I (or somebody) should run a history of economic thought conference to celebrate the seventieth anniversary of Abba Lerner's "Functional Finance" in the fall…
Milton Friedman on Abba Lerner:
Milton Friedman and Rose Friedman, Two Lucky People: 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….
Lerner was trained at the London School of Economics, where the dominant view was that the depression was an inevitable result of the prior boom, that it was deepened by the attempts to prevent prices and wages from falling and firms from going bankrupt, that the monetary authorities had brought on the depression by inflationary policies before the crash and had prolonged it by “easy money” policies thereafter; that the only sound policy was to let the depression run its course, bring down money costs, and eliminate weak and unsound firms.
By contrast with this dismal picture, the news seeping out of Cambridge (England) about Keynes’s interpretation of the depression and of the right policy to cure it must have come like a flash of light on a dark night… It is easy to see how a young, vigorous, and generous mind would have been attracted to it…
The intellectual climate at Chicago had been wholly different. My teachers regarded the depression as largely the product of misguided policy—or at least as greatly intensified by such policies. They blamed the monetary and fiscal authorities for permitting banks to fail and the quantity of deposits to decline. Far from preaching the need to let deflation and bankruptcy run their course, they issued repeated pronunciamentos calling for governmental action to stem the deflation—as J. Rennie Davis put it, “Frank H. Knight, Henry Simons, Jacob Viner, and their Chicago colleagues argued throughout the early 1930′s for the use of large and continuous deficit budgets to combat the mass unemployment and deflation of the times.”
There was nothing in these views to repel a student; or to make Keynes attractive. On the contrary, so far as policy was concerned, Keynes had nothing to offer those of us who had sat at the feet of Simons, Mints, Knight, and Viner.