Edmund S Phelps, Nobel Prize,wisdom, world, Yung's words,adventure, subversiveness, inventiveness, resources, young mind, A W Phillips, Relationship, Unemployment, Rate of Change, Money Wages. in the UK 1861-1957"- published in Economica, in which he stated that there is an "inverse relationship between money wage changes and unemployment in the British economy over the period examined."

It is only the "freshness of mind" backed by no "fear of the known" which is abundant mostly in 30s of one's age, which led him to the "right way of going about an investigation", that could enable Phelps to challenge the veracity of a theory that was confirmed by 96 years of data and which was further carried forward by no less than Paul Samuelson and Robert Solow, who made the link between inflation and unemployment explicit in 1960when inflation was high, unemployment was low and vice-versa. He indeed challenged the very belief of a stable trade-off between inflation and unemployment that had been strongly held among the economic fraternity of 50s and 60s.

To prove his point, Phelps went to the very basics of the behavior of individual employees and employers: to begin with, he assumed that employees could simply act based on their expectations of future inflation. Let us presume that the employees expect the inflation to be at 3% and accordingly they would factor it into their bargain for wages. And having been satisfied with the offer, presume they would join the service. Then presume that the Central Bank of the country printed more money which led to, say, 5% inflation. With this increased inflation wages also look higher than expected. Thinking that these wages were higher in real terms, though mistakenly, unemployed citizens will join jobs. This automatically results in a lower unemployment rate. However, as the time advances, employees would start realizing wages were not as high in real terms as they were thought of at the time of joining the job. This "adoption to reality" leads to some quitting the job for more lucrative alternatives, which means a slow rise in unemployment rate. It means, there is no stable trade-off between inflation and unemployment as earlier propounded by Phillips followed by Samuelson and Solow. He thus formulated a new hypothesis - "Expectations-augmented Phillips curve", which has today become the accepted wisdom of the economic world. It is of course a different matter that Robert Lucas - a Nobel Laureate himself - has taken it forward by substituting "adaptive expectations" with "rational expectations".

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