John Maynard Keynes, Milton Friedman, and F.A. Hayek Compared


By Jonathan Mariano
Three of the most influential economists include John Maynard Keynes, Milton Friedman, and F.A. Hayek. Keynes and Friedman are typically viewed as opposing, rather than supporting each others views. Hayek often gets overlooked, although is becoming prominent once again, as of the last boom and bust. It’s interesting to note the overlap and differences between the three economists.

Keynes vs. (Friedman + Hayek) on Markets
When it comes to markets, Keynes suggests interventionism from the government, and Friedman + Hayek usually suggest free markets with little, if any government involvement.

(Keynes vs. Hayek) vs. Friedman on Monetary Policy
Friedman suggests that monetary policy, controlling the money supply, can help smooth out recessions. On the other hand, Keynes suggests monetary policy plays little role in stimulating the economy and aggregate demand. Rather, Keynes’ solution is spending by government. Hayek is adamantly opposed to monetary policy, as he thinks its implementation is what causes boom-bust cycles in the first place.

Keynes vs. (Friedman vs. Hayek) on Fiscal Policy
Keynes suggests fiscal policy to help prime the pump to recovery after a recession, where government stimulus packages prop up the economy. Friedman and Hayek oppose such intervention on the basis of interfering with the market process. Hayek takes a stronger stance against any such intervention.

(Keynes + Friedman) vs. Hayek
If we look at interventions government has taken to help “stimulate” the economy, the actions are more akin to the economics of Keynes and Friedman, where Congress passes stimulus packages, and the Central Bank inflates the money supply. Mainstream economics is a hybrid of the Keynes and Friedman approach. However, from Hayek’s view, the actions of a “stimulus” and inflation sow the seeds to next bust. In one respect, Friedman is a “Keynesian”, but in another he is not.

The free market usually gets associated with Friedman, but not all free market folks follow Friedman’s economics. Many free market economists follow Hayek’s vision of economics, Austrian Economics. Austrian Economics rarely uses any mathematics, but seeks to understand human action. It takes into account the human element of economics. If one is interested in understanding booms and busts from this perspective, Roger Garrison, has a slide show which depicts a model of sustainable economic growth, based on the Hayek’s Nobel Prize winning work. Also, view this music video which contrasts the Keynes versus Hayek boom-bust models.

Regardless if we disagree with the thoughts on markets, economics, or policy of Keynes, Friedman, and/or Hayek, it is interesting to note their areas of agreement, and their respective visions towards a sustainable economy.
Additional Resources

Garrison, R. (1992)Is Milton Friedman a Keynesian?in Mark Skousen, ed., Dissent on Keynes: A Critical Appraisal of Keynesian Economics, New York: Praeger Publishers, 1992, pp. 131-147.
Garrison, R. (2002). Business Cycles: Austrian Approach . Auburn University. Retrieved March 21, 2010, from
Garrison, R. (2004). From Keynes to Hayek: The Marvel of Thriving Macroeconomics.
Garrison, R. (2007). Hayek and Friedman: Head to Head. SEA Meeting: New Orleans. Retrieved March 21, 2010, from
Mariano, Jonathan (2010).  Business Cycles: Symptoms vs. Causes.  Austrian Scholars Conference 2010, Mises Institute.  Retrieved March 21, 2010, from
Papola, John (2010). Fear the Boom and Bust.  Retrieved March 21, 2010, from


Jonathan Mariano is an MBA candidate with the Presidio Graduate School in San Francisco, CA. His background ranges the spectrum from co-founding an internet startup, to leading technological change for an established nationwide home builder. His interests include the convergence between lean & green and pursuing free-market based sustainable solutions.

The Presidio Buzz is an ongoing project by MBA and MPA students and alumni of the Presidio Graduate School. Please click here to be directed to the main Presidio Buzz page.

15 responses

    1. IMHO, there is a bit of overlap, depending on the POV. If we take into account behavior as human action and understanding economics through action, then there may be crossover. However, if we are looking at motivations for behavior, then there is very little in common.

    2. No. Behavioral microeconomics are done in such a way that actual empirical evidence comes into play. Hayek analysis wasn’t driving by either microeconomics or macroeconomics points and data but on market fundamentalist, he was an ideologue not an economist (Friedman had a little of an ideologue, but he was a great economist too, Keynes was a great economist, probably the best of all), kinda like Marx was, but in the opposite side.

  1. Is there ever going to be one right answer? If so, what do you think it would take to convince people of that truth? Seems like the only way is always going to be going through the experience yourself, while truly understanding what solve the problem. A tough battle to fight.

    1. Perhaps the running joke will provide insight: “Economics is the only field in which two people can share a Nobel Prize for saying opposing things.” Or perhaps not;).

      In terms of convincing folks of the veracity of any of these economist ideas (or any piece of knowledge), IMHO, it's important to understand the multitude epistemological approaches, and how each is useful (or not so useful) in terms of economics (or any field of study). In essence, understanding the question, “how do we know what we know?”

  2. i was reminded of an article i read a while back about how economic thought goes through phases. a particular thinker may be in vogue then another. which is an interesting observation in that the traditional sciences don't do that and it highlights that economics is much more akin to the humanities than to the sciences, despite the gilded math.

  3. Interesting views. I wonder how these economists would approach our current state of affairs…

    1. IIRC, each of these economist would have divergent views, when it comes to handling the recession.

      Currently, the government has provided bailouts and stimulus packages, and the Federal Reserve has increased the money supply via the interest rate. Keynes would be an advocate for the former, and Friedman would be an advocate for the latter. Both of these attempt to cure the recession.

      Hayek would disagree with both these strategies, because in his view, it does not cure the recession, but sets the seeds for the next one. Money is being allocated to places it would have never gone, thus causing malinvestment and the next bust.

  4. I think there are some obvious commonalities between Keynes and the Austrians in terms of perceiving the LONG-term necessity of savings, though the mechanism by which savings fuels growth is, I think, explained differently. And of course, modern Keynsians generally accept that monetary policy can be effective — and faster — than fiscal policy, so long as you aren't in a liquidity trap (with the interest rate consistent with both full employment and stable inflation having fallen below zero). I'm not sure how useful these overlaps are, though. They're interesting, but from a pragmatic perspective, I think the most important question remains: what do you DO, when the economy tanks, and at that point, the theories diverge to become mostly irreconcilable.

    I think the more interesting area of agreement, currently, is around banking regulation, where Keynsians and Austrians can probably agree that there are good arguments, from either theory, for limiting leverage, and maybe even limiting the absolute size of each bank's assets (including those of subsidiaries, using the recently-broadened FASB definition of subsidiaries, which has made it a lot harder to pull Enron-esque off-balance-sheet financing shenanigans). I do wonder how the Austrians would feel about current efforts to make derivatives trading more transparent, as was discussed between myself, John Katovich, and a few other posters, on a recent thread over at the Presidio boards.

    1. I don't disagree that neo-Keynesians accept monetary policy as effective. There are so many nuances and schools of thought, it would have been overwhelming to for the typical reader. IMHO, it is useful to know where these theories diverge. But more so, it is important to know which theories have been applied and continue to fail, and which have been suppressed.

      On banking “regulation”, there may be consensus for “limiting” leverage or “limiting” bank's assets, but the method of which it is done is where Keynesians and Austrians diverge. Austrians would argue that the free market, as a process, is the best at “regulating” banking. A free market encompasses free exchange, free entry, free exit, and property rights. In the current state of affairs, property rights are not respected in the form of fiat money. “Regulation” and “limiting” leverage or bank's assets occurs when a bank has the option to fail, ie no bailouts. Different choices are made when there is the ability to fail.

  5. It seems as though our economic system might be outdated. It could be time to look at alternative economic theories. Concerning sustainability, it would be interesting to see the fusion of models mentioned in the article with ecological economics. In addition, economic models might benefit from measuring variables qualitatively instead of always quantitatively.

  6. It seems as though our economic system might be outdated. It could be time to look at alternative economic theories. Concerning sustainability, it would be interesting to see the fusion of models mentioned in the article with ecological economics. In addition, economic models might benefit from measuring variables qualitatively instead of always quantitatively.

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