The Trade‐off Interpretation of Phillips’s Dynamic Stabilization Exercise

Abstract

This paper, which examines Phillips’s famous curve, is based on Phillips’s private papers, and the London School of Economics Methodology, Measurement and Testing Seminar records (sources previously thought to be lost). These sources, plus Phillips’s theoretical work, suggest that the equilibrium ‘menu of choice’ is a misinterpretation of Phillips’s dynamic stabilization exercise. Phillips had a clearly articulated role for inflationary expectations in his model, and had no toleration for the notion that ongoing inflation could purchase sustainable reductions in the rate of unemployment. Evidence is cited which indicates that Milton Friedman was profoundly influenced by Phillips’s analysis of inflationary expectations.

Hayek: A Collaborative Biography

“…Moreover, the selling point of the natural rate model -the adaptive inflationary expectations formulahad been plagiarized from Phillips (Leeson 1994a(Leeson , 1994b(Leeson , 1997a(Leeson , 1997b(Leeson , 1997c(Leeson , 1998(Leeson , 1999(Leeson , 2000a(Leeson , 2000b.…”

A. J. Brown, “Phillips’s Curve,” and Economic Networks in the 1950s

“…James Meade had him make one for LSE, and Abba Lerner, as his agent, got some sales in the US (Barr 2000). Brown not only bought the prototype for Leeds University, he provided the funds from the Economic Department's budget (£100 in prices at the time, or £3,200 in 2017 prices) for the initial hardware costs, and loaned the prototype to LSE for marketing 5 For more details of Phillips's life, see Conrad Blyth (1957), Kevin Lancaster (1979), Robert Leeson (1994, Laidler (2002), and Alan Bollard (2016). 6 Laidler (2002) points out that "universities were still run by senior academics rather than professional administrators," allowing some flexibility in decision making.…”

Friedman’s Nobel Lecture and the Phillips Curve Myth

“…They, like many others, recognized what they took to be a subsidiary point, that inflation might, in fact, begin to rise before full employment was reached because of such things as supply-side bottlenecks and the development of pockets of monopoly power. Naturally, as low but persistent inflation continued throughout 3 Leeson (1997a) noted firmly that Phillips did not treat the curve as making a case for inflation. The view that a certain level of unemployment would stabilize prices was, in the later literature, perhaps more associated with Frank Paish ([1958] 1966) and the final chapter of Paish ([1962] 1966).…”