The Revival of Laissez-Faire in American Macroeconomic Theory

The Revival of Laissez-Faire in American Macroeconomic Theory

A Case Study of the Pioneers

Sherryl Davis Kasper

This book provides the definitive account of this watershed and traces the evolution of laissez-faire using the cases of its proponents, Frank Knight, Henry Simons, Friedrich von Hayek, Milton Friedman, James Buchanan and Robert Lucas. By elucidating the pre-analytical framework of their writings, Sherryl Kasper accounts for the ideological influence of these pioneers on theoretical work, and illustrates that they played a primary role in founding the theoretical and philosophical use of rules as the basis of macroeconomic policy. A case study of the way in which interwar pluralism transcended to postwar neoclassicism is also featured.

Chapter 3: Henry Calvert Simons, Author of the Blueprint

Sherryl Davis Kasper

Subjects: economics and finance, austrian economics, economic psychology, history of economic thought


In the revival of laissez-faire, Henry Calvert Simons (1899–1946) emerges as influential in two ways. First, he created ‘A Positive Program for Laissez Faire’, that his student George Stigler later characterized as ‘his lucid blueprint of the good society’ (Stigler 1988, p. 139). Written in 1934, this blueprint offered a set of interrelated policy recommendations designed to reconstruct the devastated American economy in a fashion that would save its organizing principle of classical liberalism. Particular aspects of the blueprint, including the institution of a legislated rule for monetary policy, the recommendation of competitive markets as the superior mode of resource allocation and the importance of free trade, remain central features of Chicago economics. The publication of the ‘Positive Program’ also provided the initial example of the sociological role Simons took on in the revival of laissez-faire, that of advocate and organizer. With the ‘Positive Program’, Simons offered supporters of laissez-faire as potent a call for action as that possessed by contemporary proponents for social control. As Don Patinkin later described, the ‘Positive Program’ combined ‘the same qualities that made Marxism so appealing to many other people at the time: simplicity together with apparent logical completeness; idealism combined with radicalism’ (Patinkin 1981, p. 4). A decade after publication of the ‘Positive Program’, Simons continued as advocate and organizer with his proposal to set up an ‘Institute of Political Economy’ at the University of Chicago, which ‘would preserve and promote the “traditional-liberal political philosophy” of “Chicago economics” ’ (Bowler 1974, p....

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