Monetarism, Chicago, and the Neoclassical Synthesis

Milton Friedman (1912-2006), together with Anna Schwartz, argued in A Monetary History of the United States (1963) that the Great Depression was severely worsened by the Federal Reserve's contraction of the money supply in the early 1930s, rather than being an inherent, unavoidable failure of capitalism itself. Building on this diagnosis, Friedman developed monetarism, centered on the quantity theory of money and the claim that "inflation is always and everywhere a monetary phenomenon." He advocated a steady, rule-based, gradual growth in the money supply over the discretionary fine-tuning favored by Keynesian policymakers, and won the Nobel Memorial Prize in Economic Sciences in 1976.