Source: Composite image by G_marius based on Keystone and The Friedman Foundation for Educational Choice's images
Keynes and Friedman are the most influential economists of the 20th century. We compare Monetarism vs Keynesianism. Join our poll and debate
Keynes vs Friedman
John Maynard Keynes (1883-1946) was a British economist and is considered one of the founders of modern macroeconomics. Keynsian economics show that in the short run, especially during recessions, economic output is strongly influenced by total spending in the economy. Keynes' theories were extremely influential from the Great Depression to the oil shocks in the 1970s. Milton Friedman (1912-2006) was an American economist and statistician who led the famous Chicago School of economics at the University of Chicago. Friedman challenged some of the Keynesian theories proposing an alternative macroeconomic policy known as "monetarism" which advices focusing on controlling monetary supply. Friedman's theories have strongly influenced policy contributing to a change of paradigm away from Keynesian economics. Nonetheless, the advent of the recent global financial crisis has led to a resurgence of Keynesian ideas.
Main contributions by John Maynard Keynes:
- Keynes challenged the prevailing paradigm according to which free markets would automatically provide full employment, and underlined the important role of government spending in achieving economic growth.
- He demonstrated that the aggregated demand (household, business and government spending) is the most important driving force in an economy.
- Keynes showed that wages and prices respond slowly to changes in demand and supply
- Keynes argued that free markets had no self-balancing mechanisms, which justifies government intervention to achieve stability and full employment.
- Keynes defended expansionary fiscal policy (increases in net public spending) as driver of economic growth and criticized excessive saving.
Milton Friedman's core arguments:
- Friedman challenged the dominance of Keynesian economics by suggesting money supply and prices are more important for economic prosperity than government spending.
- Friedman explained the dangers of collectivism and defended the virtues of free-markets and capitalism.
- For him, the main functions governments should play in the economy would be: controlling the money supply and keeping inflation in check.
- Friedman warned of the dangers of deflationary spirals in the case central banks are unable to supply enough money during a liquidity cruch.
- Milton Friedman also opposed the gold standard and his ideas contributed to its replacement.
It is undeniable that both of these economists have left strong legacies in social science research; their ideas have shaped economic policies for many decades all over the world.
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Keynes vs Friedman: who was the most influential economist?
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