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Originator

There is no specific "creator" many people have helped to evolve todays consensus.

Ideas

Monetary policy is ineffective only in the case of a
liquidity trap.

Monetary policy should play the main role in stabilization policy.

The central bank should be independent, insulated from political pressures, in order to avoid a political business cycle.

Discretionary fiscal policy should be used sparingly, both because of policy lags and because of the risks of a political business cycle.

Policy Applications

Expansionary monetary policy is helpful in
fighting recessions except in in special circumstances, while expansionary
fiscal policy is “always” effective.

Monetary and/or fiscal policy will not reduce
unemployment in the long run.

Fiscal policy should not be used in a
discretionary way except in special circumstances, while monetary policy being
used in this way is still in dispute.

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Originators

Milton Friedman

Anna Schwartz

Ideas

GDP will grow steadily if the money supply grows
steadily.

Supports the prescription to have the central
bank target a constant rate of growth of the money supply.

Also supports to maintain the above target
regardless of any fluctuations in the economy.

Trying to smooth the business cycle is not
really good.

Historical perspective

This policy looked backed on the Great
Depression and tried to show some things that should have been done.

Believes that expansionary policy should have
been used more during the depression.

Policy Applications

Expansionary monetary policy is helpful in
fighting recessions, while expansionary fiscal policy is not effective.

Monetary and/or fiscal policy will not reduce
unemployment in the long run.

Fiscal and monetary policy should not be used in
a discretionary way.

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Originators

John Maynard Keynes

Ideas

Relies upon spending and aggregate demand to
define the economic marketplace.

It is believed that aggregate demand is often
influenced by public and private decisions.

Public decisions represent government agencies
and municipalities.

Private decisions include individuals and
businesses in the economic marketplace.

Relies heavily on the fact that monetary policy
can affect a economy.

Historical perspective

Came about during the Great Depression.

Keynes's ideas became widely accepted after
World War II and this lasted until the early 1970s.

Provided the main inspiration for economic
policy makers in Western industrialized countries.

Governments prepared high quality economic
statistics on an ongoing basis and tried to base their policies on the
Keynesian theory that had become the norm.

In the early era of new liberalism and social
democracy, most western capitalist countries enjoyed low, stable unemployment
and modest inflation.

This
was an era called the Golden Age of Capitalism.

Policy Applications

Expansionary monetary policy is not considered
very helpful in fighting recessions while expansionary fiscal policy is.

Monetary and/or fiscal policy is considered to
help reduce unemployment in the long run.

Fiscal and monetary policy should be used in a
discretionary way.

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Originators

Adam Smith

Jean-Baptiste Say

David Ricardo

Thomas Malthus

Jon Stuart Mill

Ideas

Rooted in the concept of a laissez-faire
economic market.

Also known as a free market.

A market requires little to no government intervention.

Allows individuals to act according to their own
self-interest regarding economic decisions.

Ensures economic resources are allocated
according to desires of individuals and businesses in the marketplace.

Value is determined by production output,
technology, and wages paid to produce the item.

Historical perspective

Economists were producing their
"magnificent dynamics" during a period in which capitalism was
emerging from feudalism.

The industrial revolution was leading to vast
changes in society.

These changes raised the question of how a
society could be organized around a system in which every individual sought his
or her own monetary gain.

Policy

Expansionary monetary and fiscal policy are not
considered helpful in fighting recessions.

Monetary and/or fiscal policy reduce
unemployment in the long run.

Fiscal and monetary policy should not be used in
a discretionary way.