According to Professor Keith Shaw, an important early milestone in Friedman's campaign against Keynesianism was the 1956 publication of Studies in the Quantity Theory of Money. [
11] In this work Friedman restated the Quantity theory of money, and obtained the attention of several Keynesian economists partly because he admitted Keynes was right to state that the velocity of circulation of money in the Equation of exchange can vary, rather than being a constant as assumed by classical economists. However, Friedman's restatement was otherwise closer to the classical view in reducing the scope for beneficial government intervention in the economy.[
11] An even more influential work was his 1963 publication of A Monetary History of the United States. Drawing on extensive empirical data, it further strengthened the case for his restated Quantity Theory of Money, arguing that inflation was "always and everywhere a monetary phenomenon", while conceding that it could take one or two years for an increase in the money supply to lead to inflation. This ran counter to the then orthodox Keynesian interpretation that inflation was linked to employment, as modelled by the Phillips curve which predicted an inverse relationship between the two variables. Governments at the time would use the Phillips curve as part of their models to calculate the expected cost in terms of inflation for a stimulus designed to restore full employment. In 1968 Milton Friedman published a paper arguing that the fixed relationship implied by the Philips curve did not exist, and that it would be possible to have both inflation and unemployment rise at once.[
12] [
note 6] Friedman had also argued that workers' expectations of future high inflation could lead to an inflationary spiral as they would push for increased wages in advance to try to compensate for expected future inflation.
Friedman's work began to gain increasing acceptance among academics after 1973, when stagflation - the simultaneous increase in both inflation and unemployment - became prominent, just as he had predicted. While the 1973 oil crisis was clearly an inflationary shock to the global economy, Friedman was able to argue persuasively that inflation was much higher that it would have been due to the rapid expansion of the money supply by governments in 1971. By the late 1970s, empirical data was also present to suggest that Friedman was right to emphasize the role of expectations on inflation, further increasing the acceptance of his ideas by mainstream economists.[
4] Post Keynesian economist Paul Davidson has argued that part of the reason for Friedman's intellectual victory was that Keynes' ideas were misunderstood by the main stream academics of the time (the Neo-Keynesians) who therefore didn't have a consistent framework to rebut the attacks.[
6]
