Abstract
One of the major issues facing the Keynesians in the 1950s was the issue of falling money wages. Following Modigliani, they believed the Keynesian model of unemployment equilibrium could only be "closed" by assuming rigid money wages. Otherwise, the Keynes and Pigou effects would drive it back to full employment. The simplest solution to holding rigid money wages was to appeal, as many did, to labor market imperfections and money illusions. All these thoughts were pretty scattered until they stumbled across a simple diagram of Alban W. Phillips that empirically related money wage growth and unemployment in the infamous "Phillips Curve". The Neo-Keynesians realized immediately that this was what was necessary to put an end to the Keynesian model and consequently, Richard Lipsey, Paul Samuelson and Robert Solow integrated the "Phillips Curve" into the Neo-Keynesian edifice.
