Friday, December 16, 2011


  • Dan Berrett, in The Chronicle of Higher Education, reports that "Economists push for a broader range of viewpoints". The Institute for New Economic Thinking, Econ4, a couple of professors at the University of Massachusetts at Amherst, and Stephen Marglin are all mentioned.
  • Daron Acemoglu recommends five books1 on inequality in the distribution of income or wealth. Is he basically confused about the logic of the theory of marginal productivity?
  • Bryan Caplan parades his ignorance of Keynes on wages. According to Caplan, "nominal wage rigidity is the driving force of the Keynesian model" and if employment increases, wages must fall. But:
    • Keynes explicitly argues, in chapter 19 of the General Theory that his analysis applies if money wages are flexible.
    • At the time of the publication of the General Theory, Keynes had "always regarded decreasing physical returns in the short period as one of the very few incontrovertible propositions in our miserable subject". So he believed then that less unemployment would be associated with lessened real wages. He changed his mind2 in responding to empirical evidence from John T. Dunlop and Laurie Tarshis. Empirical evidence for reverse L-shaped cost curves in industry has held up since then.

1. My list includes, at least:

  • James K. Galbraith (1998). Created Unequal: The Crisis in American Pay. Free Press.
  • Stephen A. Marglin (1984). Growth, Distribution, and Prices. Harvard University Press
2. References (which I know of from the secondary literature):
  • John T. Dunlop (1938). "The Movement of Real and Money Wage Rates", Economic Journal. v. 48 (Sept.): 413-434.
  • J. M. Keynes (1939). "Relative Movements of Real Wages and Output", Economic Journal, v. 49 (March): 34-51.
  • Lorie Tarshis (1939). "Changes in Real and Money Wages", Economic Journal, v. 49 (March): 150-154.


Daniel said...

I didn't like Caplan's post much either, but in fairness to him he did discuss "Keynesian" models, not "Keynes's" model. I am always in support of citing the General Theory, but the claim was somewhat defensible, even if there are issues with the post itself (which many people have ably pointed out).

Matías Vernengo said...

Hi Daniel:
But you have to agree that there are Keynesian models in which rigid wages do not play a role. Hence, this begs the question of what is Keynesian in fix-price (fix-wage) models. Pigou wouldn't disagree with the notion that rigid wages may cause persistent unemployment. Robert, I always recommend Edward Amadeo's book 'Keynes' Principle of Effective Demand,' Elgar, 1989, which was part of his PhD dissertation supervised by Murray Milgate and Lance Taylor, as one of the best to understand, not just the General Theory, but the transition period after the Treatise on Money.

Robert Vienneau said...

I can see Daniel's point. But Caplan doesn't exclude Cambridge Keynesians from those who must want wages to fall. Matías, thanks for the recommendation. I read Dutt and Amadeo's Keynes's Third Alternative? years ago, but don't recall it very well. I remember liking it.

BruceMcF said...

The exclusion of Cambridge Keynesian economists is often located in the presumed boundaries around the set of "economists" sui generis.

Robert Vienneau said...

Bruce, thanks for the comment.