84 CAPITALISM AND FREEDOM é f;

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toward the earlier position. Sad to say, none of these shifts can f i

f be said to be based on satisfactory evidence. They have been i; l

based rather on intuitive judgments from crude experience. t j

3; ‘ In co-operation with some of my students, I have done some .’ aP er i

fairly extensive empirical work, for the US. and other coun- l

tries, to get some more satisfactory evidence.2 The results are i

striking. They strongly suggest that the actual outcome will be I:

5 l‘ closer to the quantity theory extreme than to the Keynesian. ” t

g I The judgement that seems justified on the basis of this evidence ‘3 The Role of Government

i It is that the assumed 3100 increase in government expenditures Y: , ‘ j

can on the average be expected to add just about $100 to in- ‘j; In Educatlon

v come, sometimes less, sometimes more. This means that a rise

i . in government expenditures relative to income is not expan- i

sionary in any relevant sense. It may add to money income j

but all of this addition is absorbed by government expendi- ‘ l’

i tures. Private expenditures are unchanged. Since prices are r; I

i likely to rise in the process, or fall less than they otherwise

would, the effect is to leave private expenditures smaller in

3 real terms. Converse propositions hold for a decline in govern- j

ment expenditures.

These conclusions cannot of course be regarded as final. it

fl They are based on the broadest and most comprehensive body i

ll. of evidence I know about, but that body of evidence still leaves l

much to be desired.

l“ One thing is however clear. Whether the views so widely l

accepted about the effects of fiscal policy be right or wrong, F t

they are contradicted by at least one extensive body of evi- ‘ PhMAL SCHOOLING is tOdaY Paid for and almost entirely ad‘ i

dence. I know of no other coherent or organized body of Inlriistercd by government bodies or non-profit institutions. J i

f evidence justifying them. They are part of economic mythol- _ This Sltuation has developed gradually and is now taken SO

ogy, not the demonstrated conclusions of economic analysis or WUCh for granted that little CXpliCit attention is any longer

1′ ‘ quantitative studies. Yet they have wielded immense influence dlteCted to the reasons for the SPeeial treatment of SChOOhhg i

i in securing widespread public backing for far-reaching gov- even 1111 Countries that are Predominantly free ehh’PriSe in L

cmmcntal interference in economic lifc_ organization and philosophy. The result has been an indiscrim-

j ‘ ’Some of the results are contained in Milton Friedman and David Meiselman, .i mate cXtcnSion Of governmental responSibility’

I H The Relative Stability of the Int/esttnent Multiglin and Manett’zry Velocity in the – In “7th Of the principles dCVClOpCd in chapter gOVCII’L

V, g:;:$.State:, 1896-1958 (forthcoming publication of CommiSSion on Money and 3 mental lntcrvcntior} into education can bC rationalized on two r

i groundsThe first is the existence of substantial “neighborhood

V effects, i.e., Circumstances under which the action of one in-

5. d1Vidua] imposes significant costs on other individuals for l

i; , l

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