Abstract: Between the Civil War and the Depression, laissez faire was the economic order of the day. But the Depression reversed public attitudes because it was viewed as a failure of capitalism. Many people were persuaded that free market capitalism was fundamentally unstable, that government must play a more active role, intervening to correct the instability of the system. This view of history still dominates popular belief and government policy. The Depression also prompted a dramatic shift in professional economic opinion -- away from the long-held belief that monetary policy was a powerful instrument of economic policy to nearly the opposite view that "money does not matter." The economics profession embraced the new theories of British economist John Maynard Keynes, who offered an appealing justification for extensive government intervention. According to Milton Friedman, the shift of both public and economic opinion "arose from the misunderstanding of what actually happened... the Depression reflected a failure of government, not free enterprise." In particular, it was a failure of the Federal Reserve System to exercise its powers to halt the slide. The evidence is clear "that the Depression was produced -- or at the very least made far worse -- by perverse monetary policies followed by the U.S. authorities." The irony, as Dr. Friedman explains, is that this crisis, which resulted from government failure, led to decades of government expansion.
Milton Friedman: Free To Choose
Free To Choose® is the ground-breaking PBS television series featuring Milton Friedman, Nobel Prize-winning economist. These programs, filmed on location around the world, have helped millions of people understand the close relationship between the ideas of human freedom and economic freedom. The interaction between those ideas has created in the U.S. the richest and freest society the world has ever known. Milton Friedman sees this success threatened by the tendency in the last few decades to assume that government intervention is the answer to all problems. In these programs, which first aired on January 11, 1980, Dr. Friedman focuses on basic principles. How do markets work? Why has socialism failed? Can government help economic development? The 1980 version consists of 10 one-hour programs.