Galtland Index

Inflation and Unemployment

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Inflation and Unemployment

Inflation and Unemployment (1976) is Milton Friedman’s Nobel Memorial Lecture: the mature statement of the natural-rate hypothesis and the vertical long-run Phillips curve — that there is no durable trade-off between inflation and unemployment, only a transitional one bought with accelerating, unanticipated inflation. It is the empirical, monetarist core of the Chicago position, and the lecture that crowned the prediction of 1970s stagflation.

What the Lecture Argues

Friedman’s argument is that the apparent Phillips-curve trade-off between inflation and unemployment is an illusion of the short run. What matters is not inflation as such but unanticipated inflation: once people come to expect a given rate, it loses its power to hold unemployment down, and the system returns to its natural rate of unemployment — a level fixed by real factors (the effectiveness of the labor market, the extent of competition, the barriers to working in various occupations) rather than by monetary policy.

“there is no stable trade-off between inflation and unemployment”

— Milton Friedman, Inflation and Unemployment

Unemployment can be pushed below the natural rate only by an accelerating inflation, and held above it only by accelerating deflation; the long-run Phillips curve is vertical. Friedman borrowed the term from Knut Wicksell’s natural rate of interest, and the lecture even sketches a third stage in which sufficiently high and volatile inflation may raise measured unemployment — the stagflation the simple trade-off could not explain but the natural-rate hypothesis had foreseen.

Why It Matters in This Wiki

The lecture is the empirical apex of the Chicago method in Austrian Economics vs the Chicago School. Its natural-rate argument is the same one Friedman first set out in his 1968 presidential address, now defended as a tested prediction — and the contrast with the Austrians is sharpest here on method: Friedman’s case stands or falls on the data, where for Mises the theorems of praxeology are settled before any statistic is consulted. Both reject the naive Keynesian trade-off the lecture demolishes; they part on whether the monetary record can establish an economic law or only illustrate one.

Provenance: the ingested raw was re-extracted (2026-06-25) with pymupdf from the official Nobel Foundation PDF, superseding the earlier pdftotext extraction whose letter-spaced bibliography carried OCR-style artifacts; the lecture text is clean and quotations verify directly against it. Copyright © The Nobel Foundation 1976 — not public domain; ingested for research and citation.

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