Most people who are well educated and interested in economics know who Keynes and Friedman are. I keep hearing people mention Keynes in the news lately. Few really understand his theories or his thinking.
What is more important, in my opinion is understanding the difference between Keynes and Friedman (who’s work came a long much later and is more widely accepted).
It interests me that the differences between the two are also basic differences between Liberals and Libertarians/Moderate Conservatives.
I.E. Government is everything to the Liberals, it will provide for our every need and save us from every problem we may encounter. In contrast, Libertarians view government as a necessary evil and believe in personal freedom and less government intervention. Low taxes, small but strong government, limited regulation.
Keynes
Friedman
His framework is based on spending and demand, the determinants of the components of spending, the liquidity-preference theory of short-run interest rates, and the requirement that government make strategic but powerful interventions in the economy to keep it on an even keel and avoid extremes of depression and manic excess.
His theory was one of employment, interest and money.
To Keynes’s framework, Friedman added a theory of prices and inflation, based on the idea of the natural rate of unemployment and the limits of government policy in stabilising the economy around its long-run growth trend — limits beyond which intervention would trigger uncontrollable and destructive inflation.
The experience of the Great Depression led Keynes and his more orthodox successors to greatly underestimatethe role and influence of monetary policy.
Friedman, in a 30-year campaign starting with his and Anna J Schwartz’s “A Monetary History of the United States”, restored the balance.He gave prominence to monetary policy.
Friedman and Keynes both agreed that successful macroeconomic management was necessary — that the private economy on its own might well be subject to unbearable instability — and that strategic, powerful, but limited economic intervention by the government was necessary to maintain stability.
For Keynes, the key was to keep the sum of government spending and private investment stable.
For Friedman the key was to keep the money supply— the amount of purchasing power in readily spendable form in the hands of businesses and households — stable.
Keynes saw himself as the enemy of laissez-faire and an advocate of public management. Clever government officials of goodwill, he thought, could design economic institutions that would be superior to the market — or could at least tweak the market with taxes, subsidies, and regulations to produce superior outcomes. It was simply not the case, Keynes argued, that the private incentives of those active in the marketplace were aligned with the public good. Technocracy was Keynes’s faith: skilled experts designing and fine-tuning institutions out of the goodness of their hearts to make possible general prosperity — as Keynes, indeed, did at BrettonWoods where the World Bank and IMF were created.
In his view, it usually was the case that private market interests were aligned with the public good: episodes of important and significant market failure were the exception, rather than the rule, and laissez-fairewas a good first approximation. Moreover, Friedman believed that even when private interests were not aligned with public interests, governments could not be relied on to fix the problem. Government failures, Friedman argued, were greater and more terrible than market failures. Governments were corrupt, inept. The kinds of people who staffed governments were the kinds of people who liked ordering others around.
A primer on what ‘Keynesian’ really means.
Most people who are well educated and interested in economics know who Keynes and Friedman are. I keep hearing people mention Keynes in the news lately. Few really understand his theories or his thinking.
What is more important, in my opinion is understanding the difference between Keynes and Friedman (who’s work came a long much later and is more widely accepted).
It interests me that the differences between the two are also basic differences between Liberals and Libertarians/Moderate Conservatives.
I.E. Government is everything to the Liberals, it will provide for our every need and save us from every problem we may encounter. In contrast, Libertarians view government as a necessary evil and believe in personal freedom and less government intervention. Low taxes, small but strong government, limited regulation.
Keynes
Friedman
His framework is based on spending and demand, the determinants of the components of spending, the liquidity-preference theory of short-run interest rates, and the requirement that government make strategic but powerful interventions in the economy to keep it on an even keel and avoid extremes of depression and manic excess.
His theory was one of employment, interest and money.
To Keynes’s framework, Friedman added a theory of prices and inflation, based on the idea of the natural rate of unemployment and the limits of government policy in stabilising the economy around its long-run growth trend — limits beyond which intervention would trigger uncontrollable and destructive inflation.
The experience of the Great Depression led Keynes and his more orthodox successors to greatly underestimatethe role and influence of monetary policy.
Friedman, in a 30-year campaign starting with his and Anna J Schwartz’s “A Monetary History of the United States”, restored the balance. He gave prominence to monetary policy.
Friedman and Keynes both agreed that successful macroeconomic management was necessary — that the private economy on its own might well be subject to unbearable instability — and that strategic, powerful, but limited economic intervention by the government was necessary to maintain stability.
For Keynes, the key was to keep the sum of government spending and private investment stable.
For Friedman the key was to keep the money supply— the amount of purchasing power in readily spendable form in the hands of businesses and households — stable.
Keynes saw himself as the enemy of laissez-faire and an advocate of public management. Clever government officials of goodwill, he thought, could design economic institutions that would be superior to the market — or could at least tweak the market with taxes, subsidies, and regulations to produce superior outcomes. It was simply not the case, Keynes argued, that the private incentives of those active in the marketplace were aligned with the public good. Technocracy was Keynes’s faith: skilled experts designing and fine-tuning institutions out of the goodness of their hearts to make possible general prosperity — as Keynes, indeed, did at BrettonWoods where the World Bank and IMF were created.
In his view, it usually was the case that private market interests were aligned with the public good: episodes of important and significant market failure were the exception, rather than the rule, and laissez-fairewas a good first approximation. Moreover, Friedman believed that even when private interests were not aligned with public interests, governments could not be relied on to fix the problem. Government failures, Friedman argued, were greater and more terrible than market failures. Governments were corrupt, inept. The kinds of people who staffed governments were the kinds of people who liked ordering others around.