Monetarist Economics.

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 of this revolution. For the reader most interested in how Friedman's monetarism is practiced, the "Memorandum: Response to Questionnaire on Monetary Policy" is highly recommended. This memo, presented to the Chairman of the Treasury and Civil Service Committee in 1980, lays out Friedman's proposals for a monetarist solution to the United Kingdom's problems of inflation and slow growth.

Friedman's attack on the micro-foundations of the Phillips curve and its attendant policies, most notably found in his 1968 presidential address to the American Economic Association, is renewed here in two pieces. One is a reprint of his Nobel lecture, which also can be found in the Journal of Political Economy [2]. The other, originally published in 1975, is useful in charting Friedman's course a he, along with the profession, sought to incorporate and understand the implications of the questions raised by so-called New Classical theorists. Laidler [3] has suggested that the general acceptance by leading monetarists such as Friedman of New Classical economics doctrine did much to blur the distinction between the two views. As Laidler argues, "When New-Classical economics was academically discredited, so too was Monetarism in general . . ." [p. 55]. Indeed, one weakness of this collection is that it does not contain some of Friedman's work from the 1980s, which sought to reconcile economic events of the time with monetarist doctrine.

The final three articles deal with issues of taxation and indexation schemes in an inflationary environment, a critique of John Kenneth Galbraith's economics and the piece with Stigler on rent controls. While the first of these falls under the umbrella of monetarist economics--the consequences and cure of inflation, to use the title of the IEA Readings No. 14 in which it originally appeared--the others are Friedman as proponent of the market and economic freedom, and Friedman a s the masterful applied price theorist. Each is a good read, but probably better placed elsewhere than in a book so titled. R. W. Hafer Southern Illinois University at Edwardsville

References

[1]Brunner, Karl, "The Role of Money and Monetary Policy." Federal Reserve Bank of St. Louis Review, reprinted September/October 1989, 4-22. [2]Friedman, Milton, "Nobel Lecture: Inflation and Unemployment." Journal of Political Economy, June 1977, 451-72. [3]Laidler, David, "The Legacy of the Monetarist Controversy." Federal Reserve Bank of St. Louis Review, March/April 1990, 49-64.