Some economists who had abandoned Keynesianism for monetarism in the mid-1 970s could be seen deserting monetarism in its turn in the early 1 980s. Financial Times columnist Samuel Brittan, who had done much to popularise monetarist ideas in Britain, was by 1 982 criticising many monetarist policies and calling himself a "new-style Keynesian". In the United States, Reagan's economic advisers, faced with the failure of monetarist policies to end a severe slump, quietly ditched monetarism9 and abandoned one of monetarism's central principles-the balanced budget.
But much mainstream economic theory moved in a different direction. A "new classical" school gained influence that contended, very much along the lines of Hayek in the 1930s, that what was wrong with monetarism was that it left a role for the state-intervening in money markets. Friedman, they claimed, had fallen into the same trap as Keynes by urging government moves to shift the money supply: he was, in a certain sense, "a Keynesian". 10 Such moves, they insisted, could not alter business behaviour in the hoped for way, since the "rational expectations" of entrepreneurs would always lead them to discount government intervention in advance. Fiddling with the money supply, like government deficit spending, stopped supply and demand interacting with each other properly. "Booms and slumps", it was claimed, "are the outcome of fraudulent Central Reserve banking" .1 1 It is an amazing commentary on the remoteness of most academic economics from any contact with reality that the new classicals could maintain intellectual credibility when they denied the instability and irrationality of the laissez faire economy in a period which saw three major international recessions.
The high point of these ideas was with a shortlived boom in the mid to late 1 980s. It seemed to vindicate their optimism about the benefits to economic growth of deregulation, privatisation and the removal of all restraints on the greed of the rich. But they lost some of their lustre with the renewed deep recession of the early 1990s. A different school of free market economists gained some support within the mainstream. This was the variant of the "Austrian school" influenced by the ideas of Joseph Schumpeter, which saw the slump-boom cycle as inevitable-and a good thing. The system, it argued, was capable of non-stop expansion, but only on the basis of "creative destruction" which destroyed old forms of production to clear the way for new ones.12 But it was no more able than the mainstream Keynesians, the monetarists and the new classicals to answer a central question: Why was the system plagued once again by recurrent crises and by a long term decline in average growth rates after three decades of unprecedented, almost crisis-free growth?13
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Capitalism in the 20th Century