ABSTRACT
The failure of contemporary systems of market capitalism to achieve both full employment and stable prices reflects the central, unresolved philosophic issue in macroeconomic theory. There is no institutionalist macroeconomic theory as such, but an institutionalist perspective is crucial for development of macroeconomic policies that will be effective. Underlying the controversy in macroeconomic theory and policy is a fundamental, unresolved issue. This is the extent to which the modern market economy is a self-regulating system, one that left alone will grow steadily, utilizing all of its resources, including labor. Intellectually, it is a legacy of Keynes, who is recognized as the creator of modern macroeconomics. British economist and Nobel Laureate Sir John Hicks said that future historians will designate the quarter-century after World War II as the “Age of Keynes.” Monetarism, the oldest of the challenges to the Keynesian orthodoxy, is practically synonymous with Milton Friedman, Nobel Laureate and long-time professor of economics at the University of Chicago.
