Essay on Keynesian Revolution

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Keynesian Revolution Classical economic theory assumed that a ‘free-market’ economy is a ‘self regulating’ system that continually tends toward a full-employment equilibrium, with optimum economic benefits for everyone. Therefore, the best government economic policy is to ‘excuse itself’ and give utmost freedom to individual enterprise. A key element of the ‘Keynesian revolution’ was its demonstration that these basic assumptions are false, both in theory and practice, and its assertion that, therefore, the most appropriate government macro-economic policy is to view the whole economy as if it were a single huge business enterprise which needs to be managed as one. In any individual business enterprise, a basic tool of …show more content…
Amazingly, some of its adversaries that challenged the intellectual claims of the Monetarist controversy - bearing in mind, it were these experimental issues opposed to the theoretical issues, which divided Monetarists from Keynesians. Nevertheless, the biggest guns of Keynesian macroeconomics (Robert Solow, James Tobin, and many more) that came out to combat a single man with some very compelling ideas, Milton Friedman. Despite the fact that, at this time it would be hard to find any single economist, who did not have an opinion on theories.

Monetarism is acknowledged as a Neoclassical “counter-revolution” to the prevailing Keynesian Revolution. Friedman 's model explores the 'internal' logic of these developments by examining the sociology of economic knowledge construction and destruction. From here Monetarism was a powerful intellectual revolution, which has left an indelible imprint on macroeconomics and economic policy forever. Or was it just a fad? Whatever your conclusion, there can be no doubt that the “Monetarist counter-revolution” that raged in economics has been one of the most fervently contested battles in ‘modern’ economics.

The great “counter-revolutionary” contribution was the introduction of the natural rate hypothesis by Friedman and Phelps. More specifically, it led to the interpretation of other ‘anti-Keynesian’ contributions by the Monetarists, such as the Phillips Curve and the “St. Louis”
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