Milton Friedman, the famous Nobel Prize-winning economist, was born 97 years ago today. Friedman was born in Brooklyn, N.Y., to Jewish immigrants Sarah Ethel and Jeno Saul Friedman, but grew up in Rahway, N.J., where his family moved when he was one year old. In an early sign of Friedman's aptitude for study, he graduated from Rahway High School before he turned 16.

Unfortunately, during Friedman's senior year in high school his father passed away, leaving his mother to support the family and Friedman to finance his college studies himself. (For more background reading on economic history, check out The History Of Economic Thought.)

College Years
Using a scholarship and working multiple jobs to finance college, Friedman attended Rutgers University with an initial intention of becoming an actuary with a specialization in mathematics. Friedman's interest shifted towards economics when he met two economic professors teaching at Rutgers: Arthur F. Burns and Homer Jones. Both professors piqued Friedman's interest in economics and helped shape the path Friedman would take later in his career. With Jones' recommendation, Friedman was able to get a tuition scholarship to the University of Chicago Economics Department, where he would also meet his wife, and never looked back.

Early Contributions
In 1957, Friedman published "A Theory of the Consumption Function," which provided a new perspective on how to explain relationships between saving and spending. Friedman argued that consumer consumption patterns are based on rational longer-term expectations of how people will spend their money over their whole lifetime rather than by their current income. Friedman's analysis of consumption behavior was one of the things that contributed to his academic reputation.

What made Friedman even more famous was his hypothesis to debunk the idea that there was a permanent tradeoff between inflation and unemployment. In the 1960s it had been observed that there was a historical correlation between inflation and unemployment, with data showing low unemployment correlated with periods of high inflation. This caused discussions on whether the U.S. should use higher inflation to achieve lower unemployment - which Friedman argued against doing. He argued that in the short term employment will rise but would eventually fall. One of the reasons he used to argue against this policy was that there would only be a temporary increase in employment when inflation is high because prices would be rising faster than wages, creating more profits. But as soon as people realized that the purchasing power of their wages have decreased, they will demand higher wages to match increases in prices and hiring would stop.

Later Contributions
In the 1970s, a period of high inflation, Friedman's hypothesis was put to the test. Initially employment rose and inflation increased, but the correlation didn't hold - just as Friedman had hypothesized. As inflation reached double digits, unemployment began to soar - this is commonly referred to as stagflation. This confirmation of Friedman's hypothesis likely put him in the same category as John Maynard Keynes and other great economists in history. (Learn more about how Friedman helped the American economy in the '70s, read Stagflation, 1970s Style.)

In 1976, Milton Friedman was recognized for his contributions in economics by being awarded the Nobel Prize in Economics for his work in consumption analysis, demonstrating complexities in economic stabilization policies and monetary history and theory.

Read a more in-depth history of Milton Friedman in our article Free Market Maven: Milton Friedman.