the role of economic freedom as “a necessary condition for political
freedom.”^24 The economist once again made his case for legislated
rules “instructing the monetary authority to achieve a specified rate of
growth in the stock of money,” and for a neutral fiscal policy designed
“without any regard to problems of year-to-year economic stability.”^25
Friedman also proposed the elimination of corporate taxes and of
policies supportive of trade unions, and called for a flat income tax
rate, contending that governments had done more harm than good
in trying to redistribute revenues.^26 A liberal society, he concluded,
should avoid “taking from some to give to others...on grounds of
‘justice.’ At this point, equality comes sharply into conflict with
freedom; one must choose. One cannot be both an egalitarian, in this
sense, and a liberal.”^27
It would take many years for these right-wing ideas to move out of
the political margin and actually shape public policies. The occasion
came in the 1970s, when the combined rise of unemployment and
inflation undermined Keynesian economics and made the monetarist
account plausible. The 1973 oil shock was a catalyst. In an already
difficult economic context, marked as well by the end of the Bretton
Woods system of fixed exchange rates, the decision of the leading
members of the Organization of Petroleum Exporting Countries
(OPEC) to cut production and raise prices had a dramatic impact. In a
few months, the price of oil quadrupled and inflation rates jumped
above 10 percent – the OECD average was 13.3 percent in 1974 – just
as aggregate demand fell, because energy-buying countries lost some
of their purchasing power to oil producers that had not yet started
“recycling” their income back into the world economy.^28
The first country to move toward monetarism was Germany. In a
society where Keynesianism “never really took hold,” and where a
highly independent central bank always saw its primary task as pre-
serving price stability, the turn toward a pragmatic form of monetarism
came rather naturally. After the oil shock, the Bundesbank – Germany’s
(^24) Milton Friedman,Capitalism and Freedom, University of Chicago Press,
25 1962, p. 4.
28 Ibid., pp. 54 and 79.^26 Ibid., pp. 132 and 174–76.^27 Ibid., p. 195.
Fritz W. Scharpf, “Economic Changes, Vulnerabilities, and Institutional
Capabilities,” in Fritz W. Scharpf and Vivien A. Schmidt (eds.),Welfare and
Work in the Open Economy. Volume I. From Vulnerability to
Competitiveness, Oxford University Press, 2000, pp. 27–29 and 340.
144 Left and Right in Global Politics