New Classical Prescriptions for Economic Growth

Abstract

In the 1970s, the Keynesian theoretical orthodoxy came under increasing attack from the ‘New Classical’ school. The dissenters, led by the Chicago economist Milton Friedman, were initially dubbed ‘monetarists’, due to their insistence that the basic cause of inflation was excessively rapid growth of the money supply. But as the intellectual debate unfolded, it became clear that the fundamental disagreement between the monetarists (or ‘New Classical’ economists) and the Keynesians lay not in the determination of aggregate demand, but rather in the shape of the aggregate supply curve and the efficiency of the private sector. This chapter discusses the New Classical economists’ critique of Keynesianism and examines their policy prescriptions for economic growth, many of which have been adopted by the Conservative Government since 1979.