Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

576 Money, Bank Credit, and Economic Cycles5CONCLUSIONFrom the standpoint of our analysis, it is clear that thereare far greater similarities than possible differences betweenmonetarists and Keynesians. Indeed Milton Friedman himselfhas acknowledged: “We all use the Keynesian language andapparatus. None of us any longer accept the initial Keynesianconclusions.” 94 Peter F. Drucker, for his part, indicates thatMilton Friedman is essentially and epistemologically a Keynesian:94 Milton Friedman, Dollars and Deficits (Englewood Cliffs, N.J.: PrenticeHall, 1968), p. 15. The new Keynesians have in turn built on the foundationsof neoclassical microeconomics to justify the existence of wagerigidities in the market. Specifically they have formulated the efficiencywagehypothesis, according to which wages tend to determine aworker’s productivity and not vice versa. See, for example, Robert Gordon,“What is New-Keynesian Economics?” Journal of Economic Literature28 (September 1990); and Lawrence Summers, UnderstandingUnemployment (Cambridge, Mass.: The MIT Press, 1990). Our criticismof the new Keynesians (for whom a more fitting name would be the“new monetarists,” according to Garrison in Time and Money, p. 232)centers on the fact that their models, like those of monetarists, arelargely based on the concepts of equilibrium and maximization, andtheir hypotheses are almost as unreal (experience teaches us that veryoften, if not always, the wages of those talents in greatest demand arethe ones which tend to rise) as those of the new classical economistswho hold the theory of rational expectations. Peter Boettke, in referenceto both schools, concludes:Like rational-expectations theorists who developed elaborate“proofs” of how the (Neo-) Keynesian picture could not betrue, the New Keynesians start with the assumption that itmust be true, and then try to explain how this “reality” mighthave come to be. In the end, then, the New Keynesians are asideological as the Chicago School. In the hands of both, economicsis reduced to a game in which preconceived notionsabout the goodness or badness of markets are decked out inspectacular theory. (See Peter Boettke, “Where Did EconomicsGo Wrong? Modern Economics as a Flight From Reality,”Critical Review 1 [Winter, 1997]: 42–43)