Do crises originate in the real or the monetary economy?
Some Marxists have been arguing on the Internet that the current crisis shows the cause of capitalism’s periodic economic crises lies in the “real economy” as opposed to the “money economy.” They seem very pleased by the renewed interest in the theories of John Maynard Keynes. Keynes, it is said, realized that capitalist economic crises originate in the “real economy.” These Marxists are hoping that the star of “monetarist” theory, Milton Friedman, who is widely and justly hated by exploited people throughout the world, is setting at last.
The late Milton Friedman was the main ideologue of “neoliberalism” within the economic profession. He held, in opposition to the followers of Keynes, that capitalism is an inherently stable system. The only serious cause of cyclical instability in a capitalist economy, according to Friedman, is located on the monetary side of the economy. Therefore, Friedman opposed the kind of “stimulus packages” that are now being implemented by various governments around the world.
According to Friedman, the only thing that has to be done to make sure a recession does not get out of hand is for the “monetary authority”—such as the U.S Federal Reserve System, Bank of England or the European Central Bank—to keep the “money supply” growing at a slow and above all steady rate. As long as such policies are followed by the “monetary authority,” Friedman and his followers claimed, the industrial cycle of boom and bust would all but disappear. Until the current crash, this had been the reigning economic dogma in both Washington and London for almost 30 years.