Keynes’ and Friedman’s Approaches to Economy Compared

Subject: Economics
Pages: 2
Words: 396
Reading time:
2 min

Keynes and Friedman are a bit similar to one another owing to their interests in monetary theory, interventions, and the general way that economies operate. On top of the latter, these two economists were responsible for introducing relatively new and bold ways of looking at macroeconomics hence their recognition both within the US and internationally. In other words, Keynes and Friedman were opposed to the status quo. They both believed that solutions to problems of the economy needed to move away from old schools of thought. These individuals both relied on exceptionally innovative theories in order to make their affirmations.

Despite these seeming consensuses, the latter individuals have been acknowledged as completely opposite and diverse thinkers. Keynes was fundamentally guided by the belief in discretionary government interventions in monetary economics. He asserted that such institutions have the capacity to prevent and mitigate their citizenry from excessive economic fluctuations. This affirmation actually gained support during the Great Depression of the 1930s when the US needed a radical solution to its predicament. Keynes was actually offering a remedy for the government’s inactions at such a time.

On the other hand, Friedman offered a totally different approach to macroeconomics. He asserted that the market has its own way of dealing with fluctuations and the best solution would be for governments to get out of the way and let the economy solve its problems. Given these diverse schools of thought, Friedman and Keynes both had different remedies for dealing with challenges in the economy. In the event of inflation, Keynes suggests that the government should participate through contractionary monetary policy i.e. reduction of the money supply.

This would cause interest rates to increase, expenditures to go down, and hence lower output and prices. On the other hand, Friedman suggests that high inflation is caused by a combination of both high real interest rates as well as highly anticipated inflation rates. He advocates for steady money growth in order to reduce anticipated and real interest rates. Also, on the issue of unemployment, Keynes suggested an immediate government intervention through decreased interest rates hence increased spending, increased output, and employment. Friedman believed that the latter strategy would cause prices and not output to go up. Instead, a fixed target should be set for increasing money with time.