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By Eamonn Butler. 2011. Great Britain: Harriman House, Ltd., Pp. 163, $19.99, paperback.
Toward the end of his life, John Kenneth Galbraith summed it up nicely. "The age of Keynes," he wrote, "has given way to the age of Milton Friedman." What exactly does that mean? Eamonn Butler writes a lucid account of why the most influential economist of our time is so important.
It is hard for economic students today to even imagine what the profession was like a half century ago. The prevailing thinking very much reflected Keynesian orthodoxy, including the beliefs that:
Capitalist economies are inherently unstable, given to cycles of booms and busts.
Government can offset these events and smooth out the cycles with carefully timed countercyclical policies.
Monetary policy, however, is largely impotent because (a) people are willing to hold any quantity of money the government creates and (b) in any event, the demand for money is unstable.
Fiscal policy, by contrast, is a potent countercyclical tool, with changes in government spending being a more powerful weapon than changes in taxation.
As economies get wealthier, the natural tendency is to save too much and consume too little, causing national output to fall well short of its potential; this shortfall can be avoided, however, by...