Jewish Achievement in Economics and Finance
The Jewish people have always been considered to be particular adept in manners of finance and economics. However, in this recession we hear far too many negative stories involving companies and executives with Jewish surnames whether it be Goldman Sachs and Lehman Brothers or Lloyd Blankfein and Alan Greenspan; Jews in economics have suffered some very bad public relations.
For all of the negative Jewish economists, there has been hundreds of Jewish economist who we could not live without. In this next part of the Jewish Business Magazine partnership with Steven Pease, author of Golden Age of Jewish Achievement, we look at the great Jewish economist, Milton Friedman.
Milton Friedman was born July 31, 1912 to a devout Orthodox Jewish family. He attended Hebrew School and followed every Orthodox practice until shortly before his Bar Mitzvah when he became an outspoken agnostic. Nonetheless, for his parent’s sake he went through with his Bar Mitzvah.
An excellent student, he started college at fifteen. Though Rutgers gave him a partial scholarship, he worked as a part-time clerk, waiter, and entrepreneur—competing with the Rutgers bookstore in buying and reselling used textbooks—to earn the rest of his college expenses. He planned to become an actuary until he discovered economics, and with that was introduced to Arthur Burns and Homer Jones. Both later became well-known economists, and both mentored and inspired Friedman. They encouraged him to pursue postgraduate study at the University of Chicago and helped him get a scholarship.
The dearth of academic jobs during the Depression, and anti-Semitism at some schools where he might have taught, caused Friedman to spend the next two years in the New Deal administration of FDR. And then he spent many years at various Universities and government agencies. While some have called these Friedman’s “wilderness years,” it was during these years that he completed his dissertation, received his Ph.D., and worked on several groundbreaking economic studies that helped establish him as one of the greatest economic minds of the century.
At the same time, in what he considered his worst intellectual mistake, he helped create the income tax withholding system. He believes it was ultimately the single most important cause for the rapid growth in government spending following its implementation.
Though nearly always derided when he first proposed them, most of his theories have been validated by evidence and the passage of time. In the end, Friedman can take credit for a remarkable number of important changes to contemporary economic thinking. Almost single-handedly, he:
- Friedman established that the best standard for testing an economic theory is its ability to accurately predict results when applied. Once established, this doctrine allowed Friedman to disprove a number of commonly accepted, but fallacious theories, while helping establish the likely validity of others.
- He challenged accepted Keynesian dogma that dominated economic thinking from the thirties through much of the eighties. It held that free markets were flawed, that only government intervention and spending could maximize social welfare while dampening or eliminating the boom and bust of the business cycle, and that government fiscal policy could be the ultimate “free lunch” of ever-increasing government deficit spending which would raise income levels and public benefits.
- Friedman challenged nearly a half century’s common wisdom that the principal causes of the Great Depression were structural flaws in the free-enterprise system. Friedman showed the primary causes were mistakes made by the Federal Reserve.
- Demonstrated that Federal Reserve decisions were often ill-timed and thus exacerbated, rather than corrected, the business cycle.
- Re-established monetary policy as more effective than government spending (fiscal policy) in managing the economy.
- Promoted the importance of floating, rather than fixed, exchange rates between European currencies during the Marshall Plan. This notion has since come to prevail throughout most of the world economic order.