Samuelson and Solow on the Phillips Curve and the “Menu of Choice”: A Retrospective

This paper focuses on the seminal contribution to the Phillips curve discussion by Samuelson and Solow in 1960, which is usually considered as the first trade-off interpretation of the Phillips curve. It will be shown that Samuelson and Solow indeed offer a trade-off view but are very sceptical about the long-run stability of the curve. Nonetheless, a “menu of choice” interpretation cannot be completely denied, even though their trade-off interpretation is heavily influenced by the contemporary discussion on cost-push versus demand-pull inflation. Hence, their approach to the trade-off between inflation and unemployment with emphasis on cost-push inflation is very different to that of Friedman, who only accepts demand-pull forces as a source of inflation. Therefore, contrary to Samuelson and Solow, full employment and price stability in Friedman’s framework are not conflicting policy objectives, so that a trade-off between inflation and unemployment only emerges due to inflationary surprises.