Milton Friedman: Remembrance of Personality and Economist

On 16th November 2007, a year after the death of one of the most remarkable liberal economists of the twentieth century, Nobel price winner, Milton Friedman. The aim of this article is not to list his theoretic-economical, economic-political ideas and analyze them. The aim is to recall a personality of Milton Friedman, who significantly influenced macroeconomic theory and economic policy in an outright original approach to a range of economic problems. His main contribution to economic theory involves the idea that household consumption is not influenced by temporary income changes, but depends on so-called permanent income. Permanent income can be explained as an average income, which an individual expects to earn during his life using his labour and capital. It depends on household welfare (human capital, education, health included), interest rate, and expected job vacations etc. Friedman‘s new interpretation of quantity theory of money leads to explaining the stable character of demand of money and insignificance of the short-term neutrality of money. He proved that sudden changes in the money supply are destabilizing in economy because they lead to changes in prices and real variables. Inflation is according to Friedman entirely a money phenomenon in case that money stock grows faster than the real GDP. The effects of Philips curve are only short- -term; the unemployment rate fluctuates at the level of the natural rate of unemployment in a long- -term horizon. According to Friedman, only verifying empirical fact can prove the correctness of theory. This approach explains Friedman‘s continuous interest in empirical development. The society became aware of Milton Friedman because of his strong opinions on the methodological issues in economy. Verifying hypothesis should come out from the methodological positivism. In relation to economic policy, Friedman criticized mainly Keynes oriented economic policy concerning increasing supplies and budgetary deficit and the interest rate targeting policy. Friedman suggested managing the money stock. He defined „golden rule of money stock growth“. According to this rule, the central bank should maintain the constant growth of money stock, three to five per cent annually, depending on the real GDP growth.