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.
