Tuesday, September 29, 2009

Keynes All The Rage

I noticed some articles and posts on Keynes recently. The ones I noticed are somewhat different than those highlighted by the Sandwichman. I think Robert Skidelsky's new book, Keynes: The Return of the Master, is getting more buzz than Paul Davidson's new book, The Keynes Solution: The Path to Global Economic Prosperity. Paul Krugman's review of Skidelsky's book in the Observer contrasts the rejection of Say's law with an emphasis on fundamental uncertainty. Davied Warsh also alludes to the debates over what Keynes really meant. Here is a year old oped by Skidelsky, while here is a more recent article quoting him. Aaron Swartz has been reading The General Theory of Employment, Interest, and Money. He has both a chapter-by-chapter summary and a brief explanation.

I think Keynes book was primary about economic theory and only secondary about advocating policy based on that theory. One can perhaps explain why an economy might deviate from a full employment equilibrium. Workers are constrained to budget based on the income they receive, not on the income they would receive if they were fully employed. This idea could be basis of a dynamic story. But Keynes argued, building on Richard Kahn's multiplier, that it could also explain an equilibrium with involuntary unemployment.

I think that Keynes argued that such an unemployment equilibrium could hold in both the Marshallian short run and the long run. To make sense of Keynes' claim, one must construct a model in which money enters in some essential way. And I would expect money to be non-neutral in all runs. To me, this introduction of money into an economic model is connected with modeling fundamental uncertainty. In short, I see Keynes' rejection of Say's law and his emphasis (e.g., in Chapter 12) on uncertainty as complementary.

(Apropos of none of the above - some might be amused by this cartoon. H/T to Brian Leiter.)


chrismealy said...

I've been wondering what Paul Davidson's take on the current situation is.

chrismealy said...

... thanks for the heads up.

leo said...

Did Keynes reject Say's Law or did he reject the applicability of Say's Law to a money-using economy? And what exactly is money in this context? Is it strictly the nominal liability of the State? If so, how do we test for whether or not these liabilities are both the cause and cure of the fundamental uncertainty identified by Keynes? Did Keynes show his bias by assuming government institutions at the very beginning of his analysis?

Anonymous said...

"To me, this introduction of money into an economic model is connected with modeling fundamental uncertainty."

I would agree that rejection of Say's law and uncertainty go hand-in-hand. After all, Say's law is inapplicable to a money/capitalist economy and use of money increases uncertainty -- whether a profit will be made adds to uncertainty.

Any economy based on turning money into more money violates Say's law and also increases uncertainty. So to contrast Keynes of 1936 and 1937 is, I would suggest, false.

An Anarchist FAQ

Patch said...

The Keynes Stuff I'm planning to read are the mathematical interpretations of Michael Emmett Brady, Jochen Hartwig, Hayes (http://cje.oxfordjournals.org/cgi/content/full/ben014v1) and Claudia Heller (http://ideas.repec.org/e/phe169.html - well, the first paper is in English). Even though I don't like Brady's writing style.

Robert Vienneau said...

Thanks for the comments.

I see Patch's reference of Claudia Heller references a Ferrira & Michael paper in The Foundation of Keynesian Analysis. I happen to have this book on my shelf. I liked the Garegnani, Kregel, and Kaldor papers. But I found many of the others hard to understand. I'm resisting the idea of taking Brady seriously, but I guess I should.

Patch said...

Well at least it seems like Heller is taking him seriously and her paper is interesting.

Anonymous said...

chrismealy--if you want my take please read my latest book THE KEYNES SOLUTION:THE PATH TO GLOBAL ECONOMIC PROSPERITY.

paul davidson

Anonymous said...

CHRISMEALY --if yopu are interest in my taske read my new book THE KEYNES SOLUTION;THE PATH TO GLOBAL ECONOMIC PrOSPERITY.

paul davidson

leo the corgi said...


I'm wondering if one can be a Chartalist and a consistent believer in Davidson's Keynes.

I mean, is ontological uncertainty a necessary condition under Chartalism? It seems to me that it is not. For example, any dictator can impose State money regardless of his/her view on the uncertainty of markets for the simple purpose of expropriation. Chartalist can be indifferent to ontological uncertainty, while Davidson's Keynes can't.

I know, read your book for the answer :)

Anonymous said...

This is a response to the review of my book THE KEYNES SOLUTION ("The Keynes Comeback" in the October 2, 2009 issue of THE ECONOMIST.

Today’s economic problems involves the largest global downturn since the Great Depression. Ultimately, however, the reviewer declares that the policies I developed for the 21 century global economy from Keynes’s ideas and philosophy for ending the Great Depression and creating a full employment global economy after the second world war are “to most others[ mainstream economists? politicians? powerful interest groups?] .... solutions that are outmoded and unworkable”.

Aren’t these “most others” the same people who for the past three decades have advocated government de-regulation of financial markets, no constraints on international capital flows (which led to the contagion of a U.S. sub-prime market collapse to threaten the global banking community), free trade with flexible exchange rates, and perfectly flexible prices and wages so that any unemployment problem can always be eliminated by removing any social safety net that protects the unemployed and thereby force unemployed workers to choose to accept lower wages or see their family starve to death? These classical policies are ultimately based on the ideas espoused by 18th century Adam Smith and 19th century classical economists such as David Ricardo and Leon Walras.

The reviewer argues that "the world economy may have changed beyond recognition since 1944 but to a true disciple of Keynes...[his] policies make sense" while most mainstream economists think them "outmoded". Since the world economy has changed much more since the 18th and 19th century of classical economists, does the reviewer really believe these ideas of 18th and 19th century economists are not “outmoded" and unfounded or worse merely because “most " mainstream economists and policymakers", still cling to such failed ideas and policies rather than face the reality of Keynes’s analysis of how modern market oriented, money using economies actual operate?

Finally I am reminded of the advice an elder devil gives to a younger devil in one of C. S. Lewis's books--namely do not argue over whether something is true or not but whether it is outmoded since this is practical propaganda that is more