Some say that John Maynard Keynes catalyzed an economic reformation with his 1936 publication of The General Theory of Employment, Interest, and Money. As with Martin Luther’s Reformation, a counter-reformation of sorts followed Keynes’ reformation as well. Milton Friedman was perhaps the most influential figure of this counter-reformation.
Friedman spent his career not only writing technical analyses of consumer behavior and inflation, but also campaigning for the policy of monetarism and popularizing the free-market doctrine; he rose to fame through his criticisms of Keynes’ policy proposals.
One of Friedman’s key arguments against Keynes was his monetarist theory. While Keynesian economics argued that consumption, government expenditures, and net exports were the factors that changed the state of the economy, Friedman’s monetarist theory said that money supply was the controlling factor. Friedman argued that controlling the supply of money directly influenced inflation and that future interest rates may be influenced through fighting inflation with money supply. Friedman was so convinced of the crucial role of monetary policy in a healthy economy that he publicly blamed the Federal Reserve for causing the Great Depression.
Another key idea that Friedman had was that the federal government was even less moral and efficient than the free market. He repeatedly claimed that government failure could be worse than market failure and that the government was responsible for more economic failures than successes. This idea directly opposed Keynes’ tenet of government intervention to help the economy.
This discussion leads to a few questions: why did Keynes and Friedman have such different views of the economy? How did the argument between these two economists affect legislative debates and policies during the next century, and how is this division reflected in today’s government?
Sources:
http://www.nybooks.com/articles/2007/02/15/who-was-milton-friedman/
https://www.investopedia.com/terms/m/milton-friedman.asp
https://www.investopedia.com/ask/answers/012615/what-difference-between-keynesian-economics-and-monetarist-economics.asp
I really liked how u explained the Laissez Faire system as well as how Friedman felt about Keynesian theories. There is a common myth that unregulated capitalism is what caused the great depression but as you touched on, the very low interest rates set by the federal reserve had a big helping hand in the depression and the fact that the regulations set by the federal reserve were, well federal shows how back then there wasnt really a truly unregulated capitalist system.
ReplyDeletehttp://www.freedomworks.org/content/debunking-myths-great-depression