Milton Friedman's Isolation
By Arnold Kling
it is hard to account for the near-consensus in macroeconomics in the post-war period and also the antagonism that met Friedman’s challenge to that consensus. In order to place his ideas in perspective, this section provides some background on prevailing views in the 1950s and 1960s. The Depression had created a near-consensus that the price system had failed and that it had failed because of the displacement of competitive markets with large monopolies. Intellectuals viewed the rise of the modern corporation and labor unions as evidence of monopoly power. They concluded that only government, not market discipline, could serve as a countervailing force to their monopoly power.
This notion of government as a “countervailing force” for the excessive concentration and greed of the private sector dies hard. It was indeed the consensus view in the 1950’s, but there are many who still cling to it. In my view, government is a “reinforcing force” for concentrated economic power. If you want to see economic power become concentrated and abused, then hand the sector over to government to regulate.
Hetzel’s paper, which is on Friedman’s contributions to economics (primarily in macro), was recommended by Tyler Cowen.