A Monetary and Fiscal Framework for Economic Stability

Abstract

During the late 19th and early 20th centuries, the problems of the day were of a kind that led economists to concentrate on the allocation of resources and, to a lesser extent, economic growth, and to pay little attention to short-run fluctuations of a cyclical character. Since the Great Depression of the 1930s, this emphasis has been reversed. Economists now tend to concentrate on cyclical movements, to act and talk as if any improvement, however slight, in control of the cycle justified any sacrifice, however large, in the long-run efficiency, or prospects for growth, of the economic system. Proposals for the control of the cycle thus tend to be developed almost as if there were no other objectives and as if it made no difference within what general framework cyclical fluctuations take place. A consequence of this attitude is that inadequate attention is given to the possibility of satisfying both sets of objectives simultaneously.

American Economic Review, Vol. 38, No. 3 (June 1948), pp. 245–64.

An earlier version of this paper was presented before the Econometric Society on September 17, 1947, at a meeting held in conjunction with the International Statistical Conferences in Washington, DC. I am deeply indebted for helpful criticisms and constructive suggestions to Arthur F. Burns, Aaron Director, Albert G. Hart, H. Gregg Lewis, Lloyd W. Mints, Don Patinkin and George J. Stigler.