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Milton Friedman on Keynes and the economics profession

Some years ago, I remarked to a journalist from Time magazine, “We are all Keynesians now; no one is any longer a Keynesian.” In regrettable journalist fashion, Time quoted the first half of what I still believe to be the truth, omitting the second half. We all use Keynesian terminology; we all use many of the analytical details of the General Theory; we all accept at least a large part of the changed agenda for analysis and research that the General Theory introduced. However, no one accepts the basic substantive conclusions of the book, no one regards its implicit separation of nominal from real magnitudes as possible or desirable, even as an analytical first approximation, or its analytical core as providing a true “general theory.”

Context. From his essay on John Maynard Keynes, written for the volume of commentaries accompanying a 1989 German facsimile edition of Keynes’s General Theory (1936) and published in English by the Federal Reserve Bank of Richmond in 1997. Here he describes how the General Theory’s influence on economists had changed since it appeared.

John Maynard Keynes
Journal article, 1997, Federal Reserve Bank of Richmond, Economic Quarterly, vol. 83, no. 2 (Spring 1997), pp. 1 to 23; first published in German translation in 1989, in the commentaries accompanying a facsimile edition of the General Theory (Verlag Wirtschaft und Finanzen, Düsseldorf)., p. 6
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Milton Friedman, “John Maynard Keynes” (Federal Reserve Bank of Richmond, Economic Quarterly, vol. 83, no. 2 (Spring 1997), pp. 1 to 23; first published in German translation in 1989, in the commentaries accompanying a facsimile edition of the General Theory (Verlag Wirtschaft und Finanzen, Düsseldorf)., 1997), p. 6. https://miltonfriedman.org/quotes/we-are-all-keynesians-now-no-one-a-keynesian-1997

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He also said

  1. I conclude that Keynes’s political bequest has done far more harm than his economic bequest and this for two reasons. First, whatever the economic analysis, benevolent dictatorship is likely sooner or later to lead to a totalitarian society. Second, Keynes’s economic theories appealed to a group far broader than economists primarily because of their link to his political approach.

    Context. From his essay on John Maynard Keynes, written for the volume of commentaries accompanying a 1989 German facsimile edition of Keynes’s General Theory (1936) and published in English by the Federal Reserve Bank of Richmond in 1997. “Benevolent dictatorship” is his name for Keynes’s view that society is best improved by persuading well-meaning officials, chosen for their moral values, to follow economists’ advice.

    John Maynard Keynes
    Journal article, 1997, Federal Reserve Bank of Richmond, Economic Quarterly, vol. 83, no. 2 (Spring 1997), pp. 1 to 23; first published in German translation in 1989, in the commentaries accompanying a facsimile edition of the General Theory (Verlag Wirtschaft und Finanzen, Düsseldorf)., p. 22
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  2. Over the period covered by these data, a drastic change has occurred in the responsibilities undertaken by the state to provide assistance to the aged, unemployed and otherwise dependent. … The conclusion is that, without much more detailed analysis, it is not possible to say whether the net effect of governmental social security and other programs has been to increase or to decrease recorded savings as a fraction of income, let alone by how much.

    Context. Discussing what lies behind the long-run trend in the fraction of income Americans save. The omitted sentences weigh two opposing effects: state assistance reduces the need for private reserves and so private saving, while the data count growth in government pension and retirement funds as personal saving, and those funds have grown by less than the benefits promised.

    A Theory of the Consumption Function
    Book, 1957, Princeton University Press for the National Bureau of Economic Research, Chapter V, “Consistency of the Permanent Income Hypothesis with Existing Evidence on the Relation between Consumption and Income: Time Series Data,” p. 123
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  3. My conclusion is that an automatic commodity standard is neither a feasible nor a desirable solution to the problem of establishing monetary arrangements for a free society. It is not desirable because it would involve a large cost in the form of resources used to produce the monetary commodity. It is not feasible because the mythology and beliefs required to make it effective do not exist.

    Context. From his essay on how a free society should control money, which weighs a commodity standard, an independent central bank, and legislated rules. He enclosed it with his 1968 statement to the House subcommittee, which reprinted it.

    Should There Be an Independent Monetary Authority?
    Journal article, 1962, In Search of a Monetary Constitution, ed. Leland B. Yeager (Harvard University Press, 1962) (the reprint’s heading gives no page range for the original and it remains unverified); reprinted in the Compendium on Monetary Policy Guidelines and Federal Reserve Structure, Subcommittee on Domestic Finance, House Committee on Banking and Currency, December 1968, pp. 205 to 214., p. 206 of the 1968 House reprint
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