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Economic policy as expectations management: Keynes’ and Friedman's complementary approaches

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  • Sylvie Rivot

Abstract

We investigate how Keynes and Friedman, respectively, address the issue of the disequilibria at stake in a monetary economy through a shared concern for the formation of expectations. We show that Keynes was interested in the coordination of long-term expectations regarding non-monetary assets prospective yields, while Friedman focused on the adaptation of short-term nominal expectations. Regarding the remedies to these disequilibria, both economists called for devices that aim to stabilise market expectations. As a direct outcome, Keynes designed policies that aim to stabilise the long-term state of expectations while Friedman basically aimed at the acceleration of the competitive adjustment process.

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  • Sylvie Rivot, 2017. "Economic policy as expectations management: Keynes’ and Friedman's complementary approaches," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 24(5), pages 1053-1084, September.
    • Handle: RePEc:taf:eujhet:v:24:y:2017:i:5:p:1053-1084
    DOI: 10.1080/09672567.2017.1323939
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    References listed on IDEAS

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    1. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1.
    2. Milton Friedman & Anna J. Schwartz, 1982. "Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867–1975," NBER Books, National Bureau of Economic Research, Inc, number frie82-2.
    3. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    4. Mark Hayes, 2006. "The Economics of Keynes: A New Guide to The General Theory," Books, Post Keynesian Economics Society (PKES), number nggt.
    5. M. G. Hayes, 2006. "The Economics of Keynes," Books, Edward Elgar Publishing, number 12601.
    6. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
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    1. Rivot, Sylvie, 2021. "Reading Keynes’s policy papers through the prism of his Treatise on Probability: information, expectations and revision of probabilities in economic policy," OSF Preprints s5qp9, Center for Open Science.
    2. Haan, Peter & Peichl, Andreas & Schrenker, Annekatrin & Weizsäcker, Georg & Winter, Joachim, 2022. "Expectation management of policy leaders: Evidence from COVID-19," Journal of Public Economics, Elsevier, vol. 209(C).

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