----------------- HES POSTING ----------------- In a message dated 7/24/2001 5:14:20 PM Pacific Daylight Time, Professor Leeson asks > 2. an investigation of how and why Milton Friedman began, around 1951, to > use the quantity theory for explicitly anti-Keynesian purposes > For some reason I find this call for research a bit biased. My best memory is that is was Keynes who found the venerable quantity theory a target for denegration and criticism. I believe that there is language to this effect in the General Theory perhaps mixed with the attack in Say's Law in chapter 2. Friedman responded and in many ways responded from a Marshallian perspective. Among orthodox economists (Friedman is an orthodox economist along with Viner, Mises, Hayek and others) there is nothing so dangerous as an economist advising politicians that increases in the quantity theory of money can have beneficial effects in the short run. It is unreasonable to expect an post-World War II economist not to respond sharply to such policy advice. In my view Friedman was making two important doctrinal points and a third point about empirical research. First, the Cambridge equation (Cambridge approach) was not at all inconsistent with the long standing orthodox quantity theory tradition. Second, that tradition provided much insight into the causes and consequences of monetary disturbances which in fact have much to do with economic instability (recessions and depressions). The third point is that the quantity approach offered a convenient schema within which to conduct empirical research about the historical relationships between money, output, prices and institutions affecting velocity. On the last point, Friedman was not alone nor the first to make these points. His influence on economic research in the US (and Europe??) was enormous. In short, I do not see Friedman "begining anything" but rather responding in a profoundly responsible way to strong statements that Keynes made for a variety of reasons (only some of which were scholarly) in his General Theory. If we need to find a polemicist in these debates it is much more likely to be Keynes than Friedman. I use the word "polemicist" not to disparage Keynes since much like Madison Avenue advertising, the trick in academics as in commercial life, is to catch your target audience's attention and Keynes did that well. As far as inititating a line of research that would ultimately eat away as the foundations of at least one version of Keynesianism (the version that ended up in some texts). Friedman consistently and coherently argued that consumption was not a function of (current) income and that households were more forward looking than as typically modeled by so called Keynesians. These arguments also created doubts about the potency of fiscal policy via the multiplier. These lines of criticism and analysis while not without precedents may have been fired up by Friedman and his students as a result of the legions of economists emerging and carrying the "Keynesian cross." In my view, the most interesting contributions of the General Theory are really more about the linkages between investment and speculative behavior and the real economy and also about the financial/psychological reasons for holding money instead of bonds. These contributions while again not without precedent have or will in the future have an important effect on enriching the orthodox tradition in economics although the so called "institutionalist camp" must get credit with keeping these debates alive. L. Moss ------------ FOOTER TO HES POSTING ------------ For information, send the message "info HES" to [log in to unmask]