More on Friedman

The economist Paul Ormerod has a provocative short comment on Prospect magazine's web site entitled 'The Fading of Friedman'. He considers the intellectual influence of Milton Friedman relative to J.M. Keynes and Friedrich Hayek:

Keynes and Friedman are bedfellows. Both believed that suitably empowered clever chaps could work out rules of behaviour that would smooth the fluctuations of the business cycle. Friedman came up with the rule of an independent central bank controlling the expansion of money at a fixed rate. Keynes essentially thought that if he and other old Etonians were put in charge, everything would be fine. At the end of the General Theory, he writes, “I conclude that the duty of ordering the current volume of investment cannot safely be left in private hands." But Hayek sharply disagreed. He believed that there are inherent limits to knowledge in human social and economic systems which no amount of intellect can overcome.

Developments in economics are taking the subject in the direction of Hayek rather than Friedman and Keynes. The burgeoning areas of behavioural and experimental economics confirm that, for the most part, decision-makers reason poorly and act intuitively rather than rationally. Theoretical models in which actors have very limited, or even zero, understanding of how their environment operates are having striking success in explaining a wide range of phenomena.

Hayek's 1974 Nobel lecture, 'The Pretence of Knowledge', is a major statement of his belief in the inherent limits to knowledge in political and economic affairs.