I entered the University of Chicago’s PHD program in Economics in the fall of 1988. Milton Friedman had moved west more than ten before that. His ongoing impact on that Department was clearly visible in the subject matter taught by Gary Becker, Sherwin Rosen, and Bob Lucas. The unique Chicago seminar style must have been inherited from his and George Stigler’s workshops. In such seminars, the speaker must fight to be heard as multiple seminar participants have points they urgently want to make.
I wanted to add some discussion that Friedman offered when he was 90 years old at a November 2002 conference at the University of Chicago. He offered some sharp comments on frontier research that people presented that built on his work from 40 years before. Now that’s a sharp mind!
I couldn’t find a link to it so instead I report the introduction of his Nobel Prize lecture from 30 years ago.
INFLATION AND UNEMPLOYMENT
Nobel Memorial Lecture, December 13, 1976
by MILTON FRIEDMAN
The University of Chicago, Illinois, USA
When the Bank of Sweden established the prize for Economic Science in
memory of Alfred Nobel (1968), there doubtless was - as there doubtless still
remains - widespread skepticism among both scientists and the broader public
about the appropriateness of treating economics as parallel to physics, chemistry,
and medicine. These are regarded as “exact sciences” in which objective,
cumulative, definitive knowledge is possible. Economics, and its fellow social
sciences, are regarded more nearly as branches of philosophy than of science
properly defined, enmeshed with values at the outset because they deal with
human behavior. Do not the social sciences, in which scholars are analyzing
the behavior of themselves and their fellow men, who are in turn observing and
reacting to what the scholars say, require fundamentally different methods of
investigation than the physical and biological sciences? Should they not be
judged by different criteria?
1. SOCIAL AND NATURAL SCIENCES
I have never myself accepted this view. I believe that it reflects a misunderstanding
not so much of the character and possibilities of social science as of
the character and possibilities of natural science. In both, there is no “certain”
substantive knowledge; only tentative hypotheses that can never be “proved”,
but can only fail to be rejected, hypotheses in which we may have more or less
confidence, depending on such features as the breadth of experience they
encompass relative to their own complexity and relative to alternative hypotheses,
and the number of occasions on which they have escaped possible
rejection. In both social and natural sciences, the body of positive knowledge
grows by the failure of a tentative hypothesis to predict phenomena the
hypothesis professes to explain; by the patching up of that hypothesis until
someone suggests a new hypothesis that more elegantly or simply embodies
the troublesome phenomena, and so on ad infinitum. In both, experiment is
sometimes possible, sometimes not (witness meteorology). In both, no experiment
is ever completely controlled, and experience often offers evidence that
is the equivalent of controlled experiment. In both, there is no way to have a
self-contained closed system or to avoid interaction between the observer and
the observed. The Gödel theorem in mathematics, the Heisenberg uncertainty
principle in physics, the self-fulfilling or self-defeating prophecy in the social
sciences all exemplify these limitations.
Of course, the different sciences deal with different subject matter, have
different bodies of evidence to draw on (for example, introspection is a more
important source of evidence for social than for natural sciences), find different
techniques of analysis most useful, and have achieved differential success in
predicting the phenomena they are studying. But such differences are as great
among, say, physics, biology, medicine, and meteorology as between any of
them and economics.
Even the difficult problem of separating value judgments from scientific
judgments is not unique to the social sciences. I well recall a dinner at a
Cambridge University college when I was sitting between a fellow economist
and R. A. Fisher, the great mathematical statistician and geneticist. My fellow
economist told me about a student he had been tutoring on labor economics,
who, in connection with an analysis of the effect of trade unions, remarked,
“Well surely, Mr. X (another economist of a different political persuasion)
would not agree with that.” My colleague regarded this experience as a terrible
indictment of economics because it illustrated the impossibility of a value-free
positive economic science. I turned to Sir Ronald and asked whether such an
experience was indeed unique to social science. His answer was an impassioned
“no”, and he proceeded to tell one story after another about how accurately
he could infer views in genetics from political views.
One of my great teachers, Wesley C. Mitchell, impressed on me the basic
reason why scholars have every incentive to pursue a value-free science, whatever
their values and however strongly they may wish to spread and promote
them. In order to recommend a course of action to achieve an objective, we
must first know whether that course of action will in fact promote the objective.
Positive scientific knowledge that enables us to predict the consequences of a
possible course of action is clearly a prerequisite for the normative judgment
whether that course of action is desirable. The Road to Hell is paved with
good intentions, precisely because of the neglect of this rather obvious point.
This point is particularly important in economics. Many countries around
the world are today experiencing socially destructive inflation, abnormally
high unemployment, misuse of economic resources, and, in some cases, the
suppression of human freedom not because evil men deliberately sought to
achieve these results, nor because of differences in values among their citizens,
but because of erroneous judgments about the consequences of government
measures: errors that at least in principle are capable of being corrected by
the progress of positive economic science.
Rather than pursue these ideas in the abstract [I have discussed the methodological
issues more fully in (l)], I shall illustrate the positive scientific character
of economics by discussing a particular economic issue that has been a
major concern of the economics profession throughout the postwar period;
namely, the relation between inflation and unemployment. This issue is an
admirable illustration because it has been a controversial political issue
throughout the period, yet the drastic change that has occurred in accepted
professional views was produced primarily by the scientific response to experience
that contradicted a tentatively accepted hypothesis - precisely the
classical process for the revision of a scientific hypothesis.
I cannot give here an exhaustive survey of the work that has been done on
this issue or of the evidence that has led to the revision of the hypothesis. I
shall be able only to skim the surface in the hope of conveying the flavor of
that work and that evidence and of indicating the major items requiring further
Professional controversy about the relation between inflation and unemployment
has been intertwined with controversy about the relative role of
monetary, fiscal, and other factors in influencing aggregate demand. One issue
deals with how a change in aggregate nominal demand, however produced,
works itself out through changes in employment and price levels; the other,
with the factors accounting for the changes in aggregate nominal demand.
The two issues are closely related. The effects of a change in aggregate
nominal demand on employment and price levels may not be independent of
the source of the change, and conversely the effect of monetary, fiscal, or other
forces on aggregate nominal demand may depend on how employment and
price levels react. A full analysis will clearly have to treat the two issues jointly.
Yet there is a considerable measure of independence between them. To a
first approximation, the effects on employment and price levels may depend
only on the magnitude of the change in aggregate nominal demand, not on its
source. On both issues, professional opinion today is very different than it was
just after World War II because experience contradicted tentatively accepted
hypotheses. Either issue could therefore serve to illustrate my main thesis.
I have chosen to deal with only one in order to keep this lecture within
reasonable bounds. I have chosen to make that one the relation between inflation
and unemployment, because recent experience leaves me less satisfied
with the adequacy of my earlier work on that issue than with the adequacy
of my earlier work on the forces producing changes in aggregate nominal