1970s stagflation discredited Keynesian demand management and empowered monetarism

Evidence

The Great Depression of the interwar years had shaken faith in the capacity of markets to avoid mass unemployment. In response, economists following in the footsteps of John Maynard Keynes emphasized the possibility of far-from-optimal market outcomes and the consequent need for government action to manage overall levels of demand. Their analyses were influential both within the economics profession and among policy makers in many countries. … Gradually, however, disenchantment with Keynesian economics and with government intervention grew. The experience of the 1970s when the tools of such intervention often seemed powerless in the face of escalating inflation combined with faltering growth was a factor in the growing influence of free-market economists such as Milton Friedman of the University of Chicago, with his “monetarist” theory that the cause of inflation lay in over-expansion of the money supply. — Donald MacKenzie, An Engine, Not a Camera, 47

Categorization

• XREF: connects to: The global Keynesian stimulus push lasted barely a year before backsliding — Mark Blyth, Austerity: The History of a Dangerous…, 160; Monetarism mainstreamed Austrian and ordoliberal economic ideas — Mark Blyth, Austerity: The History of a Dangerous…, 412; Monetarists hold that Keynesian stimulus breeds ever-rising inflation — Mark Blyth, Austerity: The History of a Dangerous…, 410 (+7 more)

Broader Connections

• Monetarism displaced Keynesianism through a staged diffusion across elite institutions #expands (0.90)
• Loose monetary policy plus oil shocks triggered the 1973 economic crisis #corroborates (0.80) — David Harvey, The Condition of Postmodernity, 861