Economic philosophies Essay

This paper will focus on the contributions of John Maynard Keynes and Milton Friedman to economic philosophies. Keynes is considered by many as the most famous and influential economist. Though having that veneration, a number of economists had been in opposition to the Keynesian school of thought. Among the forefront oppositions to the Keynesian economic philosophy is Milton Friedman, along with his accounts on monetarism. In his â€Å"General Theory of Employment, Interest and Money,† Keynes laid out the foundations of his framework, which nearly all macroeconomists make use of today. This framework finds its basis on spending and demand, the factors that determine the components of spending, the liquidity-preference theory of short-run interest rates, and the necessity of the government to make strategic but powerful interferences in the economy in order to keep it on balance and avoid the extremes of depression, as well as manic excess (Delong, 2006). Keynes’ theory was said to be incomplete as it only deals with interest employment and money. There was no mention on the theory about prices. Friedman introduced the principles of prices and inflation to Keynes’ framework, based on the idea that there exists a natural rate of unemployment. Friedman also made mention of the limitations of government policies have with regard to the stability of the economy, taking into consideration the trend of its long-run growth. Friedman considered these as limits beyond which an intervention from the government would trigger an inflation of uncontrollable and destructive nature (Delong, 2006). The events that took place during the Great Depression made Keynes and his orthodox followers to underestimate the influence and role monetary policies have in making a viable solution (Delong, 2006). Keynesians are inclined to prefer fiscal policy to monetary policies as a tool to influence production and employment. They believed that money has no direct influence. Moreover, they question the power of monetary policies to influence employment and production (McCain, 2007). The Great Depression was indeed considered to be a unique event in history, which called for explanation in terms of events rather than in pursuit for a new line of economic theory. One of the events that took place during the Great Depression was the failure of the money and banking system. Thus, the Great depression illustrates the influence of changing monetary conditions (McCain, 2007). Keynes and Friedman both agreed on the necessity of a superb macroeconomic management. The private economy, when on its own, might be subjected to unbearable instability and that there is a necessity for a powerful, strategic, but limited intervention coming from the government in order to maintain stability within the economy (Delong, 2006). Though having these ideas in agreement, Friedman had been a staunch opposition to some of Keynes’ economic principles. According to Keynes, the key to maintaining economic stability is to keep government spending and private investments on stable grounds. Friedman, on the other hand, opined that the key to economic stability is keeping money supply, i. e. the amount of purchasing power, which are readily available to be spent by businesses and households stable (Delong, 2006).