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The Legacy of Keynes and Friedman.

Numerous books, monographs, and proceedings have appeared over the last four decades encompassing the theories and legacies of John Maynard Keynes and Milton Friedman. This book is a welcome addition to the long list of books on the two schools of economic thought, as it offers new insights through comparisons and contrasts in a style that can be comprehended by laypersons and appreciated by specialists. In one volume the author has succeeded in providing a well-balanced and comprehensive analysis of the philosophies of Keynes and Friedman.

William Frazer, the author, is an eminent economist with numerous scholarly publications to his credit. The author is considered an authority on the economic philosophies of Keynes and Friedman. He has thoroughly investigated the works of these two economists for several decades. In addition to examining the works of Keynes and Friedman, the author also provides a thorough analysis of the works of other eminent economists who fall into one of five categories: independent thinkers, followers of Friedman, critiques of Friedman, followers of Keynes, and critiques of Keynes.

The forces of market demand and supply appear to determine and deliver the optimal values of economic variables such as GNP, employment, interest rate, price level, and the exchange rate. Economic efficiency is greatly retarded by interventionary actions of governments and central banks. How far should these two entities be allowed to interfere with the functioning of a market economy. In presenting the views of monetarists and fiscalists, and weighing the pros and cons of various policy-related issues, the book will prove to be quite helpful for the policymakers of the former Eastern Bloc countries who are looking toward the West for help to lay down the strong foundations of a market-based economy. The author has presented the views and economic models of Keynes and Friedman with such a lucidity that it can even be followed by the general public who have had no formal academic training in economics. Yet the accompanying analysis has sufficient rigor to challenge the minds of even highly trained economists.

The book is comprised of nine chapters: Introduction; Neoclassical Economics and the Monetary Revolution; Microeconomics, the Revolution, and Ideology; Some Monetary Mechanics and History, the State, and International Dimensions; Keynesian Mechanics: Deficits, Motion, and Time; Keynesian Variables, Growth and Time Preference for Income; Production, Wages, and Prices; From Long Waves to Current Anticipations; and Explaining and Eliminating Turning Points. In the reference section, five of Keynes's writings and seventeen of Friedman's writings are included.

A layperson would want to know whether any given economic model fairly represents reality. Does the academic sophistication of a model confuse policymakers, leading to unwarranted economic decisions? Alfred Marshall laid down the basic foundations of the political economy; Friedman and Keynes reacted quite differently to his philosophy. Chapter 1 methodically introduces the chronological formation of the economic philosophies of the two academic giants, Keynes and Friedman. It introduces the key features of Friedman's economics and his approach to analyzing economic data, and it compares and contrasts Friedman's stand on the role of the government with that of the fundamentalists. Historical perspectives on neoclassical economics and the monetary revolution are presented in Chapter 2. The concepts analyzed in this chapter include liquidity preference theory, sticky prices and money demand, liquidity preference with motion, monetary trends, money, and separation effects. The polity and the theoretic positions of micro-fundamentalists, macro-fundamentalists, and Friedman are extensively discussed in Chapter 3. The author provides such intricate details of the various concepts of microeconomics and monetary theory as ordinal analysis and relative commodity prices, input prices, production frontier, market shares, profit maximization, perfect market, antitrust, velocity ratio, capital-output ratio, wage share of output, saving-to-income ratio, and labor participation ratio. International monetary theory is presented and analyzed with supporting empirical observations in Chapter 4. The causes and consequences of the recessionary trends of the early 1990s in the U.S., U.K., and Germany are investigated. The author provides a derailed empirical analysis of the emergence of central banks, interest rate targeting, elimination of the gold window, and the emergence of the European Monetary System.

The Keynesian income expansion multiplier process is examined in Chapter 5. This chapter presents the contrasts between the time frameworks of Keynes and Friedman. In discussing money, ideology, and the Keynesian mechanics, the author provides historical and contemporary perspectives on the government budget constraint, classes of financial assets, capital spending, interest rate and investment behavior, and the determinants of consumption behavior.

Within the Keynesian framework, a lucid analysis of the growth of, and the time preference for, income has been provided in Chapter 6. The specialists in the field of economics will find this chapter quite engaging, as it covers a vast array of economic concepts and issues that include: static utility of income, consumption function, certainty equivalence, risk preference, permanent income function, consumption function with motion, income distribution, real interest rate, durable goods and installment debt.

An analysis of the relationship between unemployment and inflation rates has been presented in Chapter 7. Friedman's and Phillips' views of this relationship are compared. The author presents the views of Friedman and Phillips on the relationship between price and the ratio of output to capacity output. The issue is whether this relationship is positive or negative. The author elaborates on inflationary spirals with monetary accommodation. Chapter 7 also provides an interesting examination of the difference between growth rates for nominal wages and productivity. The IS-LM analysis is introduced along with the extended Keynesian system and the great ratios.

In Chapters 8 and 9, the author provides an open-ended analytical model with a broader perspective on long economic waves and turning points. The combined multiplier and acceleration model with appropriate difference equations is explicitly defined. Turning points in terms of expectations are explained.

The book is timely, well written, and accompanied with an exhaustive list of the works of Keynes, Friedman, and other prominent economists. Each chapter has a supplementary list of explanatory endnotes. This book would be an excellent component of a well-balanced business curriculum, and is a "must read" for economists and policymakers.

Kashi Nath Tiwari Kennesaw State College
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Author:Tiwari, Kashi Nath
Publication:Southern Economic Journal
Article Type:Book Review
Date:Jan 1, 1996
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