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Milton Friedman and the Emergence of the Permanent Income Hypothesis

Milton Friedman and the Emergence of the Permanent Income Hypothesis History of Political Economy 35:1 (2003) measurement problem. Thus he concluded that these income theories are “bad tools, which break in our hands” ([1939] 1946, 177). While Hicks attempted to find a satisfactory empirical counterpart for a theoretically sound definition of income, other economists were conducting empirical studies of income structure. Among them, Simon Kuznets was the most notable. Apart from a series of works in the 1930s and 1940s on the measurement of national income, Kuznets started a study comparing incomes of different professions in 1933 by using data for 1929–32. He completed a draft in 1936, but Friedman took up the work in 1937 and provided a more detailed statistical analysis.1 The result was published in 1945 and was titled Income from Independent Professional Practice, by which Friedman earned his doctoral degree at Columbia University in 1946. Income from Independent Professional Practice gives an account of income structure: income is composed of permanent, quasi-permanent, and transitory components. It also marks the first of three stages of Friedman’s research on the permanent income hypothesis. Each stage corresponds to a different concept of permanent income. In the second stage, identified by A Theory of the Consumption Function, Friedman http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png History of Political Economy Duke University Press

Milton Friedman and the Emergence of the Permanent Income Hypothesis

History of Political Economy , Volume 35 (1) – Mar 1, 2003

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Publisher
Duke University Press
Copyright
Copyright 2003 by Duke University Press
ISSN
0018-2702
eISSN
1527-1919
DOI
10.1215/00182702-35-1-77
Publisher site
See Article on Publisher Site

Abstract

History of Political Economy 35:1 (2003) measurement problem. Thus he concluded that these income theories are “bad tools, which break in our hands” ([1939] 1946, 177). While Hicks attempted to find a satisfactory empirical counterpart for a theoretically sound definition of income, other economists were conducting empirical studies of income structure. Among them, Simon Kuznets was the most notable. Apart from a series of works in the 1930s and 1940s on the measurement of national income, Kuznets started a study comparing incomes of different professions in 1933 by using data for 1929–32. He completed a draft in 1936, but Friedman took up the work in 1937 and provided a more detailed statistical analysis.1 The result was published in 1945 and was titled Income from Independent Professional Practice, by which Friedman earned his doctoral degree at Columbia University in 1946. Income from Independent Professional Practice gives an account of income structure: income is composed of permanent, quasi-permanent, and transitory components. It also marks the first of three stages of Friedman’s research on the permanent income hypothesis. Each stage corresponds to a different concept of permanent income. In the second stage, identified by A Theory of the Consumption Function, Friedman

Journal

History of Political EconomyDuke University Press

Published: Mar 1, 2003

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