"Milton Friedman on the We-Must-Suffer Caucus:
From Milton Friedman (1972), "Comments on the Critics of 'Milton Friedman's Monetary Framework'":
[Abba] Lerner was trained at the London School of Economics [in the 1930s], where the dominant view was that the depression was an inevitable result of the prior [speculative] boom, that it was deepened by the attempts to prevent prices and wages from falling and firms from going bankrupt, that the monetary authorities had brought on the depression by inflationary policies before the crash and had prolonged it by "easy money" policies thereafter; that the only sound policy was to let the depression run its course, bring down money costs, and eliminate weak and unsound firms.... It was [this] London School (really Austrian) view that I referred to in my "Restatement" when I spoke of "the atrophied and rigid caricature [of the quantity theory] that is so frequently described by the proponents of the new income-expenditure approach and with some justice, to judge by much of the literature on policy that was spawned by the quantity theorists" (Friedman 1969, p. 51).
The intellectual climate at Chicago had been wholly different. My teachers... blamed the monetary and fiscal authorities for permitting banks to fail and the quantity of deposits to decline. Far from preaching the need to let deflation and bankruptcy run their course, they issued repeated pronunciamentos calling for governmental action to stem the deflation-as J. Rennie Davis put it, "Frank H. Knight, Henry Simons, Jacob Viner, and their Chicago colleagues argued throughout the early 1930's for the use of large and continuous deficit budgets to combat the mass unemployment and deflation of the times" (Davis 1968, p. 476). They recommended also "that the Federal Reserve banks systematically pursue open-market operations with the double aim of facilitating necessary government financing aind increasing the liquidity of the banking structure" (Wright 1932, p. 162).... Keynes had nothing to offer those of us who had sat at the feet of Simons, Mints, Knight, and Viner.
It was this view of the quantity theory that I referred to in my "Restatement" as "a more subtle and relevant version, one in which the quantity theory was connected and integrated with general price theory and became a flexible and sensitive tool for interpreting movements in aggregate economic activity and for developing relevant policy prescriptions" (Friedman 1969, p. 52). I do not claim that this more hopeful and "relevant" view was restricted to Chicago. The manifesto from which I have quoted the recommendation for open-market operations was issued at the Harris Foundation lectures held at the University of Chicago in January 1932 and was signed by twelve University of Chicago economists. But there were twelve other signers (including Irving Fisher of Yale, Alvin Hansen of Minnesota, and John H. Williams of Harvard) from nine other institutions.'..."