The Times

Abstract

In the midst of the Great Depression, during which Irving Fisher had been disgraced for his faith in simplistic classical remedies to an almost perpetually painful economic problem, and John Maynard Keynes was penning his The General Theory of Employment, Interest and Money in frustration with the classical model, Milton Friedman was cultivating his Chicago-influenced views and Franco Modigliani was about to enter college. There were emerging three schools of thought, which Friedman eloquently summarized years later in his memoirs, in recollection of a public debate between himself and the economist Abba Lerner of the London School of Economics: I was myself first strongly impressed with the importance of the Chicago tradition during a debate on Keynes between Abba P. Lerner and myself before a student-faculty seminar at the University of Chicago sometime in the late 1940s (or perhaps the early 1950s). Lerner and I were graduate students during the early 1930s, pre-Keynes’s General Theory; we have a somewhat similar Talmudic cast of mind and a similar willingness to follow our analysis to its logical conclusion. Those have led us to agree on a large number of issues — from flexible exchange rates to the volunteer army. Yet we were affected very differently by the Keynesian revolution — Lerner becoming an enthusiastic convert and one of the most effective expositors and interpreters of Keynes, I remaining largely unaffected and if anything somewhat hostile. KeywordsGreat DepressionLondon SchoolFlexible Exchange RatePermanent IncomeChicago SchoolThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.