Monetarist Economics.

• Author: Hafer, R.W.

By Milton Friedman. Cambridge, Mass.: Basil Blackwell, Inc. 1991. Pp. [Chi], 188. $49.95.

Milton Friedman has been a tireless advocate for policies that promote economic freedom. This viewpoint is manifested in his prescriptions for governmental policy actions, whether they be monetary or fiscal in nature. This book is a collection of eight pieces written between 1970 and 1980. Except for two of the entries, all have appeared previously as Occasional Papers of the Institute of Economic Affairs (IEA). This collection represents the third by the IEA, with the first two volumes being works by James Buchanan and F. A. Hayek. The collection provides the reader with an appreciation for the wide range of policy issues upon which Friedman has left an impression. The articles reprinted here are vintage Friedman: Monetary policy and how it should be applied, the problems with stabilization policy, the interrelationship between inflation and tax policy, a discourse on economic freedom and, with George Stigler, the foolishness of rent control.

The first three pieces deal primarily with Friedman's interpretation of what monetarism is and how the policy scenarios that one derives from it should be applied. It is interesting to note that, the title of the book notwithstanding, Friedman, at least in 1970, probably was not enamored with the term "monetarism" as a description of the revolution against standard Keynesian macroeconomic theory that was well under way. He suggests in "The Counter-Revolution in Monetary Theory" the label "Chicago School" as as an alternative to "monetarism," the term coined by Karl Brunner in 1968.

It is instructive to compare the piece by Friedman to that of Brunner, which appeared in an issue of the Federal Reserve Bank of St. Louis [1]. For Friedman, the "key propositions" of monetarism are contained in his empirically based interpretation of the quantity theory: there exists a relation between money growth and income growth, there are uncertain lags in effects from money to economic activity, changes in money first affect output then prices and, in the long run, inflation is a monetary phenomena. For Brunner, the monetarist thesis is characterized as follows: the central bank dominates the monetary base, the monetary base dominates movements in the money supply and changes in the growth rate of the money supply produce change in economic activity. Juxtaposing these two pieces is a useful exercise to appreciate the development...