Modigliani and Keynes

Robert M. Solow


The first article published by Franco Modigliani has become one of the basic texts of the modern Keynesian economics. It formalized the model (or at least one model) implicit in the General Theory. Modigliani argued that the characteristics Keynesian conclusions are based primarily on the (realistic) rigidity of nominal wages. In particular, it showed that if wages and prices were flexible, the theory of liquidity preference of money could not generate persistent involuntary unemployment, but if wages were rigid, the theory of the amount of money could do it. Sixty years later Modigliani returned to expose the "Keynesian gospel" and proposed essentially the same interpretation. This article reconsiders and discusses this approach to macroeconomics, with some reference to its implications for economic policy.


JEL Codes: B22, E12


Franco Modigliani, Keynesian gospel, wages

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KEYNES, J.M. (1936), The General Theory of Employment, Interest and Money, in The Collected Writings of John Maynard Keynes, vol. VII, Macmillan, London.

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MODIGLIANI, F. (2003), "The Keynesian gospel according to Modigliani", American Economist, vol. 47, no. 1, pp. 3-24.


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