“animal spirits.” For persons acting in such uncertain conditions,
economic signals from the government seemed precious, indeed indis-
pensable. Lucas and his followers preferred to make the assumption
that individuals and firms were fully aware of the structure of the
economy and formed correct expectations about market events and
government interventions. From this axiom, economists deduced that
social actors would always foresee government interventions intended
to manage the economy and discount their impact in advance, mak-
ing them ineffective or even detrimental. This analytical proposition
explained in micro-economic terms the stagflation predicted by Fried-
man, and it reinforced monetarist conclusions regarding the ineffect-
iveness of macro-economic management.^21 It also did much to break
the Keynesian hold on the economics profession, because it offered an
avenue to reunite the two disjointed sides of the discipline, micro- and
macro-economics.
Finally, the attack on Keynesianism was also political. InThe Road
to Serfdom, published in 1944, Austrian-born economist Friedrich
von Hayek had foreseen the key themes of the right-wing offensive, by
associating planning, socialism, and collectivism with totalitarianism.
Private property, argued Hayek, constituted “the most important
guaranty of freedom, not only for those who own property, but scarcely
less for those who do not.”^22 Hayek’s book was immediately influen-
tial, but for many years his views remained unheeded. John Maynard
Keynes – who appreciated the book but wrote to its author that he
would look less “like Don Quixote” if he conceded that “moderate
planning” could be “safe” – proved more in tune with the times.^23
Hayek’s line of thought nevertheless remained important on the right.
Despite their disagreements on the role of the state and on monetary
policy, Friedman himself contributed to reinvigorate Hayek’s views,
with the publication in 1962 of hisCapitalism and Freedom. In this
book, intended for a popular audience, Friedman similarly underlined
(^21) Mark Blyth,Great Transformations: Economic Ideas and Institutional Change
in the Twentieth Century, Cambridge University Press, 2002, pp. 90–94; Gary
Mucciaroni,The Political Failure of Employment Policy, 1945–1982,
22 University of Pittsburgh Press, 1990, pp. 142–43.
Friedrich A. von Hayek,The Road to Serfdom, University of Chicago Press,
1944, pp. 103–104.
(^23) John Maynard Keynes (1944), quoted in Hannes H. Gissurarson, “The Only
Truly Progressive Policy...,” in Norman P. Barryet al.,Hayek’s “Serfdom”
Revisited, London, Institute of Economic Affairs, 1984, p. 7.
The triumph of market democracy (1980–2007) 143