The Monetary Theories of Milton Friedman and J. M. Keynes: A Comparison

For two decades, Milton Friedman has contended that the monetary theory of John Maynard Keynes is highly special, applicable only to conditions of deep depression. He continues to cite Keynes\u27 dependence on a condition of absolute liquidity preference, commonly called the liquidity trap, as the theoretical basis for Keynes\u27 unemployment equilibrium. Friedman believes that Keynes\u27 The General Theory was based on this underlying premise, so that its results are correct only in this special circumstance. Therefore, Friedman contends that Keynes regarded monetary policy as ineffective. Additionally, Friedman criticizes all economists in the Keynesian tradition because they adopt a narrow credit view of monetary policy while his theory is based on a broad monetary view. This study investigates Friedman\u27s charges in reference to Keynes\u27 The General Theory, and in the process a study is made of Keynes\u27 and Friedman\u27s monetary theories. The result is a presentation of the fundamental differences of the two monetary theories. Additionally, Keynes\u27 monetary policy prescriptions from The General Theory are discussed to investigate further any possible basis for Friedman\u27s criticisms