Compare and Contrast the Way Keynes and Friedman Approach the Economy

Topics: Keynesian economics, Great Depression, Milton Friedman Pages: 3 (695 words) Published: May 27, 2010
John Keynes and Milton Friedman were the most influential economists of the 20th century. Friedman spent much of his intellectual energy attacking the legacy of Keynes, it is natural to consider them opposites. Their differences were, indeed, profound and so was what they shared. Believe it or not, neither won or lost: today's policy orthodoxies are a synthesis of their two approaches.( July 19, 2009)

Some of there key differences were Keynes thought the great depression caused the free market to fail; Friedman decided, instead, that the Federal Reserve had failed. Keynes trusted in discretion for sophisticated mandarins like himself; Friedman believed that the only safe government was one bound by tight rules. Keynes thought that capitalism needed to be in fetters; Friedman thought it would benefit to be left alone. Their differences were self-evident. But so were their similarities. ( July 19, 2009)

Some of their key similarities were that they both were brilliant journalists, debaters and promoters of their own ideas; both saw the great depression as, at bottom, a crisis of inadequate aggregate demand; both wrote in favour of floating exchange rates and so of fiat (or government-made) money; and both were on the side of freedom in the great ideological struggle of the 20th century.( July 19, 2009)

Keynesians believe that the interest rate is determined by the supply of and demand for money. Monetarists believe that the interest rate is determined by the supply of and demand for loanable funds, a market which faithfully reflects actual opportunities and constraints in the investment sector. 

As a consequence, when the Great Depression ended economists concluded that an expansive monetary and fiscal policy, which had been advocated by economist John Maynard Keynes throughout the 1930s, was the key to getting out of a depression. Keynes was right, but many of his followers...
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