Historians of economic ideas, and of economic policy, will have some difficulty in understanding or explaining the way the most influential members of the profession thought in the 1980s. Their perplexity will have a number of aspects: ‘naive monetarism’ combined with ‘rational expectations’ will make little sense to them, especially when they observe the high rates of unemployment of material and human resources, the misuse (or non-use) of windfall oil revenues, the zigzag and unpredictable (and unpredicted) course of material and energy prices, the behaviour of foreign exchanges and of interest rates. They will puzzle about the resurrection of nineteenth-century laissez-faire, the emphasis in university courses on general-equilibrium theories based upon ‘perfect competition’, at a time of market-dominating giants. They will be surprised at the overwhelming success of mathematical and econometric models, despite the total irrelevance of most of them to the real world. They will learn also of efforts of some of the best minds of the profession to challenge these trends, and will puzzle over their relative failure to make much headway against the current.
KeywordsInterest Rate Money Supply Rational Expectation Budget Deficit Natural Monopoly
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- 1.Peter Earl, The Economic Imagination (New York: M. E. Sharpe, 1983) p. 74. This is required reading for believers in orthodoxy.Google Scholar