1. Phillips' 1952 formula for modelling adaptive inflationary expectations had an extremely profound influence - in 1966, it launched the influential phase of the monetarist counter-revolution (the rise of the natural rate of unemployment model and the demise of Keynesianism).

2. Phillips (1953; 1954) demonstrated how flexible prices could generate a dynamically unstable system. 

The expectation that inflation would *not* continue would stabilise the macro-system.

The expectation of ongoing inflation would destabilise the system: "when price expectations operate in this way, therefore, the system ... becomes unstable".      

3. For the history of expectations see Darity, W.J., Leeson, R and Young, W. 2004. *Economics, Economists and Expectations: From Microfoundations to Macroapplications*. Routledge: London.

4. Routh's article is discussed in Leeson, R. 1998. Early Doubts about the Phillips Curve Trade-Off. Journal of the History of Economic Thought March, 20.1: 83-102. 

5. Fixed exchange rates restrain the ability of policy makers to use aggregate demand manipulation to target anything other than fixed rates (they also led to the demand for price and wage controls).  A "maximum of internal monetary independence” implies that policy-makers could break free of this restraint. 

This was one of the fault-lines of the Mont Pelerin Society. When Machlup and Haberler converted to flexible exchange rates, Mises ostracised them. Hayek blamed MPS Chicagoans for the 1970s inflation; with some justification, Friedman blamed a second year MPS member (and his surrogate father), Arthur Burns, chair of the Federal Reserve (1970-78).

For reasons that require an explanation, professional economists continue to blame Phillips and Keynes.

RL

Leeson, R. 1999. Keynes and the Keynesian Phillips Curve. History of Political Economy 31.3, Fall: 494-509. 

----- Original Message -----
From: "James Forder" <[log in to unmask]>
To: [log in to unmask]
Sent: Sunday, 13 April, 2014 9:07:08 AM
Subject: Re: [SHOE] Critiques of Keynesian Economics and the Stimulus

1. Friedman p200 says that flexible exchange rates are 'a means of permitting each country to seek for monetary stability according to its own lights'. It is 'monetary stability', not any point on any tradeoff function that is under discussion there. That this must more or less mean price stability is apparent from the fact that later in the paragraph he says 'If all countries succeeded, the result would be a system of reasonably stable exchange rates...' That would clearly not be the case if they were choosing different points on Phillips curves.

2. Guy Routh, in Economica 1959 vol 26 issue 104, p304 uses the expression 'Phillips curve'. 

3. I think 'learnt about adaptive inflationary expectations from Phillips' means merely that Phillips may have suggested a particular formula for modelling expectations, rather than anything more profound. The idea that expectations of the future would change according to recent experience was hardly new to Friedman (or anyone else) in 1952.

James Forder

On 11 Apr 2014, at 21:34, Robert Leeson <[log in to unmask]> wrote:

> In the 'Case for Flexible Exchange Rates', Friedman (1953, 200) argued that removing the fixed exchange rate constraint allowed each country to pick a point on a ‘Phillips curve’ “according to its own lights … flexible exchange rates are a means of combining interdependence among countries through trade with a maximum of internal monetary independence”. 
> 
> The first draft was written in 1950. 
> 
> The 'Phillips curve' has a long history going back at least to the eighteenth century (Samuelson and Solow (1960) appear to have been the first to use the term in print). 
> 
> In 1952, Friedman visited the LSE and learnt about adaptive inflationary expectations from Phillips (he subsequently issued a mea culpa with respect his failure to acknowledge Phillips - as did Phillip Cagan). In 1952, Phillips was extending his Phillips Machine into the theoretical Phillips curve (1953). 
> 
> Friedman tried twice to recruit Phillips to the Department of Economics at the University of Chicago.         
> 
> RL
> 
> Leeson, R. 1994. A.W.H. Phillips, M.B.E. (Military Division). Economic Journal 104.424, May: 605-618. 
> 
> Leeson, R. 1994. A.W.H. Phillips, Inflationary Expectations and the Operating Characteristics of the Macroeconomy. Economic Journal 104.427, November: 1420-1421. 
> 
> Leeson, R. 1997. The Trade Off Interpretation of Phillips' Dynamic Stabilisation Exercise. Economica February, 64.253: 155-173. 
> 
> Leeson, R. 1997. The Political Economy of the Inflation Unemployment Trade-Off. History of Political Economy Spring, 29.1: 117-156. 
> 
> Cagan, P. 2000. Phillips' Adaptive Inflationary Expectations Formula. In Leeson, R. 2000.  A.W.H. Phillips: Collected Works in Contemporary Perspective. Ed. Cambridge: Cambridge University Press. 
> 
> 
> 
> ----- Original Message -----
> From: "Alan G Isaac" <[log in to unmask]>
> To: [log in to unmask]
> Sent: Friday, 11 April, 2014 8:44:21 PM
> Subject: Re: [SHOE] Critiques of Keynesian Economics and the Stimulus
> 
> On 4/10/2014 11:38 PM, Robert Leeson wrote:
>> Friedman argued that flexible exchange rates would allow
>> each country to use demand management to pick its own
>> policy-determined point on its Phillips curve.
> 
> 
> Was reference to the PHillips curve explicit?
> If so, can you provide a cite?
> 
> Thank you,
> Alan Isaac