Friedman vs. Keynes I. INTRO . II. Milton Friedman A. Historical Background B. View of Economy a. Early Views b. Later Views C. Influence on Policy Makers a. Richard Nixon b. Ronald Reagan III. John Maynard Keynes A. Historical Background B. View of Economy a. Trade b. Unemployment C. Influence on Policy Makers a. Prime Minister David Lloyd George b. Frank D. Roosevelt IV. Conclusion Friedman vs. Keynes The discipline of macroeconomics deals with the performance, structure, and behavior of a national economy as a whole.
Macroeconomists seek to understand the determinants of aggregate trends in an economy with particular focus on national income, unemployment, inflation, investment, and international trade. Milton Friedman and John Maynard Keynes, who was both great economists, embraced the different challenges of the world by imposing their own philosophies. Although both Friedman and Keynes have some similarities, strong disagreements about the monetary arena set them apart. These two gentlemen traveled different paths of economics their whole life to establish ground rules for the government to follow.
The first son of a working class Jewish family, Milton Friedman was born in New York City in the early 1900’s. Milton graduated high school before his 16th birthday and received a scholarship to Rutgers University where he began a specialization in mathematics. Milton’s interest in economics was influenced by two economics professors during his undergraduate studies during the time of the Great Depression (Friedman, 2005). He was convinced that the study of economics could help solve ongoing economic difficulties. Milton graduated with a double major of economics and mathematics.
Milton has been credited as being the most influential economist of the second half on the twentieth century. Though originally a follower of the theories of John Maynard Keynes, Friedman later revoked the ideas of central control after witnessing the effects and moved towards advocating free markets. Friedman’s views of monetary policy, taxation, privatization, deregulation influenced the presidential term of Ronald Reagan in the United States during the 1980’s and Margaret Thatcher in Britain. Friedman served on the committee of economic advisors for President Richard Nixon and was at times nsuccessful at convincing Nixon to accept his advice (Stein, 2006). In addition to the influence on world leaders, Friedman’s impact on economy is also evident in his contribution to the payroll withholding tax system. This system was put in place to counteract tax evasion and tax avoidance either by domestic or international taxpayers. Milton Friedman also advocated for a voluntary military and against a draft. Friedman’s approach to economy and government developed into a laissez-faire view. He defended capitalism and criticized the ideas of the New Deal. John Maynard Keynes was born in Cambridge, England in 1883.
John’s father was a registrar at the University of Cambridge and an economist while John’s mother was one of the first female graduates of the University of Cambridge, and later the mayor of Cambridge. John Maynard Keynes began his studies in mathematics and the classics at King’s College of Cambridge (Reich, 1999). Keynes was strongly influenced by Alfred Marshall to change his academic interests to politics and economics. Upon completion of his undergraduate studies Keynes became a civil servant in India for a spell and later returned to Cambridge to teach economics.
As World War I ensued Keynes returned to government employment and studied relations with war allies. Keynes acted as an economic advisor to Prime Minister David Lloyd George (Reich, 1999). Keynes is best known for his work and theories of prolonged unemployment. In his 1936 publication Keynes’s General Theory of Employment, Interest and Money Keynes explores the competitive capitalist economy that could move the economy toward a state of full employment based on a government sponsored policy.
One could argue that geography, upbringing, and the social era that each economist was at during his professional peak as contributing factors to their differences. Friedman’s ideals appear to be rooted in rules while Keynes believed that policy should be carried out by superior elite. While Friedman believed that the interest is a real phenomenon is determined by the supply of and demand for loaned funds, Keynes would argue against. Keynes would pose that the interest rate is a monetary phenomenon and is determined by the supply of demand for money.
There are obvious differences between Friedman and Keynes, yet there are some underlying similarities in their work. Both of these economists were great advocates of their ideas; both saw the great depression as a crisis due to lack of demand; both wrote in favor of floating exchange rates; and both were on the side of freedom in the great ideological struggle of the 20th century. In addition, both economists believed that capitalism should be preserved and that there were financial policies that could support a reasonable rate of growth (Stein, 2006).
Based on the research that I have conducted I tend to lean towards agreeing with Friedman, though I do not reject all of the concepts presented by Keynes. Friedman’s approach to an unbalanced economy is realistic to what is seen in today’s economy. In following Friedman’s suit, I suspect that the aggregate economic state of the United States today, specifically increasing gas prices and high unemployment, as a result of significant world events. James/ECO-202 Reference Friedman, M. (2005).
Milton Friedman Autobiography; The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1976. Retrieved October 20, 2007, from http://nobelprize. org/nobel_prizes/ economics/laureates/1976/friedman-autobio. html Reich, R. B. (1999, March 29). John Maynard Keynes His radical idea that governments should spend money they don’t have may have saved capitalism [Electronic Version]. Time. Stein, B. (2006, November 27). Milton Friedman, freedom fighter. Retrieved October 20, 2007, from http://www. time. com/time