A Theory of the Consumption Function - Softcover

Friedman, Milton

Softcover

ISBN 10: 1614278121 ISBN 13: 9781614278122

Publisher: Martino Fine Books, 2015

Synopsis

2015 Reprint of 1957Edition. Full Facsimile of the original edition. Not reproduced with Optical Recognition Software. In this book Friedman developed the permanent income hypothesis (PIH). As classical Keynesian consumption theory was unable to explain the constancy of savings rate in the face of rising real incomes in the United States, a number of new theories of consumer behavior emerged. In his book, Friedman posits a theory that encompasses many of the competing hypotheses at the time as special cases and presents statistical evidence in support of his theory. "Friedman described Keynes's theory of a declining propensity to consume as 'very imaginative and thoughtful.' But in "A Theory of the Consumption Function" (1957), he demonstrated that while the hypothesis seemed to make psychological sense, it was empirically false. In relating income to propensity to consume, Keynes had erred in not distinguishing between 'transitory' and 'permanent' income. In fact, consumption does not decline as incomes generally rise. Economists across the political spectrum agreed with Friedman's refutation of Keynes...."--James A. Nuechterlein, Commentary

About this title

Review

"Friedman argued that the best way to make sense of saving and spending was not, as Keynes had done, to resort to loose psychological theorizing, but rather to think of individuals as making rational plans about how to spend their wealth over their lifetimes. This wasn't necessarily an anti-Keynesian idea--in fact, the great Keynesian economist Franco Modi-gliani simultaneously and independently made a similar case, with even more care in thinking about rational behavior, in work with Albert Ando. But it did mark a return to classical ways of thinking--and it worked. The details are a bit technical, but Friedman's 'permanent income hypothesis' and the Ando-Modigliani 'life cycle model' resolved several apparent paradoxes about the relationship between income and spending, and remain the foundations of how economists think about spending and saving to this day."--Paul Krugman, New York Times

"Friedman described Keynes's theory of a declining propensity to consume as 'very imaginative and thoughtful.' But in A Theory of the Consumption Function (1957), he demonstrated that while the hypothesis seemed to make psychological sense, it was empirically false. In relating income to propensity to consume, Keynes had erred in not distinguishing between 'transitory' and 'permanent' income. In fact, consumption does not decline as incomes generally rise. Economists across the political spectrum agreed with Friedman's refutation of Keynes."--James A. Nuechterlein, Commentary

About the Author

"Milton Friedman" is a senior research fellow at the Hoover Institution of Stanford University. Before that, he was Paul Snowden Russell Distinguished Service Professor of Economics at the University of Chicago. He has also taught at Columbia University, the University of Wisconsin, the University of Minnesota, and Cambridge University. Among his many books are "Essays in Positive Economics, A Program for Monetary Stability, Capitalism and Freedom, A Monetary History of the United States", and "The Optimum Quantity of Money".

Edition details

• Publisher: Martino Fine Books
• Publication date: 2015
• Language: English
• ISBN 10: 1614278121
• ISBN 13: 9781614278122
• Binding: Paperback
• Number of pages: 258