Keynes’s General Theory:
Seventy-Five
Years Later, ed. by Thomas Cate Edward Elgar, 2012, x+348 pp.
Seventy-Five years have passed
since the publication of General Theory
(1936. Hereafter GT). Over this
period, its evaluation has dramatically had ups and downs, and every time GT marked the 10th, 20th
… anniversary, there appeared books evaluating it from various points of view.
The book reviewed belongs to the 75th one.
In advance, two points might
be worth mentioning. One is that almost all the papers regard GT as containing essentials for
understanding the present economy or constructing macroeconomics, so the book is
“Pro-Keynesian”. The other is that the book presents diverse points of view of GT.
The book is composed of 15 chapters. The reviewer
would examine it, identifying four types according to common features.
Type 1: Chapters Focused on GT
Focus on Institutions ― In Chapter 1, Asensio maintains that GT
provides rich concepts of institution and equilibrium. Institutions and
conventional behaviors provides an economic system with structural stabilizers
such as law, regulation, monetary contract, which contribute to its convergence
toward equilibrium at any time, while excluding intrinsic indeterminateness.
This anchoring works through attraction of market interest rate toward
conventionally expected interest rate, the resistance of money wages to fall
and so forth. Asensio asserts the chapter belongs to Post-Keynesianism (GT, Ch.18-3 mentions four stabilizers
for underemployment equilibrium) .
Maverick Stance ― Two papers develops 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 almost neglected in both theory and policy.
Neo-Classical Synthesis and New Keynesianism as its modern version wrongly
accepted Keynes’s theory as “economics of rigidity”, while Post-Keynesians
failed to grasp Keynes’s achievements by refusing Marshallian framework and
deviating from the mainstream. Keynes’s theory of effective demand is a theory
of employment as restatement of Marshallian equilibrium theory which takes both
time and money into consideration. He also stresses the significance of
liquidity for GT. (The reviewer is
doubtful of how unique interpretation is in comparison with Neo-Classical
Synthesis in interpreting GT.)
In Chapter 12, firstly Hamouda puts forward
his own interpretation, criticizing rather types of Post Keynesians. Firstly,
he insists that TM should not be neglected, for TM and GT should be regarded
as one. He maintains that the negligence of TM
in economics has made economists lead to misunderstanding GT. (The reviewer thinks that TM
is important in understanding how Keynes changed his theory from TM to GT. In Hamouda’s case, the Keynesian Revolution occurred in TM rather than GT. Incidentally this chapter only deals with TM in the book.) Secondly, his analysis of GT is basically based on the aggregate demand and supply theory in GT’s Chapter 3, putting emphasis on
marginal efficiency of capital as well (The reviewer understands that the
manuscript written at the end of 1932 is a turning point from TM to
GT. See Hirai [2008] Ch.7).
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
everyday language philosopher rather than logical atomism one. Based on this,
he maintains that GT develops “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 is a theory 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. The authors recognize
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 as precursor constructing a nested vision of Keynes. (The reviewer
wonders 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 by 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 limitation
of neoclassical capital theory. The other is to rectify Keynes’s principle of
effective demand spoiled by neoclassical marginalism through adoption of a “supermultiplier”
model cum Kaldor’s “Verdoon Law”.
Monetary Stance – One is Chapter 13, in which Rochon stands by
Horizontalist. In this regard, he evaluate 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 a problem of
endogeneity between banks and a central bank, although the direction in which
Keynes moved is the same as Horizontalists did later.
Another is Chapter 15, in which Wray explains
two alternative approaches to money – market efficiency enhancement, and state creation
― and claims that his stance
(neo-Chartalist), which regards money as public monopoly, should update Keynes’s
argument.
Type 3: Chapters on Development of Postwar
Macroeconomics
Positive Evaluation ― In Chapter 7, Lazzetti=Ohanian stress the influences initiated by GT. Its framework was provided to
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’s forecasting
models are similar to Keynesian models in the 1960s, including Philips curve
and management of aggregate demand. Keynesian vision provides the framework for
policy implementation in the context of a central bank’s behavior attaining low
unemployment rate and stability of the price level. Thus a central bank is
unlikely to fall into pessimism. They are sure that GT will continue to find strong support among policy makers (The
reviewer thinks 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 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. What attracts the reviewer, firstly, is that he
categorizes IS-LM approach, New Keynesian Models mark II as “Marshallian
Approach”, while New Keynesian models of the coordination failures type and New
Classical models as Walrasian Approach. To the reviewer IS-LM approach and
extended version incorporating many equations belong to Walrasian Approach (see
Patinkin), while New Classical models are not Walrasian, for they assume a
representative agent. Secondly, the reviewer sees no future for macroeconomics
along New Classicals, which use utility maximization of a representative agent
over an infinite period, rational expectations and calibration method. These
assumptions are of no use in analyzing the real world which has experienced
unstable financial globalization over the two decades.
Long-run Post Keynesian
Stance ― In Chapter 6, Docherty
states that Monetarism turned out to be unsuccessful, and soon Keynesian
victory has been brought about by New Keynesians and Post Keynesians. That
said, he points out two differences between the two: (i) Difference in causality
structure; (ii) the long-run features in Post Keynesians are similar to the short-run
ones in New Keynesians. He emphasizes that economics should move along Post
Keynesian approach which analyzes macroeconomic policy on short run and long
run issues. (The reviewer wonders why New Classical macroeconomics, which had
won the victory after Monetarism over these two decades is not referred to at
all.)
Response to GT from Soviet and Western Marxism ― In Chapter11, Dostaler discusses the relation between
Keynes and Marx – destruction of the foundation of Ricardian economics on which
Marxian economics is built, the relation in “Monetary Theory of Production”,
the familiarity in love of money - , followed by Keynes’s view on Soviet, the
impact of GT on Western Marxism as
well as that in the Soviet bloc.
What attracts the reviewer
most here – the only chapter discussed in the context of political regime
change, are as follows: Big up-and-down swing in evaluation of GT/Keynes in the Soviet bloc as well as
among Western Marxists. The reviewer thinks that this theme should be examined
more extensively including Japan.
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, so one might have an
impression of neutral stance.
What is striking is that they maintain the
methodological similarities, and argue that Keynes just “moved away” from, not renounce,
the quantity theory of money.
Type 4: Others
New Theories in the Previous
Period - In Chapter5, Dimand
points out the fact that many theories known as currently invented are, in
fact, the ones which were developed before ― people including scholars simply do not notice it (e.g.
Minsky’s theory can be found in Fisher’s theory of debt deflation). The author,
among others, pays attention to 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 in connection with this
unnoticed achievements.
Emphasis on Interest and
Profit - In Chapter14, profit seeking
activities by firms, Smithin maintains, are essential for understanding
capitalism. But this is neglected in Neoclassical theory, so it cannot be an
adequate theory of capitalism. He also
emphasizes the difference
between profit and interest and rejects the “equalization of the rate of profit”.
The reviewer would like to know how this is related to GT.
The book, again, reveals diversity and multiple understanding of GT as well as Keynesian economics in
general. This tendency might mirror the present situation in which the “Pro-Keynes”
Camp is situated. The reviewer believes that as far as GT’s interpretation is concerned, it should be rather pursued based
on primary material as well as on Keynes’s publications in its entirety (cf.
Hirai [2008] Chs.4-12). Another task for each Pro-Keynesian is to put GT and Keynes in the context of the
present world economy after the Lehman Shock (cf. Bateman, Hirai and Marcuzzo
[2010]).
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.
