ABSTRACT OF PAPER
Title: The great divide?: Keynes and Friedman on unemployment and inflation
Author: Rivot Sylvie
Friedman is well-known to be the father of the monetarist counter-revolution. As early as 1948 in his “Monetary and Fiscal Framework for Economic Stability”, he argues in favour of rules rather than discretion for the monetary policy; and he also opposes budget deficit. Later, in his 1968 AER Presidential address, he uses the concept of the “natural rate of unemployment” to reject in the long run the Keynesian trade-off between inflation and unemployment. He even suggests in his Nobel lecture the idea of a positively sloped Phillips curve. The collapse of the Phillips curve then becomes associated with the collapse of the Keynesian short-term macroeconomics itself. The paper aims to analyse the relevance of Friedman’s assault on Keynes. The first issue is to know whether Keynes would have accepted to barter inflation for unemployment. Avoiding ventriloquism and going back to Keynes’ theoretical and political writings, the paper shows that Keynes did take account of “structural unemployment”, to borrow his own words, and that he strongly opposed inflationary remedies against unemployment. In a word, he did not accept to reduce unemployment beyond its “structural” level by aim of a fiscal policy. The second part examines where Keynes would stand in the “rules versus discretion” debate. It is shown that Keynes did not argue in favour of the “fine tuning” of the economy, especially with regard to the monetary policy. He also opposed deficit budgeting and increases of purchasing power of consumers to raise aggregate demand. In a way, his conception of the “socialisation of investment” would induce him to take sides with Friedman against “stop-and-go” policies. Now, our purpose is not to erase the gap between Keynes’ and Friedman’s views, as strong divergences remain beyond the similarities mentioned above. The third part of the paper shows that they did not share the same views neither on the self-adjusting capacity of the economy nor on laissez-faire. Finally, beyond political visions, their differences on the inflation-unemployment dilemma, both on the theoretical and the political ground, follow from their contrasting views on money and the role played by expectations.
Registred web users only can download this paper - Go back
Please note that files available for download have not been checked for viruses. These files have been submitted by authors of the conference to this web site. Conference organisers can't accept any responsibility for damages caused to users by downloading such files.