Milton Friedman and Economic Debate in the United States, 1932–1972, Volume 1

758 Pages·2020·3.702 MB·English

by  Edward Nelson

Milton Fried man
and Economic dEbatE in
thE UnitEd StatES, 1932–1972

Milton Friedm an
and Economic dEbatE in
thE UnitEd StatES, 1932–1972
VolUmE 1
Edward Nelson
thE UniVErSity of chicago PrESS
chicago and london
The University of Chicago Press, Chicago 60637
The University of Chicago Press, Ltd., London
© 2020 by The University of Chicago
All rights reserved. No part of this book may be used or
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Published 2020
Printed in the United States of America
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iSbn- 13: 978- 0- 226- 68377-5 (cloth)
iSbn-1 3: 978- 0- 226-6 8380- 5 (e- book)
doi: https:// doi. org /10. 7208 /chicago /9780226683805 .001 .0001
Library of Congress Cataloging- in- Publication Data
Names: Nelson, Edward, 1971– author.
Title: Milton Fried man and economic debate in the
United States, 1932–1972 / Edward Nelson.
Description: Chicago ; London : University of Chicago Press,
2020. | Includes bibliographical references and index.
Identifiers: lccn 2019046214 | iSbn 9780226683775 (v. 1 ;
cloth) | iSbn 9780226684895 (v. 2 ; cloth) | iSbn 9780226683805
(v. 1 ; ebook) | iSbn 9780226684925 (v. 2 ; ebook)
Subjects: lcSh: Fried man, Milton, 1912–2006. | Economists—
United States—Biography. | Economics—United States—
History—20th century. | Chicago school of economics.
Classification: lcc hb119.f84 n45 2020 |
ddc 330.15/53092 [b]—dc23
lc record available at https:// lccn .loc .gov /2019046214
♾ This paper meets the requirements of
anSi/niSo Z39.48- 1992 (Permanence of Paper).
to my fathEr, michaEl nElSon

Contents
Introduction ix
Conventions Used in This Book xix
Part 1: Fried man’s Pre-m onetarist Period, 1932 to 1950
chaPtEr 1: 1942 and 1995 3
i. 1942 3
ii. 1995 5
iii. The Challenge 6
chaPtEr 2: Starting Out, 1932 to 1939 19
i. Events and Activities, 1932–39 19
ii. Issues, 1933–39 40
The New Deal: Monetary Changes 41
The New Deal: The Supply Side 45
iii. Personalities, 1932–39 57
Henry Simons 57
Simon Kuznets 67
chaPtEr 3: Economic Policy on the Home Front, 1940 to 1943 77
i. Events and Activities, 1940–43 77
ii. Issues, 1940–43 88
Paying for World War II 88
The Spendings Tax 103
iii. Personalities, 1940–43 107
Alvin Hansen 107
Clark Warburton 114
chaPtEr 4: Money Changes Everything, 1944 to 1950 121
i. Events and Activities, 1944–50 121
ii. Issues, 1944–50 151
The Emerging Monetarist 151
The Crusade against Cheap Money 158
iii. Personalities, 1944–50 165
Paul Samuelson 165
Oskar Lange 172
Part 2: Fried man’s Framework
chaPtEr 5: Fried man’s Aggregate- Demand Framework:
Consumption and Investment 181
chaPtEr 6: Fried man’s Aggregate- Demand Framework:
Money and Securities 229
chaPtEr 7: Friedm an’s Aggregate- Supply Framework 254
chaPtEr 8: Friedm an’s Framework: Policy Rules 295
chaPtEr 9: Friedm an’s Framework: Market Economics
and Research Methodology 334
Part 3: Fried man’s Monetarist Years, 1951 to 1972
chaPtEr 10: The Accord and the New Regime, 1951 to 1960 377
i. Events and Activities, 1951–60 377
ii. Issues, 1951–60 400
The Incomplete Revival of Monetary Policy 400
Cost- Push Debates 420
iii. Personalities, 1951–60 428
Senators Paul Douglas and Prescott Bush 428
William McChesney Martin 430
Notes 439
Bibliography 605
Index 703
Introduction
The objective of this study is to provide an account of Milton Fried man’s
role in several major economic debates that took place in the United States
from 1932 through the end of 1972.1 The debates considered include both
those that were largely carried out in the economic-r esearch literature and
those that primarily proceeded in the media or in policy forums. But the
fact that this book’s coverage extends through 1972 does mean that the
book’s narrative encompasses Friedm an’s main years of activity in eco-
nomic research. For, although Fried man continued to be an active partici-
pant in economic discourse after 1972 (from his bases of the University of
Chicago up to the 1976–77 academic year and of the Hoover Institution,
Stanford University, thereafter), a very large amount of this post-1 972 par-
ticipation was via public policy and popular forums rather than via contri-
butions to the research literature.
The perspective provided in this book is that of an author who special-
izes in the same field of research that Friedm an did: that is, monetary eco-
nomics. This is not a standpoint from which previous books on Fried man
have been written. The earlier books have overwhelmingly tended to come
from non- economists, from economists who have not engaged extensively
in journal- oriented economic research, or from economists who have been
specialized in research in the field of the history of economic thought rather
than in the field of monetary economics.
It is true that historians of economic thought would seem to be the most
natural authors on the topic of Milton Fried man and economic debate. It
is also true that valuable work has indeed been done about Fried man by
historians of economic thought. At the same time, it is fair to say that, on
balance, the state of the existing literature prompts the same question re-
garding Fried man’s contributions that Harrod (1970, 617) asked in connec-
tion with Keynes’s work: “But can historians of thought be relied on to get
things straight?”
A thorough discussion of the prior literature on Friedm an is beyond the