Keynes and Friedman 231it became more profitable for businessmen to invest. Also, the
government could increase the money supply, thus bidding
stock prices up, and thereby lowering interest rates.
While he was convinced that his proposals would help right
an economy gone awry, he recognized that there could be some
difficulties. First, by mismanagement, the government’s de
mand for funds could drive the interest rate up and thereby lessen
investment. Second, psychologically, government spending could
damage investor confidence, resulting in a “let the government
do it” syndrome. Also, government bureaucracies are notorious
for their reluctance to withdraw once involved in an operation.
(See Parkinson, chapter 26) Finally, in an economy where
foreign trade plays a large role, some of the funds generated by
government spending might flow right out of the country.
Keynes did not seek to replace free-enterprise capitalism with
government control, but did want to repair what he saw as a
technical flaw in the overall mechanism. He did not want
permanent government interference, but wanted government to
jump in and out in times of serious economic difficulties, to
stimulate investment whenever the private sector hesitated. He
probably would agree that, in the long run, a depressed economy
would eventually right itself when investors regained confi
dence. Yet, he saw the Great Depression as a unique event, which
caused so much unemployment and social misery that it was not
worth waiting for those “natural forces” to take hold.
Milton Friedman (1912-)
Milton Friedman was born in Brooklyn, New York in 1912 of
Jewish immigrant parents. He grew up in Rahway, New Jersey
and was educated at Rutgers University. He graduated in 1932
and subsequently received a fellowship to the University of
Chicago, where he studied under some of the foremost American
economists. He was granted a Ph.D. from Columbia University
in 1946 and began to teach at the University of Wisconsin. Later,
he moved to the University of Chicago and has been associated
with the economics department there for the past several de
cades. It is no accident that his major work is called Capitalism
and Freedom, or that his book Free to Choose, which was also
made into a television series, has in its title the word freedom. At