SUPPLY-SIDE HISTORY

Supply-side economics arose as a renegade reform tradition in economic theory in the 1960s. Its two original exponents were Arthur Laffer and Robert Mundell, colleagues on the economics faculties at the University of Chicago from 1967-71. At the hands of Laffer and Mundell, supply-side economics restated classical economics in macroeconomic terms to challenge the main modernist schools of the midcentury, Keynesianism and monetarism. The term “supply-side economics” dates from 1976. Its origins in the scholarship of its founders date from the 1960s and in Mundell’s case the 1950s.

The chief propositions of supply-side economics are that the monetary system should be classical, tax rates should be low, and governmental economic management is illusory given a world economy.

This section of the website offers the beginnings of a comprehensive archival repository, with commentary, of the original elaborations of supply-side economics on the part of Laffer, Mundell, and those with affinities to the supply-side movement in its era of nascence.

Arthur Laffer at OMB, 1970-72

This set of documents pertains to Arthur Laffer’s stint as chief Economist at the Office of Management and Budget from 1970-72. His main notoriety from this position derived from the economic model he developed in 1970, and which confirmed the feasibility of the Council of Economic Advisers (CEA) goal of a “1065” $billion or $1.065 trillion gross national product for 1971. The model demonstrated that monetary policy changes have little but a brief immediate effect on the economy, spending changes barely any more.

The press went wild with the “1065” number, implying that only Laffer’s model justified it. Documentary evidence from the Nixon papers show that the CEA had come up with the 1065 number of its own in the summer of 1970 and furnished it to OMB months later—it was a given number that Laffer then checked in his model.

The Early Laffer Curve, 1974

This is a series of documents recently discovered in Arthur Laffer’s archive. The documents include perhaps the original rendering of the Laffer Curve—made prior to or just contemporaneous with the napkin sketch of circa late 1974.

This series of 32 documents is in the order in which it was discovered in the archive. The first page is of the Laffer curve, derived from the graph an equations above it. The subsequent pages include various extrapolations from this first page, the development of a model, lecture notes, and doodles.

Laffer States His Case in 1967: Growth Solves All Problems

In this 1968 Chicago “Workshop” paper, “An Anti-Traditional Theory of the Balance of Payments Under Fixed Exchange Rates,” Laffer laid down his law. When a country grows relative to the world, it wants more goods and more money. No country is a net money importer for no sound reason throwing everything out-of-whack. The balance of payments is just that, a balance, and there is no crisis. Supply-side economics was born of this contention, championed in the 1960s by Laffer and Mundell.

The Graph That Started the Supply-Side Revolution

Mundell published this graph in 1962, in an effort to bolster the resolve of the Kennedy administration as it contemplated strengthening the gold dollar while cutting tax rates.

Robert A. Mundell, “The Appropriate Use of Monetary and Fiscal Policy for Internal and External Stability,” International Monetary Fund Staff Papers 9, no. 1 (March 1962), 72.