols (Friedman 1946), against tariffs and other restrictions to inter-national trade (Friedman 1979), and against minimum wage laws.Healso opposed a number of popular government programs such associal security (because it breaks down family bonds and is actually atransfer from the less well-off to the wealthy who tend to live longerand therefore collect benefits for longer), and government support forhigher education (because the money primarily benefits those whoare well off).On the other hand, Friedman has supported the all-volunteer army (Friedman 1975, ch.8) and has advocated that allparents be given vouchers and allowed to select the school wherethey will send their children (Friedman 1979, ch.4).Milton Friedman is the rare economist who has managed to spantwo very different worlds.On the one hand, he is regarded as a giantwithin the economics profession, and is one of the two or three mostreferenced and revered economic figures of the twentieth century.This work has stressed the importance of money and the importanceof markets to improve economic well-being.At the same time,Friedman has written voluminously for the general public.This workhas stressed the importance of individual decision-making and freedom,and made Friedman one of the two or three best known and mostrecognized economists of the late twentieth century.241 MILTON FRIEDMAN (1912 )Works by FriedmanRoofs or Ceilings? The Current Housing Problem, with George Stigler, Irvington-on-Hudson, New York, Foundation for Economic Education, 1946Income from Independent Professional Practice, with Simon Kuznets, New York,National Bureau of Economic Research, 1946Essays in Positive Economics, Chicago, University of Chicago Press, 1953Studies in the Quantity Theory of Money, Chicago, University of Chicago Press,1956A Theory of the Consumption Function, Princeton, New Jersey, PrincetonUniversity Press, 1957Capitalism and Freedom, Chicago, University of Chicago Press, 1962a Should There Be an Independent Monetary Authority?, in In Search of AMonetary Constitution, ed.Leland B [ Pobierz całość w formacie PDF ]