Free Markets Under Siege, Again

History doesn't repeat itself — but climates of opinion do. Some 80 years ago, the Great Depression triggered a deep suspicion of laissez-faire and initiated the era of big government. The crisis was interpreted as a failure of the market and so government was called upon to fix the mess. This view prevailed despite the publication in 1963 of a groundbreaking monetary history of the Depression by the economists Milton Friedman and Anna Schwartz. They demonstrated convincingly that the Federal Reserve's monetary policy was largely responsible for the severity of the crisis. But their insight remained outside the mainstream and the welfare state expanded rapidly. It was only in the Seventies that the tide began to turn when Keynesian deficit-finance measures failed to cure the stagflation that followed the 1973 oil price shock.