How did Friedman differ from Keynes?

Brad DeLong and Greg Mankiw offer insightful comments on Friedman and Keynes.  On macroeconomics, what does the difference boil down to?  I can think of a few possibilities:

1. Keynes thought a horizontal LM curve ("the liquidity trap") was possible, but Friedman did not.  This was Friedman’s own view, at least as expressed in Milton Friedman’s Monetary Framework.  Without a horizontal LM curve, monetary policy can always pull the economy out of a downturn.

2. Keynes emphasized volatile flows, Friedman emphasized stocks of wealth; a stocks view should imply greater macro stability.

3. Keynes challenged the assumption of gross substitutability, and therefore thought that price and wage flexibility could lead to a downward spiral of falling prices and incomes.  Wage and price stickiness was not so much an assumption for him as a policy recommendation.  Friedman viewed stickiness as a necessary evil, stemming from the general imperfection of the world.

4. Friedman thought that the liquidity premium on money was unlikely to keep interest "too high"; for Friedman the interest rate is determined solely in the loanable funds market by time preference and productivity, a’la Irving Fisher.

5. For Keynes the demand for investment was inherently unstable, for "beauty contest" reasons.  Friedman viewed expectations as "adaptive," and tracking the world with a lag, rather than tracking the expectations of other people.

6. Friedman simply had more faith in the self-adjusting nature of the market, and #1-#5, and other possibilities, were mere epiphenomena of this broader philosophical difference.


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