By Sylvie Rivot
The 2008 quandary has revived debates at the relevance of laissez-faire, and hence at the position of the kingdom in a latest economic system. This quantity bargains a brand new exploration of the writings of Keynes and Friedman in this subject, highlighting not just the transparent issues of competition among them, but in addition the areas within which their matters the place shared.
This quantity argues that the parallel at present made with the 1929 monetary drawback and how the latter changed into the nice melancholy sheds new gentle at the right monetary coverage to be carried out in either the quick- and the long-run in a financial economic climate. In gentle of the new revival in appreciation for Keynes’ principles, Rivot investigates what either Keynes and Friedman needed to say on key matters, together with their respective interpretations of either the 1929 trouble and the good melancholy, their advocacy of the right kind employment coverage, and the theoretical underpinnings of the latter. The booklet asks which classes will be learnt from the Thirties? and what's the relevance of Keynes’ and Friedman’s respective pleas for this present day?
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Additional info for Keynes and Friedman on Laissez-Faire and Planning: Where to draw the line?
In the General Theory Keynes argues that during the expansion money wages rise as employment rises. . essentially a struggle to maintain a high relative wage, this struggle is likely, as employment increases, to be intensified in each individual case both because the bargaining position of the worker is improved and because the diminished marginal utility of his wage and his improved financial margin make him readier to run risks. 19 Hence, the initial Phillips curve that links together variations in unemployment rate and variations in money-wage rates does not take the specificities of Keynes’ dynamics between employment and wages into account.
Friedman also clearly shares Keynes’ concern for transitory measures to a peacetime economy: how to release enough purchasing power in the short run to meet growing production capacities? The Keynesian flavour of Friedman’s papers appears even more strikingly in the following quotation: This ‘inflationary gap’ analysis does not give any specific technique for determining the rise in income or in prices that will be associated with a given increase in government expenditures. At the same time, it seems exceedingly valuable.
Following the empirical work undertaken by Phillips, the very first paper that launched the policy exploitation of the Phillips curve is the famous paper by Samuelson and Solow in 1960, in which the reader does find the well-known transformed Phillips curve linking together the unemployment and the inflation rates. But Samuelson and Solow clearly acknowledge that the relevance of their relation is limited to the short run: the curve is very likely to shift in the next few years, because of changes in expectations and because of the policies undergone.
Keynes and Friedman on Laissez-Faire and Planning: Where to draw the line? by Sylvie Rivot