1.4: Crisis in Macroeconomics

Milton Friedman started repairing his ideas and wrote the Monetary history in which he provided an alternative explanation to Keynesian explanation and wrote that basically the money supply became very low and the government failed to keep it at the right levels so, if the government had maintained the money supply at a constant level the great Depression would not have happened. Now there is a little bit of a contradiction here because on the one hand Friedman is saying that government shouldn't do anything on the other hand the government should intervene to prevent the depression. He was saving the free market from the blame and claimed that fiscal policy is wrong according to crowding out theory that if the government invests a certain amount the private will not invest exactly the same amount so total investment will not change. These pro-market theories had led to crisis in macroeconomics.