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The General Theory and Keynes for the 21st Century

Editor(s):Dow, Sheila
Jespersen, Jesper
Tily, Geoff
Reviewer(s):Dimand, Robert W.

Published by EH.Net (September 2019)

Sheila Dow, Jesper Jespersen and Geoff Tily, editors, The General Theory and Keynes for the 21st Century. Cheltenham, UK: Edward Elgar, 2018. xx + 208 pp. $130 (hardcover), ISBN: 978-1-78643-987-1.

Reviewed for EH.Net by Robert W. Dimand, Department of Economics, Brock University.

In July 2016, a conference at University College London celebrated two eightieth birthdays, those of John Maynard Keynes’s General Theory of Employment, Interest and Money (1936) and of Victoria Chick, professor emerita at University College London and author of a landmark contribution to Post-Keynesian economics, Macroeconomics after Keynes: A Reconsideration of the General Theory (Chick 1983). Sheila Dow of the University of Stirling, Jesper Jespersen of Roskilde University in Denmark, and Geoff Tily, a senior economist at the Trades Union Congress, have edited two volumes of selected papers from the conference — the present volume focused on Keynes’s revolution in macroeconomics and its continuing relevance and a companion volume on contemporary Post-Keynesian contributions to monetary economics and economic methodology (Dow, Jespersen and Tily, eds. 2018). Together these volumes revisit the themes of Victoria Chick’s selected essays (Arestis and Dow, eds., 1992) and an earlier festschrift (Arestis, Desai and Dow, eds., 2002). This volume opens with an eloquent argument “On the Relevance of The General Theory at 80” by Victoria Chick, making a persuasive case for the continued relevance of both the conference’s honorees. Professor Chick also contributed (with A. Freeman) on “The Economics of Enough” to the companion volume.

Robert Skidelsky, Keynes’s biographer, usefully summarizes the difference between Keynes and orthodoxy: “Since orthodox theory … believed that unimpeded markets had an automatic tendency to full employment, the orthodox explanation for the abnormal employment after the war emphasized a blockage, or set of blockages, to the price-adjustment mechanism, the remedy for which was to remove such impediments. Both the political Left and the political Right subscribed to the blockage theory” (p. 31). This blockage theory is still the belief that crucially keeps modern orthodoxy, whether called New Classical or New Keynesian or “new neoclassical synthesis,” from absorbing Keynes’s message.

Perhaps the single most substantial contribution among the fourteen chapters, and the one most likely to be frequently cited on its topic, is by Radhika Desai on “John Maynard Pangloss: Indian Currency and Finance in imperial context.” While acknowledging “elements of truth” in claims that some aspects of Keynes (1913) prefigured his later views on international monetary reform, such claims “privilege the technical over the political … ignoring the fact that the genius of the Bretton Woods proposals which, by contrast, were original to Keynes, lay not in the technicalities of managing money but in Keynes’s vastly changed conception of the purposes for which to do so” (pp. 116-17). While other contributors are hesitant to be unenthusiastic about anything that Keynes wrote at any stage of his career (upholding Keynes not just against his neoclassical critics but against non-neoclassical economists such as Kalecki), Desai (p. 124) states frankly that “While there was intellectual merit in his lucid and informative synthesis [in Keynes 1913], that is all it was.”

Gerhard Michael Ambrosi lucidly examines how the Gibson Paradox of a positive correlation between the interest rate and the price level, described by Keynes (1930) as “one of the most completely established empirical facts within the whole field of quantitative economics,” was entirely absent from Keynes (1936), but I would have liked to see more attention to how correlation between interest rates and the rate of change of prices complicates empirical observation of correlation between interest rates and the price level. Andy Denis, drawing on his 1988 MA dissertation on Marx and Keynes, argues surprisingly, but with some intriguing supporting quotations, that Keynes held a labor theory of value. He also relates Keynes’s decreasing marginal efficiency of capital to Marx’s falling rate of profit due to a rising organic composition of capital, but Keynes’s downward-sloping investment-demand schedule, at a moment of time, does not seem to me close to Marx’s tendency for the profit rate to fall over time.

Maria Cristina Marcuzzo (p. 26) quotes Robert Skidelsky’s important reminder, in his biography of Keynes, that “There are many different ways of telling the story of the General Theory of Employment, Interest and Money, and many different stories to be told about it.” Nonetheless, the contributors mostly share a story about the General Theory that emphasizes unquantifiable uncertainty (without mention of Frank Knight, or of limited knowledge invoked by Hayek and other Austrian economists to reach anti-Keynesian policy conclusions) with other stories viewed, to quote the title of a book by one of the editors, as Keynes Betrayed (Tily [2007] 2010). There is no mention of the Clower-Leijonhufvud story that takes seriously Keynes’s rejection of Say’s Law of Markets, arguing that it (or Walras’s Law) applies only to notional demands, not to quantity-constrained effective demands. The amount of unsold labor, multiplied by the wage rate, should not be counted in the budget constraint for goods, so excess supply of labor need not imply excess demand for anything else. The only mention of Say’s Law (by Heinz Kurz on p. 186) quotes an introductory remark by Keynes (1936) viewing Say’s Law as the proposition that “the economic system was always operating at its full capacity” without going on to Keynes’s later, fuller explanation that under Say’s Law parts of the economy could operate below full capacity provided there was an equal amount of excess demand elsewhere in the economy (so that, according to such classical economists as Ricardo, adjustment would only require shifting resources from industries in excess supply to those in excess demand). There is also no mention of the General Theory’s Chapter 19, on changes in money wages, which has been invoked by Hyman Minsky and James Tobin to argue that faster adjustment of prices and money wages, instead of restoring full employment, would be destabilizing (but Minsky and his financial instability hypothesis appear in a footnote in Heinz Kurz’s chapter on Schumpeter and Keynes, p. 195n).

The contributors have no tolerance for restatements of the General Theory as a system of simultaneous equations (see Marcuzzo on p. 18, quoting Chick). In December 1933, in the concluding lecture of eight lectures on “The Monetary Theory of Production,” Keynes summarized his theory as a system of four equations (see Rymes 1989, Dimand 2007) but discarded that approach in his book, either because it was a tentative formulation that he found wanting or because he followed Marshall’s advice to use mathematics as an aid to inquiry, translate into English and then burn the mathematics. The editors quote one of those four equations in their introduction (p. xv) without mentioning the system of equations (or that Lorie Tarshis’s frustration with that lecture was because Keynes used W for “the state of the news,” having used the same symbol in earlier lectures for the money wage). Marcuzzo (p. 18) observes that “it has been a matter of puzzling disappointment to many of us as to why Keynes did not oppose … the IS-LM distortion.” David Champernowne and W. Brian Reddaway, authors of the first published translations of the General Theory into simultaneous equations, both attended that December 1933 lecture. Keynes had discarded the simultaneous-equations expression of his theory well before publication but might hesitate to publicly repudiate young economists who were reading his book in the light of his own lectures. The equations in the IS-LM articles neglected a crucial feature of Keynes’s lecture: explicit inclusion of the “state of the news” as an argument in each of the consumption, investment and liquidity preference functions.

Overall, these well-written, lively essays will appeal to Post Keynesian economists and more widely to readers interested in Keynes’s General Theory and, together with the companion volume, form a worthy tribute to Victoria Chick’s contributions to economics.

References:

Philip Arestis and Sheila Dow, eds. (1992) On Money, Method and Keynes: Selected Essays by Victoria Chick. London: Macmillan.

Philip Arestis, Meghnad Desai and Sheila Dow, eds. (2002) Money, Macroeconomics and Keynes: Essays in Honour of Victoria Chick, 2 volumes. London: Routledge.

Victoria Chick (1983) Macroeconomics after Keynes: A Reconsideration of the General Theory. Cambridge, MA: MIT Press.

Robert W. Dimand (2007) “Keynes, IS-LM, and the Marshallian Tradition,” History of Political Economy 39(1): 81-95.

Sheila Dow, Jesper Jespersen and Geoff Tily, eds. (2018) Money, Method and Contemporary Post-Keynesian Economics. Cheltenham, UK: Edward Elgar.

John Maynard Keynes (1913) Indian Currency and Finance. London: Macmillan.

John Maynard Keynes (1930) A Treatise on Money, 2 volumes. London: Macmillan.

John Maynard Keynes (1936) The General Theory of Employment, Interest and Money. London: Macmillan.

Thomas K. Rymes, ed. (1989) Keynes’s Lectures 1932-35: Notes of a Representative Student. London: Macmillan.

Geoff Tily ([2007] 2010) Keynes Betrayed: The General Theory, the Rate of Interest and ‘Keynesian’ Economics. Basingstoke, UK: Palgrave Macmillan.

 
Robert W. Dimand is Professor of Economics at Brock University, St. Catharines, Ontario, Canada, and recently author of Irving Fisher (Palgrave Macmillan, 2019) and editor of The Routledge Handbook of the History of Women’s Economic Thought (with Kirsten Madden, 2018) and The Elgar Companion to John Maynard Keynes (with Harald Hagemann, 2019).

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Subject(s):History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Europe
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII