Fruitless debate?

In taking up this topic, we go to the heart of the furious controversies that have surrounded questions of macroeconomic policy in recent years. The great debate between Keynesian and monetarists over the respective potency of fiscal and monetary policy has divided the economic profession, accumulating what is by now a simply enormous literature. I have no intention of surveying this literature in order to define the differences between the two parties so as to pose the question whether these differences are or are not reconcilable. I shall not even attempt to appraise the degree to which either the Keynesian or the monetarist research program is showing signs of “degeneracy,” although it must be said that a steady weakening of the earlier formulations of the monetarist position and an increasing willingness of monetarists to adopt Keynesian modes of analysis provide signs of breakdown in the monetarist counterrevolution. My aim in this section is a more limited one: it is to draw two fundamental, methodological lessons from the Keynesian– monetarist debate. The first is that the methodology of instrumentalism espoused by Friedman (see Chapter 4 above) tends all too easily to turn into naive empiricism, or theory after measurement instead of measurement after theory. The second is that the attempt to establish a theoretical position by falsifying a competing theory always produces a sharpening of the issues, as it did in this controversy, that gradually does resolve the outstanding differences.