1In one of his last contributions, presented at a conference in August 2006, Milton Friedman spoke on the topic “Trade-offs in Monetary Policy”. In his view (2010, 114), Samuelson and Solow (1960) are still the starting point of interpreting the Phillips curve as offering a trade-off between inflation and unemployment:

Phillips himself did not present the curve as a policy tool, but less than two years later Paul Samuelson and Robert Solow published a celebrated article in the American Economic Review (1960) in which they did. Given the long period for which the Phillips curve appeared to hold in Britain, Samuelson and Solow concluded that it could be treated as a long-run structural equation which provided the missing equation that the then conventional Keynesian system needed. They treated it as a menu from which the monetary authorities could choose. By tolerating higher inflation they could experience lower average unemployment and vice versa.

4Samuelson’s and Solow’s contribution as the possible starting point of the trade-off discussion was in the focus of attention of many scholars: The evolution of this trade-off idea and its relation to Samuelson and Solow (1960) is tracked in Humphrey (1985a), Laidler (1997), Leeson (1997) and Forder (2010a).

5Humphrey (1985b, 5ff.) takes the point of view that the trade-off interpretation in the 1960s was widespread but makes no reference to Samuelson and Solow (1960) as the inventor of the trade-off (but Humphrey, 1985b, 24 does). However, the trade-off interpretation of the Phillips curve takes centre stage in his contribution.

6Laidler (1997, 91f.) remarks that already the Radcliffe Report (Committee on the Working of the Monetary System, 1959) hinted at systematic policy trade-offs between different goals of economic policy, in particular unemployment and inflation. Also in the US, the Report of the Commission on Money and Credit (1961) not only pointed, but was particularly aimed at “studying not only the positive nature of those tradeoffs, but also the welfare considerations that might enable the goals to be weighed against one another” (Laidler, 1997, 93). Hence, in particular from the perspective of economic policy, the stage had been set for making use of the Phillips curve as a “menu of choice”. Laidler (1997, 93) therefore interprets Samuelson and Solow (1960) as offering such a trade-off view, even though he admits that they were quite cautious regarding the stability of the Phillips curve.

7The political background at the end of the 1950s is covered in Leeson (1997)—a view not shared by Solow (in Snowdon and Vane, 1999, 284): Leeson supposes that in the wake of the presidential election campaign Samuelson and Solow (1960) might be interpreted as providing an overdue analysis of the inflationary consequences of the high employment target of the Kennedy administration so that “Samuelson and Solow believed that they had uncovered evidence that suggested that tolerable and stable rates of inflation were associated with high employment; the system also looked reversible—aggregate demand could be manipulated to move the economy down the Phillips curve, if necessary” (Leeson 1997, 145).

8Finally, Forder (2010a), provides an extensive literature review which focuses on how Samuelson and Solow (1960) were interpreted by later writers. In sum, he finds that many authors cited Samuelson and Solow (1960) as an example of the instability of the curve (Bronfenbrenner and Holzman, 1963, 620; Kaliski 1964, 6, n. 11; Shonfield 1967, 436f.) or as depicting a relationship between inflation and unemployment (Gray, 1968, 58, n. 1; Smyth 1971, 426, n. 1) instead of the original wage-change-unemployment relation by Phillips (1958). According to Forder (2010a), the possible trade-off interpretation of Samuelson and Solow (1960), however, barely shows up in the literature. Hence, Forder (2010a, 19) concludes that the contribution by Samuelson and Solow was not as important in the 1960s as one might think at first sight. Thus, the role Samuelson and Solow actually played might be attributed to them with hindsight to fill a gap in the trade-off story which seems to be heavily influenced by Friedman’s Nobel Lecture (Friedman 1977a) in 1976 (see Forder 2010b).

9Forder (2010a, 19), after an own analysis of Samuelson and Solow (1960), furthermore sums up that “Samuelson and Solow’s was an early attempt to bring together what one might call the accumulated lessons of the experience of the period and to determine the prospects of actually achieving full employment and price stability.” Forder (2010a, 1) thus emphasises that the long-run trade-off interpretation or a pledge for an inflationary policy cannot be found in Samuelson and Solow (1960). Even though Forder’s view is partly shared in this paper, it will be argued that there remains a strong ambiguity in Samuelson and Solow (1960). Furthermore, an often neglected aspect of the previous discussion will be emphasised, namely the direction of causation underlying the Phillips curve, which changed in the wake of the monetarist counter-revolution. Moreover, it will be argued that Friedman’s attack against the trade-off interpretation rested on a completely different view of the economy and of the inflationary process. Therefore, Samuelson’s and Solow’s trade-off interpretation must be judged in the light of the cost-push demand-pull debate, which Friedman did not take into account in his presidential address.

10The remainder of this paper is organised in five parts. First of all, in Section 1, a short overview about the historical and theoretical background is necessary to provide the basis for the subsequent discussion. In particular, the cost-push demand-pull debate in the second half of the 1950s will be reviewed. Section 2 then focuses on Samuelson’s and Solow’s own assessment of this lively discussion in the 1950s. In Section 3, the paper will focus on Samuelson’s and Solow’s presentation of the Phillips curve as an alternative tool for analysing the inflationary process. This section will also discuss immediate conference comments to their 1960 paper. Section 4 will compare Friedman’s and Samuelson’s and Solow’s trade-off framework. It will be shown that their trade-off view was shaped by the economic issues of the 1950s and hence was very different from Friedman’s trade-off explanation. Finally, Section 5 concludes.

1. Historical and Theoretical Background

A distinguishing characteristic of much recent thinking and writing in the general area of price behavior has been the rapid proliferation of inflation “types.” It is no longer fashionable to speak simply of “inflation”; instead, one must specify whether he means “cost inflation,” “demand inflation,” “excess-demand inflation,” “wage inflation,” “money inflation,” “structural inflation,” “log-rolling inflation,” “buyers’ inflation,” “sellers’ inflation,” “mark-up inflation,” “administered-price inflation,” and so on.

12Bowen (1960, 199) also singles out “the most popular single dichotomy”, that is, “the distinction between ‘cost inflation’ and ‘demand inflation’.” Such a distinction seemed useful “to decide what (if any) public policy measures should be adopted to curb mild inflationary pressures which occur side-by-side with non-frictional unemployment” (Bowen 1960, 204). Whereas demand inflation (for example due to rising investment demand) can be cured in a straightforward way by restrictive monetary and fiscal policies, fighting cost-push inflation (for example aggressive wage claims by trade unions) by the means of restrictive demand policies involves accepting higher rates of unemployment. Thus, as pointed out by Newman (1958, 243), “[t]he price level-employment dilemma was brought into the arena of public discussion following the start of the so-called ‘creeping inflation’ of 1956–1957.” Wage and price controls hence were often favoured by cost-push adherents (see the discussion in Bronfenbrenner and Holzman, 1963, 595). In particular, the inflationary period between 1955 to 1958 became to be regarded as “exhibit A” (Bronfenbrenner and Holzman 1963, 629) by cost-push theorists (for example, Machlup, 1960, 132 considers this period to belong to cost-push inflation whereas 1945–1948 and 1950–1952 are regarded as demand-pull periods). However, while the different proposed concepts to describe the causes of this new inflation seemed to be sharply separated at first sight, from a more founded analytical perspective the distinction between cost-push and demand-pull inflation turned out to be quite difficult.

13For example, Selden (1959, 10) proposes that a shift of the supply curve in a certain market may be called cost inflation, while demand inflation could be identified as a shift of the demand curve. Selden also tries to empirically separate both inflationary types. However, in his view (1959, 19), a rising velocity of money along with overly expansive monetary policy (see also Johnson, 1959, 1034) were more responsible for inflation than cost-push factors in this period. On the other hand, however, it was also brought forward that in particular the velocity of money (Fleming 1961, 515) and also the supply of money (Machlup 1960, 127) may rise endogenously due to the dynamics of cost-push inflation.

14With regard to the problem of separating these two different approaches, Bowen (1960, 201ff.) provides a well-founded analysis emphasising the difficulties of such an attempt. Problems arise in particular due to non-linear and interdependent supply and demand curves (see also Poole, 1960). For example, the ability of trade unions to succeed in enforcing their wage claims (cost-push) may depend on the state of demand for the products of this industry (demand-pull). How far these wage claims will be translated into cost-push inflation, however, will depend on other factors on the supply side as well. Furthermore, cost-push inflation in one particular industry due to rising wages may at the same time show up as demand-pull inflation in another industry where the higher income of workers is being spent. Bowen (1960, 204) thus concludes that “[a]ttempts to use the ‘cost inflation’ versus ‘demand inflation’ distinction as a way of classifying inflations must be abandoned.” At the same time, this implies, however, that without the knowledge about the exact causes of inflation, policy prescriptions are prone to be inadequate.

15This overall sceptical view on the distinction between cost-push and demand-pull inflation and on the difficult task of finding a remedy for inflation was also the main research question of the contribution by Samuelson and Solow (1960) as will be shown in the next section.

2. Samuelson and Solow on Cost-Push and Demand-Pull

If I believe in cost-push, what should I expect to find in the facts that I would not expect to find were I a believer in demand-pull?

17For example, the data may show that money wages rose faster than productivity which might be interpreted as cost-push inflation. However, as also demand-pull inflation can make wages rise faster than productivity—and so the clause starting with “not” in the quote above is not fulfilled—the criterion “wages rising faster than productivity” is not appropriate to decide between these two types of inflation.

18Samuelson and Solow (1960, 183) then go on and emphasise another difficulty on how to separate both inflationary types. In particular, the timing of wage and price increases is not an appropriate criterion either for identifying cost-push or demand-pull inflation as it is not possible to determine a “normal initial standard from which to measure”. Therefore, a wage-push might be interpreted as autonomous but might also be just the result of earlier excess demand for labour if the timespan under consideration is extended accordingly. Furthermore, Samuelson and Solow (1960, 184) emphasise that an analysis based on shifts of demand and supply curves is equally prone to the problem of interdependencies as wages are cost and income at the same time. Thus, inflation may be self-sustaining due to spillovers and feedback to and from other sectors of the economy, or in the words of Samuelson and Solow (1960, 184) “it may be that one of the important causes of inflation is—inflation.”

19Samuelson and Solow (1960, 185) thus conclude that other tools might serve better for analysing the problem they are facing: On the one hand “the behavior of real demand under inflationary conditions” and, on the other hand, “the behavior of money wages with respect to the level of employment” —this last relation being, of course, the Phillips curve. However, they are pessimistic about the stability of both relations. In particular, rising prices over some time may spur further inflation by altering the economic system (Samuelson and Solow 1960, 185):

[T]here seems to us to be some doubt that ordinary reversible behavior equations can be found, and this very difficulty points up an important question we have mentioned earlier: that a period of high demand and rising prices molds attitudes, expectations, even institutions in such a way as to bias the future in favor of further inflation.

20Hence, with regard to the (in-)stability of the behaviour of real demand, the experience of an endogenous rise of the velocity of money from 1955 to 1957 leads them to the conclusion “that the whole distinction between cost-push and demand-pull begins to evaporate” (Samuelson and Solow, 1960, 186)—an issue, as has been shown in Section 1, which was also brought forward by other authors in the 1950s.

21In sum, until now, the arguments and evidence presented by Samuelson and Solow (1960) fit pretty well into the climate at the end of the 1950s and no statement as such is innovative or original in its own way. This assessment, however, changes as soon as we take a closer look at their treatment of the Phillips curve in the next section of this paper.

3. The Role of the Phillips Curve

But would it take 8 to 10 per cent unemployment forever to stabilize the money wage? Is not this kind of relationship also one which depends heavily on remembered experience? We suspect that this is another way in which a past characterized by rising prices, high employment, and mild, short recessions is likely to breed an inflationary bias—by making the money wage more rigid downward, maybe even perversely inclined to rise during recessions on the grounds that things will soon be different.

26Samuelson and Solow (1960, 192) emphasise two points on their curve, whereas they call these results “guesses”:

• • 14 See Klein and Bodkin (1964, 393f.) for comparable estimates. Phillips (1962, 14f.) discusses Samuel (...)

  Point A: To assure price stability, an unemployment rate of 5 to 6 per cent seems to be necessary, which indicates that at this rate of unemployment wages do not increase by more than the growth rate of productivity which Samuelson and Solow (1960) consider to be 2.5 per cent per year: “That much unemployment would appear to be the cost of price stability in the years immediately ahead.”14

• Point B: To achieve an unemployment rate of 3 per cent (a “nonperfectionist’s goal”), inflation of up to 5 per cent per year has to be accepted: “That much price rise would seem to be the necessary cost of high employment and production in the years immediately ahead.”

28That the relation may shift due to economic policy is in focus of attention once again. Samuelson and Solow (1960, 193) emphasise:

Aside from the usual warning that these are simply our best guesses we must give another caution. All of our discussion has been phrased in short-run terms, dealing with what might happen in the next few years. It would be wrong, though, to think that our [...] menu that relates obtainable price and unemployment behavior will maintain its same shape in the longer run. What we do in a policy way during the next few years might cause it to shift in a definite way.

Nevertheless, it might be that the low-pressure demand would so act upon wage and other expectations as to shift the curve downward in the longer run—so that over a decade, the economy might enjoy higher employment with price stability than our present-day estimate would indicate.

30On the other hand, the problem of hysteresis on the labour market may cause an inflationary bias in such a low-pressure economy as pointed out once more by Samuelson and Solow (1960, 193):

But also the opposite is conceivable. A low-pressure economy might build up within itself over the years larger and larger amounts of structural unemployment (the reverse of what happened from 1941 to 1953 as a result of strong war and postwar demands). The result would be an upward shift of our menu of choice, with more and more unemployment being needed just to keep prices stable.

31Samuelson and Solow (1960, 193) also focus on whether or not a low-pressure economy might be able to compensate the loss of output (compared to a high pressure economy) in the long run: On the one hand, a low-pressure economy “could succeed in improving the efficiency of our productive factors” and thus may even forge ahead. However, also a falling behind of the low-pressure economy is conceivable (Samuelson and Solow 1960, 193):

On the other hand, if such an economy produced class warfare and social conflict and depressed the level of research and technical progress, the loss in growth would be compounded in the long run.

32In sum, the focus of Samuelson and Solow (1960) on the Phillips curve must be interpreted as an alternative way of analysing the inflationary process in the 1950s compared to the, in their view, not fruitful discussion about cost-push versus demand-pull inflation. Their assessment of different combinations between inflation and unemployment is well balanced: On the one hand, they are well aware of the dangers of an ongoing “creeping inflation” and especially point out the problem that an economy subject to such permanent price increases may bread an inflationary bias. On the other hand, they are sceptical about fighting inflation by engineering a low-pressure economy: Even though there are some advantages (as for example the beneficial effect on inflation expectations), Samuelson and Solow (1960, 193) also stress the possibility of structural unemployment or below average technical progress. Taking into account this discussion of endogenous possible shifts, it becomes clear that they did not treat the Phillips curve as a stable relationship.

34On the other hand, Laidler (2003, 22, n. 9) points out that another commentator, Lerner (1960), “gently chides them for not recommending the purchase of less unemployment with more inflation.” Without doubt Lerner (1960, 217) discusses such a trade-off:

One can apply the economic principle of equalizing marginal cost and marginal benefit, indulging in creeping inflation as long as the value of the additional output is greater than the damage from the additional inflation involved.

35Nonetheless, Lerner (1960, 217) is fully aware of the accelerationist hypothesis as he points out that “[a]s adjustment is made to the inflation it has to run faster and faster to keep output in the same place.” Inflation for Lerner (1960, 217) is not an obstacle for proposing expansionary policies as the distributive effects of inflation are considered to be the lesser of the two evils as “a 3 per cent cut in output is much worse than a 3 per cent inflation which can never do more than redistribute a fraction of 3 per cent of the output. A small part of the difference in output would be sufficient to correct the injustices since much of the redistribution will cancel out or will be in desirable directions.”

36The last commentator, Pechman (1960, 218), while being very sceptical about the results derived by Samuelson and Solow (1960), also interprets the contribution of Samuelson and Solow (1960) as discussing “the ‘terms of trade’ between unemployment and price stability. By this I mean the cost in terms of a higher rate of unemployment of achieving price stability or, alternatively, the cost in terms of higher prices of reducing unemployment to a tolerable level.” The trade-off notion thus was certainly there at the conference and also taken up by commentators. Even though Samuelson and Solow (1960) can be interpreted as offering a “menu of choice” between inflation and unemployment, it will be argued in the next section that their trade-off view is very different from that of Friedman.

4. Friedman vs. Samuelson and Solow on the “Menu of Choice”

37To fully understand the divergent interpretations of the Phillips curve trade-off by Friedman and Samuelson and Solow, it is necessary to discuss two major differences between both lines of thought: On the one hand, it must be discussed if and how the underlying causality changed with Friedman’s critique as the direction of causation is crucial for the interpretation of the trade-off itself. On the other hand, it seems necessary to judge Samuelson’s and Solow’s possible trade-off interpretation in the light of the late 1950s and the cost-push demand-pull debate.

40Friedman (1968), however, was ambiguous about the underlying causation—or at least there is a certain tension in his argument: On the one hand, unemployment is, as in the original Phillips curve, treated as a proxy for excess supply or demand on the labour market so that the Phillips curve remains a disequilibrium relation as “transactions occur out of equilibrium because price does not adjust instantaneously” (Lipsey 1974, 69). On the other hand, reducing unemployment below the natural rate is only possible due to misperceptions of the “true” real wage on the side of workers since inflation expectations adjust only slowly. Thus, given their perceived price vector the reaction of the labour force is as if workers are moving on their supply curve (and firms respectively moving on their demand curve)—the Phillips curve thus becomes an equilibrium relation embedded into a framework of full price flexibility. Friedman (1975, 41ff.) finally chose sides and opted for the direction of causation from prices to quantities and therefore for the equilibrium interpretation (see Laidler 1990, 55 and Laidler, 2012, 20ff.; see also De Vroey, 2001). But even before Friedman’s full commitment to the Fisher-type causality (see Fisher, 1926) regarding the Phillips curve, Lucas and Rapping (1969) reinterpreted the Phillips curve as an aggregate labour supply curve.

42Moreover, it seems that their view of the trade-off is much more different than the “modern” version and becomes only visible in light of the previous discussion of cost-push and demand-pull inflation. Of course, their overall ambiguity makes other interpretations feasible as well, but contrasting Friedman’s and Samuelson’s and Solow’s view from another perspective might prove helpful.

43The “menu of choice” in Samuelson’s and Solow’s view only exists as inflation is a mixture of cost-push and demand-pull forces. Thus, the economy may either enjoy price stability and unemployment or full employment and rising prices. These rising prices at full employment, however, are not the result of general excess demand (which cannot be full employment by definition) but are caused by many different market imperfections, most notably the unequal distribution of demand over different sectors (those with excess demand pushing inflation, but those facing excess supply not reducing their prices accordingly) and labour markets involving trade unions and other bargaining elements so that “price inflation does not wait for full employment” (Burns in Mitchell, 1951, xxi; see also Solow, 1978, 203 with reference to the 1960s). Samuelson’s and Solow’s emphasis on the Phillips curve concept hence can be interpreted in the sense that it provided “[a] more eclectic model of imperfect competition in the factor and commodity markets” in order “to explain the fact of price and wage rises before full employment and full capacity have been reached” (Samuelson and Solow 1960, 180).

46The “menu of choice” in Samuelson’s and Solow’s analysis hence is not opening up an opportunity set to maximise social gain, but to the contrary shows the social loss as both objectives are not compatible at the same time. In effect, the policymaker and society as a whole would be better off if such a “menu of choice” never existed. Samuelson’s and Solow’s (1960, 192) “nonperfectionist’s goal of high enough output to give us no more than 3 per cent unemployment”—a level which was, as already noted, in line with contemporary estimates of frictional unemployment and hence full employment—is simply not attainable without accepting some inflation. Friedman thus did not only change the direction of causation, but also altered the underlying causes of inflation by denying the issue of permanent cost-push inflation, which in the original trade-off interpretation prevented the economy from reaching and keeping full employment without any rise in the price level. This becomes clear by looking at Friedman’s (1966a, 60) critique about the assumptions of why guideposts are necessary (and why there exists a trade-off between inflation and unemployment in the sense of Samuelson and Solow):

Hence, the alleged case for the guidelines seems to me to rest on two basic fallacies: first, that market power is a source of rising prices, and second—on the belief that somehow or other you can fool the people all the time—that by increasing the rate of monetary expansion, you can thereby induce people to maintain a permanently lower level of unemployment.

47However, in Friedman’s presidential address the first “fallacy” is not mentioned at all, whereas the second “fallacy” took centre stage. Thus, Friedman, by only accepting the concept of demand inflation, removed any qualified reason to discuss a trade-off as in such an economic setup there is no need to choose between inflation and unemployment. Furthermore, the second “fallacy” was never there as such. It rather emerged artificially due to Friedman’s implicit change of causality. In a Samuelson-Solow economy, monetary expansion may remove unemployment. Inflation, however, is an unwelcome by-product of this process, but it is not the cause of this lower unemployment rate. This becomes very clear by Solow’s (1966c, 64) immediate reaction to Friedman’s (1966a, 60) critique:

I don’t think I’m guilty of the fallacy of which Milton charges me—of believing that inflation generates employment. I’m not arguing that. I’m arguing that demand pressure, whether it is generated by monetary or other means, generates both inflation and employment. And that is what creates the dilemma ...

49However, the way Samuelson and Solow present their argument indeed causes the impression of a trade-off between inflation and unemployment in the sense of Friedman. At least their Phillips curve diagram is described in such a way as if the policymaker has the explicit choice between the two discussed combinations—and there is no clear statement to the reader that the choice stops here. Hence, in principle, any point on the curve is feasible, even though Samuelson and Solow (1960) warn that inflation expectations may adjust or that there might be hysteresis. Solow (2002, 74) therefore also acknowledges that “the prosecution has a case too. It is that the qualifications are just qualifications, and the reader is left with the impression that the recorded Phillips curve really does provide [...] ‘a menu of choice’.’’

50Furthermore, Solow (2002, 73) admits that “we were interested in the possibility that the Phillips curve might represent an exploitable trade-off between unemployment and inflation”, while also noting that “we were very skeptical about the durability of any such trade-off”. Moreover, it also seems to be the case that both Samuelson and Solow had some kind of confidence in this interpretation, too, as Solow (1979, 38) remarks:

I remember that Paul Samuelson asked me when we were looking at those diagrams for the first time, “Does that look like a reversible relation to you? What he meant was, Do you really think the economy can move back and forth along a curve like that? And I answered, Yeah, I’m inclined to believe it, and Paul said, Me too.

51As has been shown, one favourable way of reading Samuelson’s and Solow’s “menu of choice” interpretation is based on taking into account the cost-push and demand-pull inflation discussion which heavily alters the trade-off interpretation since this view points at the conflict between inflation and full employment. Nevertheless, the authors unfortunately missed to take a clear position and to present a solid theoretical model of their “menu of choice”, so that different interpretations are indeed possible. This issue also showed up at the conference as all commentators more or less interpreted their contribution as offering in a favourable way the possibility of trading off inflation for unemployment.

5. Conclusion

There is, so to speak, a choice for society between reasonably high employment with maximal growth and a price creep, or reasonably stable prices with considerable unemployment; and it is a difficult social dilemma to decide what compromises to make.

53Even though the paper of Samuelson and Solow (1960) is very cautious when it comes to the stability of the curve and particularly considers inflation expectations and hysteresis, the overall climate at that time seems to have been less worried about these qualifications as Solow (1995, 199) concedes that “[t]he eclectic American Keynesians of the 1960s were not sufficiently alert to the force of inflationary expectations. They expected more from the Phillips curve than it could deliver in practice.” Probably some contemporaries thus acted in the spirit of hydraulic Keynesianism (Coddington, 1976, 1265). However, also Solow (1995, 199) admits that their presentation of the policy possibilities was too optimistic. On the other hand, as has been shown, immediate reactions at the conference to the contribution questioned the possibility of a long-run trade-off without accelerating inflation (see also Leeson, 1998).

54However, the causality of the curve was still regarded by Samuelson and Solow (1960) as running from quantities to prices. Inflation thus was considered to be the outcome of lower unemployment and of adjustment processes in the economy (a view explained in Tobin, 1972, 9ff.) and not the cause and starting point like in Friedman’s presidential address in 1967 and even more pronounced in his later work (see Friedman 1975; Friedman 1976; Friedman 1977a).

56However, as has been argued in this paper, the theoretical core assumptions of Friedman’s and Samuelson’s and Solow’s approaches are very different. For Samuelson and Solow a trade-off only exists as it is not possible with the given structure of the economy (in particular with respect to cost-push forces) to achieve full employment and price stability at the same time, which is contrary to Friedman’s reading of the trade-off interpretation based on pure demand-pull inflation. Accordingly, full employment and price stability in Friedman’s concept do not exclude each other and the (short-run) negatively sloped Phillips curve is nothing more than an artificial outcome of policy surprises.

57A modern interpretation of Samuelson’s and Solow’s reading of the Phillips curve would be very close to the reasons given by today’s central banks on the choice of a positive inflation target. These reasons in favour of a positive inflation target include, amongst others, wage rigidities, business cycle fluctuations, or also a flexible environment for economic growth (see Horváth and Matěju, 2011, 268). As has been shown, all these arguments also play a role in the contribution by Samuelson and Solow even though cost-push forces are by far more pronounced than today. This interpretation of Samuelson and Solow (1960) is supported by a remark of Samuelson (1960, 265) about monetary policy in the 1950s (my italics):

A careful reading of the Federal Reserve positions suggests the authorities are willing to entertain the hypothesis that there are important cost-push mechanisms operating in the present system. As Solow and I indicated at the 1959 meeting of the American Economic Association, in our paper [Samuelson and Solow, 1960] dealing with the apparent “Phillips curve” that roughly relates American wage increases to the degree of unemployment in our system, I agree that tendencies toward sellers’ inflation and related inflexibilities in the face of demand changes do seem to throw up something of a dilemma for fiscal and monetary policy. [...]

With important cost-push forces assumed to be operating, there are many models in which it can be shown that some sacrifice in the requirement for price stability is needed if short- and long-term growth are to be maximized, if average long-run unemployment is to be minimized, if optimal allocation of resources as between different occupations is to be facilitated.

58In sum, the main idea behind the “menu of choice” for monetary policy in the 1950s and 1960s was very close to that of today: Due to various deviations of the real world economy from its perfect theoretical counterpart, zero inflation and full employment are difficult to achieve at the same time. This view, by downplaying these real world deficiencies, was opposed by Friedman. In his framework, Samuelson’s and Solow’s pessimistic dilemma view was reinterpreted as offering an occasion for opportunistic (but myopic) policy surprises to push the economy away from full employment and price stability to over-employment at the cost of surprise inflation.

59Nonetheless, it should be clear after this exhaustive journey that if a policymaker had the choice between Samuelson’s and Solow’s imperfect economy giving rise to a “menu of choice” and Friedman’s perfect economy with no choice at all, every policymaker should choose the latter one since the optimal choice would be not having a choice.

A first version of this article was part of a working paper presented at the Samuels Young Scholars Program at the History of Economics Society Annual Conference 2012 at Brock University, St. Catharines, Ontario, Canada, June 22-25. I thank Niels Geiger, Harald Hagemann, Richard Lipsey, William Scarth, Robert Solow, Peter Spahn, and all participants of the Ph.D. seminar « Money, Employment and Growth » for very helpful comments and suggestions. I am indebted to Laura Cardwell for proofreading. Two anonymous referees provided a most helpful and constructive review process which very much improved the quality of the paper. Financial support by the Evangelisches Studienwerk Villigst e.V. (Ph. D. Program Globalization and Employment) is gratefully acknowledged. As usual, all responsibility for the views expressed and for any remaining errors is mine alone.