Milton Friedman, a father of financial futures

Leo Melamed writes:

I asked him [Friedman] whether he would endorse–when Bretton Woods collapsed–the concept of futures contracts in foreign exchange.  Without hesitation, Dr. Milton Friedman embraced the concept and authored a study in December 1971 which became the intellectual foundation for the birth of currency futures.  It was not a major treatise, hundreds of pages long with footnotes and a bibliography.  The world-renowned economist stated all he needed to say in just 11 pages.  His paper, entitled "The Need for Futures Markets in Currencies," provided us with academic authenticity of the highest magnitude to prove that our theory was a viable necessity.  As I often stated, "Professor Friedman gave my idea the credibility without which the concept might never have become a reality."  For with Dr. Friedman’s paper in hand, I was able to convince government officials, bank presidents and the CME brokerage community that the idea had merit.

This is an excellent illustration of Alex’s point that Milton was an entrepreneurial economist.  Here is more

Milton had been right all along that flexible exchange rates were entirely workable.  He was wrong in underestimating their volatility through periodic, and possibly inexplicable, "long swings" in the levels.  Oddly, his mistake on this point probably enabled currency futures and options to be even more successful than he had expected.

Addendum: Here is Greg Mankiw on Milton, here is Arnold Kling.  Here is a link fest at PrestoPundit.  Here is a misleading piece on Milton as friend of big government; just ask Roger Douglass, Vaclav Havel, or many others.


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