Notes
2 Keeping the Keynesians off-s tage 1 During World War II, Friedman was involved in debates within the US Congress and the Treasury. In his 1942 statement before the House Ways and Means Committee, he argues that “inflation . . . must be neutralised by measures that restrict consumer spending. Taxation is the most important of those measures”. Looking back on this episode of his career, Friedman points out: “The most striking feature of this statement is thoroughly Keynesian . . . Until I reread my statement to Congress in preparing this account, I had completely forgotten how thoroughly Keynesian I then was. I was apparently cured, some would say corrupted shortly after the end of the war” (Friedman and Friedman 1998, pp. 112–13). 2 Hirsch and de Marchi’s (1990) study is complementary to ours, in that their study of Friedman’s views toward Keynes and the Keynesians focuses on this issue but from a methodological standpoint. 3 The full statement is: “inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output” (Friedman 1970a, p. 16). 4 Again, we do not aim here at an exhaustive review of Friedman’s paper during the 1940s and 1950s. On this issue, see Chapter 9 of Hirsch and de Marchi (1990). 5 For Friedman, functional finance is defined as “the principle of . . . judging fiscal measures only by their effects or the way they function in society” (Lerner 1944, p. 302 n.; quoted in Friedman [1947] 1953a, p. 313). That is, under the rules of functional finance, decisions about the deficit and the money supply would be made with regard to their functionality – their effect on the economy – and not with regard to some abstract moralistic premise that deficits, debt and expansionary monetary policy are inherently bad (Colander 2008, p. 515) As we will see in Chapter 4, Friedman’s latter critiques towards fiscal policy go beyond an ‘internal’ critique (i.e. in terms of delays, lack of information and pro- cyclicity of fiscal measures) and involve moral principles. 6 Here Keynes has a particular concern for the available statistics on the level of profits. 7 Instead, as we will see in Chapter 4, Keynes favours long-term plans. 8 To take but one example, in a book called The Legacy of Keynes and Friedman Frazer (1994) didn’t hesitate to present the crudest version of the 45-degree diagram as Keynes’ basic model. Without a careful reading of Keynes’ writings, such an exercise proves futile. 9 This is also the view held by Hirsch and de Marchi (1990). 10 In Keynes’ own words:
