Thread by @delong

@infinite_me @Claudia_Sahm Touché...

One question I always ask @paulkrugman and company is: what happened to the influence of Milton Friedman? No one was a stronger anti-liquidationist than Milton Friedman...

Milton Friedman <www-jstor-org.libproxy.berkeley.edu/stable/pdf/183…>: 'A debate on Keynes between Abba P. Lerner and... 1/

@infinite_me @Claudia_Sahm @paulkrugman ...myself... in the late 1940s.... 1930s, pre-General Theory; we have a somewhat similar Talmudic cast of mind and a similar willingness to follow our analysis to its logical conclusion.... [We] agree[d] on a large number of issues-from flexible exchange rates to the... 2/

@infinite_me @Claudia_Sahm @paulkrugman ... volunteer army. Yet we were affected very differently by the Keynesian Revolution-Lerner becoming an enthusiastic convert... I... somewhat hostile.... Lerner was trained at the London School of Economics, where the dominant view was that the depression was an inevitable... 3/

@infinite_me @Claudia_Sahm @paulkrugman ... result of the prior boom, that it was deepened by the attempts to prevent prices and wages from falling and firms from going bankrupt, that the monetary authorities had brought on the depression by inflationary policies before the crash and had prolonged it by "easy... 4/

@infinite_me @Claudia_Sahm @paulkrugman ... money" policies thereafter; that the only sound policy was to let the depression run its course, bring down money costs, and eliminate weak and unsound firms. By contrast with this dismal picture... Keynes's interpretation of the depression and of the right policy... 5/

@infinite_me @Claudia_Sahm @paulkrugman ...[was] a flash of light on a dark night. It offered a far less hopeless diagnosis.... A young, vigorous, and generous mind would have been attracted to it. It was the London School (really Austrian) view that I referred to in my "Restatement" when I spoke of "the... 6/

@infinite_me @Claudia_Sahm @paulkrugman ... atrophied and rigid caricature [of the quantity theory] that is so frequently described by the proponents of the new income-expenditure approach and with some justice, to judge by much of the literature on policy that was spawned by the quantity theorists".... The... 7/

@infinite_me @Claudia_Sahm @paulkrugman ... intellectual climate at Chicago had been wholly different. My teachers... blamed the monetary and fiscal authorities for permitting banks to fail and the quantity of deposits to decline. Far from preaching the need to let deflation and bankruptcy run their course... 8/

@infinite_me @Claudia_Sahm @paulkrugman ..., they issued repeated pronunciamentos calling for governmental action to stem the deflation... large and continuous deficit budgets... open-market operations with the double aim of facilitating necessary government financing aind increasing the liquidity of the banking... 9/

@infinite_me @Claudia_Sahm @paulkrugman ...structure" (Wright 1932, p. 162). There was nothing in these views to repel a student; or to make Keynes attractive. On the contrary, so far as policy was concerned, Keynes had nothing to offer those of us who had sat at the feet of Simons, Mints, Knight, and Viner...

@infinite_me @Claudia_Sahm @paulkrugman ...the London School view, really the Austrian view of Ludwig von Mises, had many adherents.... Compare this with what Jacob Viner said in early 1932 in his Harris Foundation lecture: "The Federal Reserve Board has revealed to the outsider no greater capacity [than other... 11/

@infinite_me @Claudia_Sahm @paulkrugman ... Central Banks] to formulate a consistent policy, unless a program of drift, punctuated at intervals by homeopathic doses of belated inflation and deflation and rationalized by declarations of impotence, can be accepted as the proper constituents of central bank policy... 12/

@infinite_me @Claudia_Sahm @paulkrugman ... What, in the field of interpretation and policy, did Keynes have to offer those of us who learned their economics at a Chicago that was filled with these views?"

The shift to "liquidationism" as the default policy view of a Republican economist (when Republicans... 13/

@infinite_me @Claudia_Sahm @paulkrugman ...were out of power, at least, seems to have happened remarkably quickly in one decade, the 2000s, and without analysis and without argument. How and why did this happen, that being a full-fledged Mellonian became "edgy" and "cool"? 14/END