Friedman's monetarism fundamentally challenged Keynesian economics. While Keynesians believed that fiscal policy (government spending and taxation) was the most effective tool for managing the economy and smoothing out business cycles, Friedman argued that monetary policy was far more powerful. He asserted that changes in the money supply primarily drive economic fluctuations, and that poor monetary policy, not a lack of government spending, was the cause of economic depressions, as he argued was the case with the Great Depression [citation:4].

The Permanent Income Hypothesis, developed in his 1957 book *A Theory of the Consumption Function*, is a core contribution to consumption analysis. It posits that people make consumption decisions based not on their current income, but on their expected long-term or 'permanent' income [citation:2][citation:9]. This was a revolutionary idea because it suggested that temporary changes in income, such as a tax cut, would have a limited effect on spending, as people would save the windfall rather than spend it. This has profound implications for fiscal policy and understanding the economy [citation:8].

Published in 1962, *Capitalism and Freedom* is Friedman's most influential work for a general audience [citation:3][citation:7]. Its central argument is that economic freedom is not just an end in itself, but a necessary condition for political freedom [citation:3]. He systematically argued against government intervention in most areas, from minimum wage laws and tariffs to social security and public housing, maintaining that the power of the state inevitably encroaches on individual liberty. The book became a foundational text for the neoliberal movement and influenced political leaders like Ronald Reagan [citation:3][citation:12].

Friedman was a vocal critic of activist, discretionary monetary policy. In his work with Anna Schwartz, he demonstrated that the money supply is not a passive factor in the economy but an active driver of inflation and recessions [citation:4]. He concluded that the Federal Reserve had often made things worse by mismanaging the money supply. His primary recommendation was to replace discretionary policy with a simple, fixed rule: the central bank should be required to increase the money supply at a rate consistent with long-term economic growth, eliminating its power to create booms and busts.

Friedman's ideas gained massive influence, particularly during the stagflation of the 1970s when Keynesian models failed to explain high unemployment and high inflation simultaneously. His arguments for deregulation, tax cuts, and a reduced role for the state became the blueprint for the neoliberal policies of leaders like Ronald Reagan in the US and Margaret Thatcher in the UK [citation:12]. His influence was so profound that he is considered one of the most important economists of the 20th century, second only to John Maynard Keynes in a survey of economists [citation:8].