ABSTRACT
The New Orthodoxy is a “neo-classical synthesis” in which the Keynesian Revolution and the Monetarist Counter-revolution are regarded as part of the logical evolution of Classical Orthodoxy. The classical approach holds that prices and wages are flexible, so the economy moves to its long-run equilibrium very quickly. The attitude of the New Orthodoxy is that “all have won, and all must have prizes.” Classical theory is considered appropriate for a nonmonetary barter economy. Keynesian theory is considered appropriate for a monetary economy with wage and price rigidity. Keynesian theology insists that “money makes all the difference” so that the impact of an increase in money saving falls wholly on output. The monetarist solution is therefore based on the assumption that quantities are absolutely rigid. The New Orthodoxy that “equilibrium means full employment” is precisely the same as the Old Orthodoxy. It is not a rational hypothesis which rests on an appeal to logic.
