History of Economic Thought. Economic views of M. Friedman. Friedman equation (most important)

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History of Economic Thought. Economic views of M. Friedman. Friedman equation (most important)

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76. ECONOMIC VIEWS OF M. FRIEDMAN. FRIEDMAN'S EQUATION

Milton Friedman - professor at the University of Chicago, born in 1912. Acquired fame with the release of the book "A Study in the Quantity Theory of Money" (1956).

M. Friedman is an adherent of the classical school, namely the thesis of non-intervention of the state in the economy. At the same time, he makes an argument - the market acts as a guarantor of freedom of choice, and it is freedom of choice that is a condition for the effectiveness and viability of the system. The mechanism that ensures the realization of economic freedom and the interconnection of the actions of free individuals is price mechanism.

Prices comply three functions:

1) informational (changes in supply and demand);

2) stimulating (the best way is to encourage the use of resources);

3) distributive (since prices are also incomes).

Prices participate in the distribution of income.

State intervention can take place in forms that least restrict a person's freedom, including the freedom to spend money. Hence Friedman's recommendations to provide benefits to the poor in cash rather than in kind and to introduce a system of negative taxes instead of direct assistance.

Friedman opposed the expansion of the provision of social benefits, believed that this gives rise to the so-called institutional unemployment and new poverty.

World fame brought Friedman development modern version of the quantity theory of money. It is close to neoclassical, since it assumes price flexibility, and wages and production volume tend to the maximum. Friedman set his task to find a stable demand function for money with a constant velocity of circulation.

money demand function is close to the Cambridge version and has the form:

M = f(Y,...x),

where Y - nominal income; x- other factors.

Ceteris paribus, the demand for money (the money supply desired by the population) is a stable share of nominal GNP, in contrast to the Keynesian model, where the demand for money is unstable due to the existence of speculative moments (liquidity preference).

Another the fundamental difference between the views of Friedman and Keynes that he is convinced that the level of the interest rate does not depend on the size of the money supply (in the long run). The conditions for the long-term equilibrium of the money market, where the rate of interest has no place, is expressed by a well-known equation called Friedman's equation:

M \uXNUMXd Y + P,

where M is the long-term growth rate of the money supply; Y is the long-term average annual rate of change in real (at constant prices) total income;

P is the price level at which the money market is in a state of short-term equilibrium. Thus, in the long run, the growth of the money supply will not affect the real volume of production and will be expressed only in an inflationary rise in prices, which is quite consistent with the quantity theory of money and, more broadly, corresponds to the ideas of the neoclassical direction of economic theory.

Author: Tatarnikov E.A.

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