John Maynard Keynes was born in Cambridge 1883 in a British family. He attended King’s college and got mathematics degree in 1905. Keynes got his first career with the civil service in Britain. During this time period, he got effective resources for his first book named Indian Currency and Finance. It was about the way of India’s monetary system works. In 1936, Keynes published General Theory of Employment, Interest and Money revolutionised economic thinking. Therefore, he believed that stimulating public investment, which was in terms of government spending could possibly help to achieve full employment and pull the economy out of depression. Furthermore, Keynes advocated government intervention to resolve low aggregate demand in order to reduce unemployment. Keynesian economic theory was interested in short run aggregate demand changes, which was being recognised as a “D-side” theory. This was due to Keynes belief in decline in aggregate demand for goods causes unemployment during the Great Depression. Therefore, the potential output is unable to be bought up. The theory strongly encouraged government spending to stimulate economic activity. The government is a vital component to adjust the demand for goods and services of the nation for a country having pleasant economic condition (“John Maynard”).
Milton Friedman was born in New York City in a Jewish family. In 1946, he received a doctor degree from Columbia University. Friedman was awarded the Economics Noble Prize in 1976. Monetarism was the views carried out by Friedman, which was being well known. He came up an idea with “the price level depends on the money supply”. By adjusting the interest rate, it can control the “money supply”. The ideology suggests the government should keep the “money supply” fairly steady to stimulate the expansion of economy and also achieve stable price level. In 1956, Friedman published a book named Studies in the Quantity Theory of Money. When monetary growth increases so does the price level but there would be a lack of impact on the total output. This is what Friedman believed would happen in the long run. Besides, increase in monetary growth will reduce unemployment rate but also increase the total output in the short run, vice versa. However, Friedman believed in order to stabilise low unemployment rate, the continued acceleration in inflation rate was the key.
Friedrich Hayek was an Austrian economist and he was born in 1899. Hayek taught in the London School of Economics from 1950 to 1962. In 1974, with Gunnar Myrdal, they were awarded Noble Prize in Economic Sciences. They focused on studying economics fluctuations and the theory of money. Hayek was a vital member of “The Austrian School of Economics”. The thought was based on individualism. Hayek believed economy has natural forces and it will work out on its own. “‘The market was a spontaneous order.’ said by Hayek”. Without any interference, the market is the result of individual decisions and actions. Therefore, there should be completely no government intervention in Hayek’s opinions. However, the market does not work out perfectly to what people hope to see. Hayek was convinced that there was inefficient coordination but would be corrected in the economy so free market works out the best. In 1944, Hayek published The Road to Serfdom and the target audience was British people. He claimed that it was no good for the government controlling the economy. The action was not benefitting anyone at all.
Personally, I think I mostly agree with Milton Friedman’s idea among the three economists. Friedman’s idea is more ration because it encourages some government intervention and also considers the impact of inflation rate. The moderated money supply will still lead to inflation. However, the increase in total output and reduced unemployment can offset the consequence of raising price level. It can also impact the economy faster and less political factors involve. Some government will even set target inflation rates to stabilise inflation rate. The end result is closer for achieving a win-win so I am more in favour of this ideology. From Keynesian’s theory, the government should intervene and increase their spending. The priority would be increasing the total output and lower the unemployment rate. The greater inflation rate would be another side effect as the price level has been raised when AD curve has been continuously shifted out. However, when government increases spending and prints more money, the interest rate will increase so people would rather save than spend, which lead to leakages in the business cycle. It will also discourage private investments. Therefore, Keynesian’s theory does not make a lot of sense to me. For Hayek, he suggested the economy should be market-based completely. However, sometimes government spending could be good when GDP is below the capacity. Government spending would be helpful to make GDP to achieve efficiency, right on the curve of PPF.
