Rifle

The issues at stake in the debate about the role and effectiveness of fiscal policy strike at the heart of the theory and practise of macroeconomic management. The enduring bequest of the Keynesian revolution was a belief that governments could exert a close control over the level of aggregate demand, and hence the volume of output and employment, by controlling the balance of its own budget. If demand was insufficient to support some desirable level of economic activity, then governments should spend more than they received in tax and other revenues and run a budget deficit. If demand was excessive, then the balance should be changed so that the budget was in surplus. This belief, and the optimistic gloss it gave to the making of economic policy, has been under seige for more than a decade by the forces of the monetarist counter-revolution armed with the modern quantity theory of money, their resolve strengthened by the unhappy econo mic experiences of the 1970s. That some believe the besiegers to have been victorious is attested by the proliferation of papers with titles in the vein of 'Does Fiscal Policy Matter? (Blinder and Solow, 1973) and 'Is Fiscal Policy Dead? (Peacock and Shaw, 1978); but the conviction of the besieged that they have relinquished, at most, only some relatively unimportant outworks is often to be found eloquently expressed in the text that accompanies these titles.