Lectures to be delivered in Europe
World Capitalism in Crisis Toshiaki Hirai Sophia Univ., Tokyo Introduction 1 Outline of the Lectures I Lecture 2 How Should We Grasp Capitalism? Lecture 3 How Should We Grasp Globalization? Lecture 4 Financial Liberalization and Instability Lecture 5 Lehman Shock and the US Economy Lecture 6 The Euro Crisis Lecture 7 Self-Trapped Japanese Economy Lecture 8 Abenomics and Stagnant Japanese Economy Lecture 9 What Is Happening to Economics? II Lecture 10 The Life of Keynes Lecture 11 Social Philosophy in Interwar Cambridge Lecture 12 Keynesian Revolution – from the Treatise to Lecture 13 What Is Really Argued in the General Theory Lecture 14 A Treatise on Probability and My Early Beliefs Lecture 15 Employment Policy and Welfare System Lecture 16 Rescue/Relief Problem and Commodity Problem Lecture 17 International Clearing Union Lecture 18 End of the Lectures (inc. Geopolitics) |
2016/03/13
Keynes’s General Theory: Seventy-Five Years Later, ed. by Thomas Cate, Edward Elgar, 2012, x+348 pp.
Keynes’s General Theory:
Seventy-Five
Years Later, ed. by Thomas Cate,
Edward Elgar, 2012, x+348 pp.
Toshiaki Hirai
(Sophia University, Tokyo & President of Keynes
Society Japan)
Seventy-Five years have passed
since the publication of General Theory
(1936. Hereafter GT). Over this
period, evaluation of the work has gone through a dramatic series of ups and
downs, and for every GT anniversary,
the 10th, 20th …, books have appeared evaluating it from
various points of view. The book reviewed here marks the 75th anniversary.
Two points might be worth
mentioning in advance. To begin with, almost all the papers see GT as containing essentials for understanding
the present economy or reconstructing macroeconomics, so the book is “Pro-Keynesian”.
Secondly, the book presents diverse points of view on GT.
The book is composed of 15 chapters. We will examine
them, identifying four types on the basis of common features, adding very brief
comments due to lack of space.
Type 1: Chapters Focused on GT
Focus on Institutions ― In Chapter 1, Asensio maintains that GT
provides a wealth of concepts on institutions and equilibrium. Institutions and
conventional behaviors endow an economic system with structural stabilizers
such as law, regulations, monetary contracts, which contribute to its
convergence toward equilibrium at any given time, while excluding intrinsic
indeterminateness. This anchoring works through attraction of the market
interest rate towards a conventionally expected interest rate, the resistance
of money wages to a fall, and so forth. He attributes the chapter to
Post-Keynesianism (it reminds me of GT,
Ch.18-3 in which four stabilizers for underemployment equilibrium are mentioned)
.
Maverick Stance ― In Chapters 2 and 12 each author puts forward his own
interpretation, keeping his distance from both New Keynesians and
Post-Keynesians.
In Chapter 2, Hayes states that Keynes’s innovative
achievements have been practically neglected in both theory and policy. The Neo-Classical
Synthesis and New Keynesianism as its modern version wrongly took Keynes’s
theory as “economics of rigidity”, while Post-Keynesians failed to grasp Keynes’s
achievements, rejecting the Marshallian framework and deviating from the
mainstream. Keynes’s principle of effective demand is a theory of employment as
a restatement of Marshallian equilibrium theory, which takes both time and
money into consideration. He also stresses the significance of liquidity for GT.
I wonder just to what degree this interpretation of GT is unique as compared with the one,
for example, by the Neo-Classical Synthesis.
In Chapter 12, Hamouda starts with putting forward
his interpretation, criticizing Post Keynesians. Firstly, he insists that A Treatise on Money (1930. Hereafter TM) should not be neglected, for TM and GT should be regarded as one. He maintains that the neglect of TM in economics has lead economists to
misunderstand GT. In his argument,
the Keynesian Revolution occurred in TM
rather than GT. Secondly, his
analysis of GT is based essentially on
the aggregate demand and supply theory in Chapter 3 of GT, placing the emphasis on the marginal efficiency of capital as
well.
I think
that much of the importance of TM
lies in enabling to trace how Keynes changed his theory from it to GT and see the manuscript written at the
end of 1932 as a turning point from TM to GT. Incidentally, this chapter is the
only one to deal with TM in the book.
Focus on Uncertainty ― In Chapter 3 (the only chapter focused on uncertainty), Muchlinski
argues that Keynes’s philosophical stance is shared with Russell and Wittgenstein
as a philosopher of ordinary language (rather than logical atomism). Based on
this, he maintains that GT develops the
themes of “vagueness” and “state of confidence” under uncertainty in sharp
contrast with orthodox economic theory, which is based on certainty and rigid deduction.
Two questions emerge. One concerns the fact that GT’s main theoretical achievement lies
in a principle of effective demand, which shows how employment is determined.
This aspect is ignored here. The other concerns the view that A Treatise on Probability runs through GT in full scale. Didn’t Keynes change
his philosophical view, accepting Ramsey’s criticism?
Focus on Nested Structure ― In Chapter 8,
Ramrattan=Szenberg argues that GT
incorporates Classical views in a “nested” way, thus seeing complementarity
between GT and the Classical. They maintain
that Keynes’s idea evolved in a nested way, incorporating marginal analysis as
well as macro analysis. They also admire Clower=Leijonhufvud’s non-Walrasian
approach, according to them, as a precursor constructing a nested vision of
Keynes.
One cannot help wondering if they
mean by the word “nested” that GT is
compatible with both Classicals and Non-Walrasians.
Type 2: Chapters on Essential Rather Than GT.
Reinforced with Sraffa’s
Idea and Kaldor’s Theory ― In Chapter 10,
Camara-Neto=Vernengo maintain that in arguing long-run under-employment
equilibrium Keynes’s theory needs to be reinforced on two points. One is Sraffa’s
criticism of the limitations of neoclassical capital theory. The other is rectification
of Keynes’s principle of effective demand, which was spoiled by neoclassical
marginalism, through adoption of a (Sraffian) “supermultiplier” model together
with Kaldor’s “Verdoon Law”.
Monetary Stance – In Chapter 13 Rochon takes the Horizontalist
approach. In this regard, he evaluates not so much GT, which assumes the exogeneity of money supply, as Keynes’s Economic Journal papers (1937 and 1939).
Even there, the author argues, Keynes did not deal with the problem of
endogeneity between banks and central bank, although the direction in which
Keynes moved is the same as the Horizontalists took later.
I
wonder if he judges GT a failure
because of the liquidity preference theory.
In Chapter 15 Wray mentions two alternative
approaches to money – market efficiency enhancement approach, and state
creation approach (Chartalism) ― and claims that his stance (neo-Chartalism), which regards money as
public monopoly, should update Keynes’s view on chartal money. I am inclined to
agree with Wray’s view in regard to “the difference between the actions of
central banks and treasuries” together with “many potential problems” (p.337),
which is a central problem with which the present world economy is faced.
Type 3: Chapters on Development of Postwar
Macroeconomics
Positive Evaluation ― In Chapter 7, Lazzetti=Ohanian stress the influences initiated by GT. The framework it provided was taken
up by economists and policymakers, who collected the time-series data of macro
economy and developed econometrics. On these points, the impact of GT was no less important than that of Kydland=Prescott.
They state that the FRB forecasting models are similar to Keynesian models in
the 1960s, including the Philips curve and management of aggregate demand. The Keynesian
vision provides the framework for policy implementation in the context of a
central bank’s behavior aiming at achieving a low unemployment rate and
stability of the price level. Thus a central bank (in this condition) is
unlikely to give way to pessimism. The authors are sure that GT will continue to find strong support
among policy makers.
It is my opinion that without this kind of
development the “Keynesian Revolution” would not have taken place. This should
be evaluated in a direct fashion.
Negative Evaluation (The
Case for New Classicals) ― In Chapter 4, describing
the development of macroeconomics through to the present day, DeVroey concludes
that macroeconomics from now on should be developed along the direction which
New Classicals initiated, declining the return to Keynes - the only chapter
against Keynesianism.
The first striking point is that DeVroey categorizes
the IS-LM approach and New Keynesian model mark II as a Marshallian approach,
while classifying the New Keynesian models of the coordination failures type
and New Classical models as a Walrasian approach. To my understanding, the
IS-LM approach and its extended version incorporating many equations belong to a
Walrasian approach (see Patinkin), while the New Classical models are not
Walrasian, for they assume a representative agent. Secondly, I see no future
for macroeconomics along the lines of the New Classicals, who use utility
maximization of a representative agent over an infinite period, rational
expectations and the calibration method. These assumptions are of no use in
analyzing the real world which has experienced unstable financial globalization
over the last two decades.
Long-run Post Keynesian
Stance ― In Chapter 6, Docherty
states that Monetarism turned out to be unsuccessful, and that the vindication
of Keynes was rapidly provided by the New Keynesians and the Post Keynesians.
That said, he points out two differences between the two: (i) the difference in
causality structure; (ii) the long-run features in the Post Keynesians are
similar to the short-run ones in the New Keynesians. He emphasizes that
economics should move in the direction of the Post-Keynesian approach, which
analyzes macroeconomic policy on short run and long run issues.
I cannot help wondering why New Classical
macroeconomics, which has triumphed over Keynesianism in these two decades, is
not referred to at all.
Response to GT from Soviet and Western Marxism ― In Chapter 11, Dostaler discusses the relation between Keynes and Marx –
destruction of the foundation of Ricardian economics on which Marxian economics
is built, the relation in terms of “Monetary Theory of Production”, the
familiarity in terms of “love of money” - , followed by Keynes’s view on the Soviet
Union, and the impact of GT on
Western Marxism as well as in the Soviet bloc.
What attracts me most here – the only chapter argued
in the context of political regime change – is the great up-and-down swing in
evaluation of GT/Keynes in the Soviet
bloc as well as among Western Marxists. This is a theme that merits more
extensive investigation – also in relation to the Japanese Marxists.
Comparison between Keynes
and Friedman ― In Chapter 9, Backhouse =
Bateman compares Keynes and Friedman, treating the two on equal terms, and
mentions similarities and differences in various aspects, to the extent that one
might have an impression of a neutral stance.
What is striking is that they maintain the
methodological similarities, and argue that Keynes just “moved away” from, without
rejecting, the quantity theory of money.
Type 4: Others
New Theories in the Previous
Period ― In Chapter 5, Dimand points
out that many theories thought to have been currently invented were, in fact, developed
some time before, but failed to find due attention, even among scholars simply
(e.g. Minsky’s theory can be found in Fisher’s theory of debt deflation). Among
other examples, he considers Allais’ achievements, only one of which was
credited for the Nobel Prize.
One problem here is how we should explain and
evaluate the revolutionary movement in economics, taking into account these
unnoticed achievements.
Emphasis on Interest and
Profit - In Chapter14, Smithin
maintains that the profit seeking activities of firms are essential for understanding
capitalism. However, they are neglected in Neoclassical theory, which cannot therefore
constitute an adequate theory of capitalism. He also emphasizes the difference
between profit and interest, rejecting the “equalization of the rate of profit”.
I would like to know how this relates to GT.
The book thus offers a great diversity of viewpoints on GT as well as Keynesian economics in
general, which might well reflect the present situation in which the “Pro-Keynes”
Camp finds itself in, but on the whole it is to be welcomed.
Finally, there are a few points I
would need to make: (i) As far as interpretation of GT is concerned, it should be pursued essentially on primary
material as well as Keynes’s publications, and that in their entirety; (ii) The
most important task for all Pro-Keynesians is to place GT and Keynes in the context of the present world economy over
these two decades.
References
Bateman, B., Hirai, T. and Marcuzzo, M.C. eds., The Return to Keynes, The Belknap Press
of Harvard University Press, 2010.
Hirai, T., Keynes’s Theoretical Development – From
the Tract to the General Theory, Routledge, 2008.
On Skidelsky’s Keynes and Other Essays: Selected Essays of G.C. Harcourt,
On Skidelsky’s Keynes and Other Essays:
Selected Essays of G.C. Harcourt
Palgrave Macmillan, 2012, pp. xi+342
Toshiaki Hirai
(Sophia University)
1. The book under review is composed of many essays
written, mainly, in the first decade of this century by Prof. G.C. Harcourt, an
eminent economist representing the Cambridge Keynesians; it covers a wide range
of related theories, book reviews, intellectual biographies, autobiography, and
so forth. Therefore, by its very nature the book deals with diversified themes,
which makes it somewhat difficult for a reviewer to decide where the focus
should be turned. That said, the author’s fundamental views or stances running
through the book are fairly evident, which is why the reviewer has chosen to
take up and discuss these views or stances rather freely.
2. Prof. Harcourt’s central
messages
The author’s main messages – two messages in this
section, and two in the next section - running through the book might be
summarized as follows.
(Message 1) The essential path Kalecki are most highly evaluated pp Sraffa Pasinetti
These economists are
presented as the main figures representing the essential course of economics,
i.e., the Cambridge Keynesian School (hereafter CK) which developed after the
Second World War.
The CK has conspicuous features. Firstly, it
lays its foundations on Ricardo-Sraffa-Marx’s theory of value, in spite of the
fact that Keynes praised the Malthusian theory, rejected the Ricardian theory,
used a method of equilibrium analysis in various areas, and neglected Marxian
theory. (It should be noted that this first feature was not recognizable in the
Cambridge of the interwar period.) The author highly evaluates Marx as being on
an equal footing with Keynes (cf. Ch.6).
Secondly, the CK claims to be the true successor to
Keynes’s theory (cf. section
(Message 2)
The wrong direction in economics was taken along the Marshall-Pigou line which,
emphasizes equilibrium (the first group of the ‘wolf pack’ analogy) – i.e. the line based Neo-classical theory Neo-classical
We will begin by considering the Neo-classical economics which microeconomic points including index
Returning to the Neo-classical
At the level of history of
economic thought, the CK was not able to
The
author points out two phenomena which allowed for the dominance of the Neo-classical
Let us now turn to the New
Classical economists and the New Keynesians – recent phenomena in
macroeconomics. The author seems to sum them up, following J. Robinson, as “Pre-Keynesian
theory after Keynes” (cf. 257). The New Classical economics, which has the
representative agent with rational expectations, has become cf .
In this connection, we may observe that the
Neo-Classical economics macroeconomists
With regard to the Post-Keynesians, the book
deals solely with the CK. The explanation of, among other things, the CK in
Chs.21 and 22 is very instructive.
The
1980s saw the famous Trieste Post-Keynesian Summer Schools underway. The three
different strands gathered there: the US Post-Keynesians (Davidson, Minsky), the
Cambridge Keynesians (Kaleckians), and the Sraffians (Neo-Ricardians). Their
differences led to what came to be known as the “Trieste Problem”. In a word, in
Cambridge, through J. Robinson, Kalecki and Srafa, the second and third groups
became prevalent (we have so far referred to them as the CK). The author
belongs to this group, adopting the so-called “horses for courses” approach,
although in this book, unlike some other books of his, he does not specifically
dedicate a chapter to this complicated problem.
3. On the Treatise
and the General Theory
(Message 3)
The General Theory has the following features (cf .
Central position of
Determination
of prices different Neo-classical
Analysis
by means of aggregate demand and supply functions
Short-term
analysis
Underemployment
equilibrium
Monetary
analysis from the start
Importance of uncertainty and shifting
equilibrium
(Message 4) The Treatise belongs to the Marshall-Pigou line,
including the quantity theory (cf. 26, 222. General equilibrium theory is also
included here). Keynes then developed quite a new (revolutionary) theory in the
General Theory.
With regard to (Message
3), the reviewer is in total agreement. In my understanding, there are three central themes we can identify as
running through the General Theory:
Contrasting potentialities ― stability, certainty and simplicity versus
instability, uncertainty and complexity; Monetary economics; Underemployment
equilibrium as embodying equilibrium, stability, and fluctuation.
As for (Message 4) ,
The most
significant feature of the Treatise
theory might arguably lie in the coexistence of
a Wicksellian theory and “Keynes’s own theory”. What characterizes
the period up to mid-1932 was that Keynes maintained and improved upon
“Keynes’s own theory,” disregarding the Wicksellian theory. Towards the end of
1932, he put forward a new formula for
a system of commodity markets in the manuscript entitled “The Parameters of a
Monetary Economy”. There emerged the
model consisting of a system of simultaneous equations based on the equality of
investment and saving in which profits do not relate to the determination of
prices and output. This marked a turning point towards the General Theory.
The three 1933 manuscripts constitute the origins of
Chapter 3 of the General Theory. They
substantially discuss both an equilibrium condition for the level of employment
and its stability condition, although no concept appears corresponding to the
aggregate supply function of the General Theory.
By the end of 1933, he had established the following points: a system of
determining the level of employment; the consumption function; the fundamental
psychological law; the liquidity preference theory; the marginal efficiency of
capital; and the multiplier theory. In the spring and summer of 1934, Keynes put forward almost the
same theoretical framework as that of the General Theory in the area of
consumption and investment theories (the “eve of the General Theory”).
Through these passages, Keynes finally arrived at the General
Theory.
*What follows comes from T.
Hirai, Keynes’s Theoretical Development
- From the Tract to the
General Theory, Routledge, 2008.
4. On Keyes’s Activities in the WW2
The author reviews Skidelsky’s John Maynard Keynes in great
detail. There are many instructive points. Here I will confine my attention to
XV -XVIII (43-48), which addresses Keynes’s activities during WW2. The author
highly evaluates “How to Pay for the War”, noting three significant points (cf . 47).
He also argues that the defeat of the International Clearing Union (ICU) plan
(Keynes’ plan) in favour of the White plan (cf . 264) represented a loss for the
post-war world.
In this respect, the
reviewer would add a further point: we might see the “internationalist” system designer and political pragmatist as
two facets of Keynes? I find them constantly appearing in his postwar activities in the commodity problem, the rescue and
reconstruction problem, and an international monetary system negotiation.
Keynes as a system designer formulated proposals showing excellence at the
level of “internationalism”, while, in the process of negotiations, he revealed
his capacities as a political pragmatist pursuing the interests of the British
Empire.
In the case of the
international monetary system, around June 1943 Keynes, in practice, put his
own ICU plan aside, and tried to arrive at some sort of compromise by reforming
the White plan through monetization of unitas . This effort failed due to the
resistance of the US. In the end, Keynes even came round to justifying the
White plan on the ground that it was much more crucial to secure financial aid
from the US – a justification difficult to understand from the point of view of
the ICU plan.
5. On Social Philosophy
(Evaluation of Capitalism)
The author argues that democratic socialism as advocated by Kalecki
He also argues that
capitalism should be examined as a cumulative causal relation rather than in
terms of the equilibrium point of view, and is highly critical of
Neo-liberalism (as the title of Ch.7 shows).
He has been involved in
Australian political and economic issues
Unlike the usual academic books, this book contains
the author’s biography (his racial
identity and situation, activities in the anti-Vietnam Wars, and so forth) and
book reviews of many distinguished economists with whom the author has worked
together – Pasinetti, Asimakopulos, the latter of which the reviewer found most
interesting, and so forth.
To resume my opening remarks, the book is rich in a wide
range of topics. For all readers it represents (as indeed it has been for the
reviewer) a good opportunity to approach various topics anew through the author's
own perspective and views.
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