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Response to Bateman’s Review of Dimand and Hagemann, eds., The Elgar Companion to John Maynard Keynes

Author(s):Tily, Geoff
Reviewer(s):Tily, Geoff

Published by EH.Net (March 2020)

Response to Bradley Bateman’s Review of Robert W. Dimand and Harald Hagemann, editors, The Elgar Companion to John Maynard Keynes — by Geoff Tily.

I am grateful to Bradley Bateman for his remarks on my essay in the Elgar Companion to John Maynard Keynes. My aim was to emphasize the over-riding importance of Keynes’s monetary initiatives, necessarily including the international as well as British perspectives. I did not address the details of subsequent academic and policy debate, and, as Bateman points out, I did not address the contributions of those who have departed from the conventional view of “Keynesianism.” However, elsewhere I have devoted a good deal of attention to the contemporary literature. Of most relevance are a review of The Return to Keynes (2010) and a review essay on the Cambridge Companion to John Maynard Keynes (2006), both edited by Bateman with others and published on each side of the “great recession” (Tily, 2013, 2011).

These reviews tackle contributions by a number of the scholars cited by Bateman. For example in the latter I devoted a good deal of attention to G. C. Peden, recognizing his important contributions on British policy and especially as one of the few who have addressed substantially Keynes’s monetary policy. I stand by my criticism that Peden portrays “… these matters as ad hoc, rather than as a permanent backdrop or preoccupation.”

Keynes’s theory and policy amounted to a great deal more than Bateman’s suggested “preference for low interest rates over fiscal deficits.” Keynes warned that permanently low interest rates (across the spectrum) were essential to the prosperity and stability of the economic system. For me, the ongoing economic (and political) crises of the twenty-first century are rooted in the loss of this practical conclusion and the dismantling of the associated policy and institutional infrastructure. A fuller and freely accessible take on these matters is in my “As If Keynes Had Never Lived,” which was originally given as a lecture at King’s College Cambridge at a conference celebrating the eightieth anniversary of The General Theory (Tily, 2016).

As an aside: this perspective gives me a very different take on outcomes, not least that Keynes should be judged against the successes of the golden age rather than the failures of chasing growth the 1970s. But I would not want the reader to have the impression that my essay is an empirical argument: the figures were intended simply to supplement and illustrate the story.

My fundamental concern with the approach of Bateman and those he champions is that Keynes is either contained in the past or deployed merely in support of the contemporary policy consensus (though any consensus has somewhat unraveled compared to the view in Bateman et al. 2010). In my book (Tily, 2006) I argue Keynesianism was a different and rival theory to Keynes’s own. A similar argument is made in the Cambridge Companion, where Keynesianism is found to originate in various “proto-Keynesian” contributions (a term attributed to Peter Hall). While I trace the origins of IS-LM to contributions by Dennis Robertson, the Cambridge Companion emphasizes widespread policy preferences for demand management and “deficit spending” (“in the interwar period in Sweden, Japan, the United States, France, Italy and Germany,” p. 284) and emerging preferences for formal mathematical models (e.g. p. 36). My review of the Companion betrays a serious frustration that having identified (or acknowledged) this intellectual sleight of hand — and moreover (partially) recognizing Keynes’s monetary policy initiatives — the opportunity for a material re-assessment of Keynes is immediately closed down. (Doubtless any frustration was exacerbated by my efforts to do the opposite almost in exact parallel.) Instead Keynes is renewed as an “activist,” willing creatively to deploy monetary and/or fiscal policy according to circumstance. And this approach is common to many of the scholars praised in Bateman’s review, not least D. E. Moggridge, Susan Howson and Peter Clarke. In his (2009) biography of Keynes, Clarke also finds the textbook interpretation incorrect. He harshly condemns any rethinking as “anachronistic ventriloquism.” Acceptable only is a “pragmatic Keynesianism,” which licenses “fresh approaches to the novel economic difficulties of our own era — to tackle them actively rather than take refuge in inert doctrinal purity” (180).

For me this is an absurd reaction to the realization that the textbooks got Keynes wrong. As global policymakers fall short in their efforts to resolve a global crisis of private debt akin to that which motivated The General Theory, the position appears reckless in the extreme. Though of course there is a certain convenience in Clark’s interpretation: with Keynes relevant only to the past, the crisis cannot be the fault of the economics profession getting it wrong. This is not to say that Keynes’s word is final, but I very much doubt we can make much progress without a proper understanding of the substance of his theory that has been denied by the Keynesian interpretation.

I hope these comments and the associated contributions convince Professor Bateman that my work is less “incomplete” than he judged from the essay in the Elgar Companion. But even more I hope to convince him to distance himself from attempts to close down any debate about “what Keynes really meant.”


Clark, Peter (2009) Keynes: The Twentieth Century’s Most Influential Economist, London: Bloomsbury.

Tily, Geoff (2006) The General Theory, The Rate of Interest and ‘Keynesian’ Economics, Basingstoke: Palgrave Macmillan.

Tily, Geoff (2011) “Another ‘Useful Fiction’?” review essay on Roger E. Backhouse and Bradley W. Bateman, Eds. (2006) The Cambridge Companion to Keynes, Critique of Political Economy, 1, Autumn, 121-52. Online at

Tily, Geoff (2013) Review of Bradley Bateman, Toshiaki Hirai and Maria Cristina Marcuzzo, Eds. (2010) The Return to Keynes, Cambridge, MA: Harvard University Press, Economica, 80, 190-4.

Tily, Geoff (2016) “As If Keynes Had Never Lived: The Second UK (and World) Crisis of Financial Globalization,” Paper for Conference at King’s College Cambridge: “Maynard Keynes in King’s College and The General Theory of Employment, Interest and Money (1936), October 2016. Online at

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

The Routledge Handbook of the History of Women’s Economic Thought

Editor(s):Madden, Kirsten
Dimand, Robert W.
Reviewer(s):Forget, Evelyn L

Published by EH.Net (August 2020)

Kirsten Madden and Robert W. Dimand, editors, The Routledge Handbook of the History of Women’s Economic Thought. New York: Routledge, 2019. xiv + 465 pp. $196 (hardcover), ISBN: 978-1-1388-5234-1.

Reviewed for EH.Net by Evelyn L Forget, Department of Community Health Sciences, University of Manitoba.


“By design this Routledge handbook is about women and about time and about economics. By design this handbook is global. Otherwise, this handbook is not easy to capture, condense, or consolidate into leading archetypes and primary themes” (p. 1). So writes Kirsten Madden on the first page of a fascinating adventure that draws together the wildly diverse writings of “a Soviet game theorist and a Liberian president; wives of noted nineteenth-century economists and Buddhist nuns from millennia past … revolutionaries, terrorists, even an assassin.”

This Handbook has an impressive geographical scope: women economists from Austria, Britain, China, India, Italy, Japan, Russia, the Soviet Union, sub-Saharan African nations and the U.S. are profiled. Chapters are organized by time, and most focus on the nineteenth and early twentieth centuries but the first chapter, written by Sheetal Bharat, on Indian women’s literature reaches as far back as the fifth century BCE, while the final chapters extend well into the twenty-first century. Almost all of the authors are women, with the exception of two male co-authors, and contributors range from senior scholars to graduate students.

Diverse themes are addressed. Eleven chapters address issues of gender and economy, exploring topics such as the crowding hypothesis and pay gaps, minimum wages, affirmative action, co-operation and household decision making. Other chapters explore colonialism, trade, economic development, economic statistics and finance. The experiences of women economists are not neglected; many of the economists in this collection confronted significant barriers to leave a record of their analyses. In fact, Madden writes, “one … concept crosses all the chapters: exclusion” — either because the economist herself was forced to overcome exclusionary practices or because she constructed works that spoke to the experiences of others excluded by economic practices (p. 2).

The Handbook does not aim to be exhaustive, nor does it establish a canon. It offers a selection of fascinating contributions of which many of us were unaware. As one might expect in such a variegated collection, contributions are somewhat uneven in tone and emphasis. Some chapters, such as “The First 100 Years of Female Economists in Sub-Saharan Africa,” by Lola Fowler and Robert Dimand, Giandomenica Becchio’s “Austrian School Women Economists” and Kirsten Madden’s “Anecdotes of Discrimination,” focus almost entirely on biography. Others, such as Shoshana Grossbard’s “Women’s Neoclassical Models of Marriage, 1972–2015,” lean heavily towards economic thought, traditionally understood. Other chapters combine the two and strive for a balance between the experiences of women economists and their writing. These include contributions such as “The Economic Thought of the Women’s Co-operative Guild” by Kirsten Madden and Joe Persky, Cléo Chassonery-Zaigouche’s analysis of the changing positions of Beatrice Potter Webb, Eleanor Rathbone and Millicent Garrett Fawcett on equal pay, and Marianne Johnson’s “Daughter’s of Commons; Wisconsin Women and Institutionalism.”

Co-editors Kirsten Madden, of Millersville University in Pennsylvania, and Robert Dimand, of Brock University Canada, have compiled a wonderfully diverse collection that should encourage us all to think more broadly about the history of economics. This collection, though, makes it very clear that we are at the very beginning stages of recovering the contributions of women economists. It is impossible to read any of these chapters, entertaining as many of them are, without asking some serious questions about historiography, and that may be the greatest contribution of this Handbook.

Historians of economics should be asking ourselves these questions.

Why do we need a Handbook of the History of Women’s Economic Thought? On one level, the answer is obvious. Existing collections, textbooks and even Handbooks of the History of Economic Thought include very few women. But why are women’s contributions not integrated into our understanding of “schools,” periods and themes? What are the consequences of exclusion? How does it affect the kind of histories we write?

If women economists were routinely included in standard histories of economics, would there still be a reason to have a Handbook of the History of Women’s Economic Thought? Is there some theme that binds together women economists and makes their work different from that of men? Madden’s focus on exclusion deserves more careful thought: how did exclusion manifest in particular times and places, and what were the consequences for the development of economic thought? Are there parallels, similarities and differences between the contributions of women economists and those of racialized economists?

How should we best organize a Handbook of Women’s Economic Thought? The editors’ decision to use a simple timeline makes sense at this stage of our knowledge, but should we organize by theme rather than date of contribution? If so, how do we identify the relevant themes? It isn’t obvious that the way we delineate standard histories of economic thought should be the most appropriate way to organize women’s contributions.

If we think about “themes” in the history of women’s economic thought, are there some that deserve greater attention than they have received to date? One thing that has always struck me, and it is apparent in this collection as well, is that women economists are very often embedded in the economies they write about in ways that “professional” economists, male and female, may not be. The women in this collection are activists more often than they are scholars and, while this may also have characterized male economists of the past, it persisted well into the twentieth and twenty-first centuries for many women writers. For example, Jessica Gordon Nembhard’s Collective Courage: A History of African American Cooperative Economic Thought and Practice (2014) delineates the dual role of economic writers and highlights the contributions of women. It builds on W.E.B. DuBois’s (1907) Economic Cooperation among Negro Americans, and brings another perspective to many of the same themes addressed in “The Economic Thought of the Women’s Co-operative Guild” written by Kirsten Madden and Joe Persky.

Every library needs a copy of this Handbook, and it should also find its way into the collections of historians of economics. This book will extend the boundaries of what is sometimes a very narrow field, both by including people who have been excluded, and by asking us to think again about some of the ways we define the field of economics and organize our knowledge of its past. We owe to Kirsten Madden and Bob Dimand, co-editors, as well as all the authors in this collection, a large vote of gratitude.


Evelyn L Forget is Professor of Economics in the Department of Community Health Sciences at the University of Manitoba, Canada. She is past president of the History of Economics Society, and her most recent book is Basic Income for Canadians: From the Covid-19 Emergency to Financial Security for All.

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Subject(s):History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Banks and Finance in Modern Macroeconomics: A Historical Perspective

Author(s):Ingrao, Bruna
Sardoni, Claudio
Reviewer(s):Rubin, Goulven

Published by EH.Net (June 2020)

Bruna Ingrao and Claudio Sardoni, Banks and Finance in Modern Macroeconomics: A Historical Perspective. Cheltenham, UK: Edward Elgar, 2019. vii + 281 pp. $145 (hardcover), $31 (ebook), ISBN: 978-1-78643-152-3.

Reviewed for EH.Net by Goulven Rubin, Sciences Économiques, Université Paris 1 (Panthéon-Sorbonne).


Banks and Finance in Modern Macroeconomics by Bruna Ingrao and Claudio Sardoni aims to explain the eviction of banks and finance from the mainstream of macroeconomics before the Great Recession occurred in 2008. The book begins with two chapters on the “giants” of pre-Keynesian revolution macroeconomics. Chapter 2 compares Knut Wicksell and Irving Fisher, two economists who analyzed the role of banks’ supply of credit in order to complete the quantity theory of money. Chapter 3 discusses the contributions of Joseph Schumpeter and Dennis Robertson who both argued that banks’ intervention in the economy is a precondition of innovation and growth. Chapter 4 shows how, in the early 1930s, John Maynard Keynes (1931) and Fisher (1933) analyzed the destabilizing effects of deflation on the financial structure of the economy. Chapter 5 opens the story of how the mainstream excluded banks and finance from its models. It argues that, from 1930 to 1936, Keynes progressively expelled commercial banks from his theoretical apparatus. Chapter 6 and 7 follow the evolution of mainstream Keynesian macroeconomics from 1937 to the 1970s. This mainstream is related first to John Richard Hicks’ “attempt to expound macroeconomic theory in the context of a general equilibrium model” (p. 114) in “Mr Keynes and the Classics” (1937) and in Value and Capital (1939). But the main focus is on the contribution of Don Patinkin and Franco Modigliani. Patinkin erased the financial structure of the economy by assuming away distributive effects and risks of default. A similar simplification of the financial sector is found in Modigliani (1963). In the 1960s, only two lines of research emerged from the wreckage. John Gurley and Edward Shaw (1960) showed the importance of financial intermediaries for the process of growth. James Tobin attempted to incorporate banks and equity markets in the IS-LM framework beginning in the 1960s. Chapter 8 discusses the contribution of Milton Friedman and ends up with the Real Business Cycle literature, which represent the last step in the “disappearance of money.” Chapter 9 surveys the macroeconomic literature spanning the last forty years that considered banks and finance from the perspective of imperfect information. The conclusion of the book explains the authors’ dissatisfaction with the current mainstream. If they credit the post-2008 DSGE literature with a rediscovery of banks and finance, they consider that “the general environment within which the analysis is carried out” (p. 243) remains unfit. The Arrow-Debreu intertemporal general equilibrium model that serves as a benchmark for macroeconomics is not consistent with models incorporating money and imperfections. Ingrao and Sardoni thus end up with a plea for a return to the insights of the giants of the inter-war and to practices less tied to mathematical modelling and more open to the complexities of history, the role of institutions and the reality of behaviors characterized by bounded rationality.

To my knowledge, Ingrao and Sardoni’s book is the first attempt to explore systematically the attention that macroeconomics has paid to banks and finance since its beginnings. It is history of ideas at its best, a practice of history that takes the time to assess the consistency of the theories under scrutiny and to discuss their limits, preparing the reader to “study the present state of economics from the standpoint of past authors” (Kurz, 2006: 468). In this respect it will probably remain a landmark. It provides simultaneously a big picture of the subject and a myriad of subtle case studies to which the above summary cannot do justice. The book is a must-read because of its breadth. But this breadth goes along with a lack of comprehensiveness that blurs the picture and leaves open questions.

Concerning the 1960s and the 1980s, Ingrao and Sardoni’s presentation is too selective. Where they conclude that banks and finance were absent from the mainstream, I would argue that these decades saw a boom of research on the topic. In the 1960s, the book ignores the works of Modigliani and his team to develop the first macroeconometric model at the Federal Reserve Board, the MPS, which featured a detailed finance sector (Acosta and Rubin, 2019). It also ignores the attempts of Karl Brunner and Alan Meltzer to propose an alternative to the IS-LM model with an equity market and financial intermediaries. Concerning the 1980s and 1990s, Ingrao and Sardoni fail to acknowledge the importance and the centrality of the burgeoning literature on credit market imperfections. What we need to explain is why, in spite of the waves of research on banks and finance that marked different periods, those key aspects of the market economy did not become part and parcel of all workhorse models before 2008. Ingrao and Sardoni put all the blame on the Arrow-Debreu model and on the “troubled marriage” of macroeconomics with it. But how exactly did the Walrasian benchmark influence the way banks were defined and modelled or the way they were excluded when it was the case? Was general equilibrium theory really the prime influence here? Matters of tractability or available empirical evidence should also be considered. On this score, I find the discussion too cursory. To take only one example, Ingrao and Sardoni present the version of IS-LM introduced by Hicks (1937) as a Walrasian model. As I have explained elsewhere (Rubin, 2016) following the contributions of Young (1987), Dimand (2007) or Barens (1999), IS-LM originates in the works of Keynes and is not Walrasian. What is lacking is a more careful discussion of the complex interaction between the pure theory of general equilibrium and the impure and simpler macroeconomic models.


Acosta, Juan and Goulven Rubin (2019). “Bank Behavior in Large-scale Macroeconometric Models of the 1960s,” History of Political Economy, 51 (3): 471-491.

Barrens, I. (1999) “From Keynes to Hicks – an Aberration? IS-LM and the Analytical Nucleus of the General Theory,” in P. Howitt et al (editors) Money, Markets and Method: Essays in Honour of Robert W. Clower, Cheltenham: Edward Elgar.

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

Fisher, Irving (1933). “The Debt Deflation Theory of Great Depressions,” Econometrica, 1(4): 337-357.

Gurley, John G. and Edward S. Shaw (1960). Money in a Theory of Finance, Washington: Brookings Institution.

Hicks, John R. 1937. “Mr Keynes and the Classics: A Suggested Interpretation,” Econometrica 5: 147-59.

Hicks, John R. [1939] 1946. Value and Capital. An Inquiry into Some Fundamental Principles of Economic Theory. Oxford: Clarendon Press.

Keynes, John Maynard (1931[1972]). “The Great Slump of 1930” in Essays in Persuasion, London, Macmillan, vol. 9 of The Collected Writings of John Maynard Keynes.

Keynes, John Maynard (1936). The General Theory of Employment, Interest and Money, vol. 7 of The Collected Writings of John Maynard Keynes: London: Macmillan.

Kurz, Heinz (2006). “Whither the History of Economic Thought? Going Nowhere Rather Slowly?” European Journal of the History of Economic Thought, 13(4): 463-488.

Modigliani, Franco (1963). “The Monetary Mechanism and Its Interaction with Real Phenomena,” Review of Economics and Statistics, 45 (1): 79-107.

Rubin, Goulven (2016) “Oskar Lange and the Walrasian Interpretation of IS-LM,” Journal of the History of Economic Thought, 38 (3): 285-309.

Young, Warren (1987) Interpreting Mr Keynes: The IS-LM Enigma, Cambridge: Polity Press.


Goulven Rubin is Professor at Sorbonne School of Economics, University Paris 1 Panthéon-Sorbonne, and Deputy Head of laboratory PHARE. He is a specialist of the history of macroeconomics and the author of articles on Don Patinkin, John Richard Hicks, Oskar Lange, Franco Modigliani and the IS-LM model.

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

The Elgar Companion to John Maynard Keynes

Editor(s):Dimand, Robert W.
Hagemann, Harald
Reviewer(s):Bateman, Bradley W.

Published by EH.Net (February 2020)

Robert W. Dimand and Harald Hagemann, editors, The Elgar Companion to John Maynard Keynes. Cheltenham, UK: Edward Elgar, 2019. xxi + 648 pp. $250 (hardcover). ISBN: 978-1-84720-008-2.

Reviewed for EH.Net by Bradley W. Bateman, Randolph College.

Rarely does one read a reference work for pleasure. After all, would you take the Encyclopedia Britannica or the New Palgrave to the beach for your holiday? Not likely. And yet, there are reference books that one not only depends on, but enjoys. These might be surveys of the literature such as G.C. Peden’s little gem, Keynes, the Treasury, and British Economic Policy (1988); or they might be traditional multi-volume works like the Dictionary of National Biography. A good reference work can take many forms; but when you find a well-written and authoritative work that can help you in your research, you turn to it regularly and, yes, can even come to enjoy it.

If you have a shelf of books like this, you may want to add to it The Elgar Companion to John Maynard Keynes, edited by Robert Dimand (Brock University) and Harald Hagemann (University of Hohenheim). Dimand and Hagemann, two top historians of economics, have put together a comprehensive, one volume reference book on John Maynard Keynes. The Companion covers everything from Keynes’s parents to New Keynesian macroeconomics. And while there is a fair representation of young scholars among the contributors, the vast majority of the entries are written by well-established experts: John Davis on Ludwig Wittgenstein, Heinz Kurz on Piero Sraffa, Susan Howson on James Meade, and Bruce Littleboy on G.L.S. Shackle. The essays on Keynes’s great trilogy are, likewise, written by experts: Robert Dimand on A Tract on Monetary Reform, Ingo Barens on A Treatise on Money, and Robert Skidelsky on The General Theory.

Four of the best entries in the book are by D.E. Moggridge, the editor of Keynes’s Collected Writings. Moggridge is also an eminent economic historian and he is thus able to set the context authoritatively for Keynes’s work in his four essays: The India Office, World War I, Keynes and British financial policy in the inter-war years, and World War II. Keynes was, of course, deeply entwined in the debates about economic policy during his lifetime and Moggridge beautifully lays out the twists and turns in his career.

The Companion also contains unexpected gems such as Sherry Davis Kasper on “The End of Laissez-Faire” and Robert Dimand’s entry on Mabel Timlin.

The only uneven section of the Companion is the final one, Keynesianism in Various Countries. Many of the essays here are excellent and build on the literature in this field. For instance, the essay on Japan by Masazumi Wakatabe takes the reader far beyond the indeterminate conclusions of Eleanor Hadley (1989). Likewise, Piero Bini’s entry on Italy expands nicely upon the classic essay by Marcello de Cecco (1989). Harald Hagemann’s entry on Germany, Goulven Rubin’s on France, and Robert Dimand’s on Canada are indispensable for scholars who study how Keynes’s ideas were (or were not) spread in various countries. There is new material here for even the most seasoned scholar. These essays are definitive surveys of the literature.

But against these many excellent country studies are two that take a quite different tack: Geoff Tily on the U.K. and Mathew Forstater on the U.S.

In the case of the United States, the standard narrative in the literature lays out how countercyclical fiscal policy first came to be implemented in 1938 without any reference whatsoever to Keynes or The General Theory (Stein 1969, Backhouse and Bateman 2011). Forstater mentions none of this history and chooses instead to focus more on analytical debates about the evolution of the Keynesian model in the U.S. There is nothing wrong with this, per se, and eventually the Keynesian model(s) did become central to policy debate in the United States. But it is an unorthodox take on the history of “Keynesianism” in the U.S. since, in fact, Keynes is not present at the moment when many people assume he was taking center stage.

The question of Keynes’s role in the development of British economic policy is much larger, however, than the question of his role in the States. He was, after all, British and his central role in British economic policy debates shaped not only his own thinking but the course of his nation’s history. There is a huge literature in economic history on the question of Keynes’s influence in British policy making (Peden 1988, Peden 2005) and leading British historians have weighed in on the question of his influence(s) (e.g. Clarke 1988). However, none of that debate is even mentioned in Tily’s entry. Instead, he depends on tables of government expenditure and deficits and argues from these for the centrality of Keynes’s vision to 1930s British policy making (p. 570). His revisionist approach is certainly a legitimate method and Tily highlights several important facts about Keynes’s thinking that are often overlooked, such as Keynes’s preference for low interest rates over fiscal deficits; but as his results about Keynes’s success in the policy sphere differ quite notably from those in a well-established literature, he owes it to his reader to explain the differences. The method of argument is not necessarily wrong, but it is certainly incomplete.

By far, however, most entries in this Companion are authoritative, well-written, and useful. For instance, the pieces on Don Patinkin (Goulven Rubin), Axel Leijonhuvud (Hans-Michael Trautwein), and Hyman Minsky (L. Randall Wray) tell a compelling history of how Keynes’s ideas were extended and reshaped by others. They limn otherwise fading chapters in the history of twentieth century macroeconomics.

One might suppose that the likelihood of wanting to have this excellent reference volume in one’s library would depend on one’s proclivities in political economy: Free marketeers would not want it, while interventionists would. And that may be true for many historians of economics. But regardless of one’s own political economy it is a valuable tool and it should absolutely be in all university libraries where it will serve well the interests of all curious students of the discipline.


Roger Backhouse and Bradley Bateman. 2011. Capitalist Revolutionary: John Maynard Keynes. Cambridge: Harvard University Press.

Peter Clarke. 1989. The Keynesian Revolution in the Making, 1924-1936. Cambridge: Cambridge University Press.

Marcello DeCecco. 1989. “Keynes and Italian Economics,” in Peter Hall, ed. The Political Power of Economic Ideas: Keynesianism across Nations. Princeton: Princeton University Press.

Eleanor Hadley. 1989. “The Diffusion of Keynesian Ideas in Japan,” in Peter Hall, ed. The Political Power of Economic Ideas: Keynesianism across Nations. Princeton: Princeton University Press.

G.C. Peden. 1988. Keynes, the Treasury, and British Economic Policy. London: Macmillan.

G.C. Peden. 2005. Keynes and His Critics: Treasury Responses to the Keynesian Revolution, 1925-1946. London: British Academy.

Herbert Stein. 1969. The Fiscal Revolution. Chicago: University of Chicago Press.

Bradley W. Bateman is Professor of Economics and President of Randolph College. He is the author of Keynes’s Uncertain Revolution (1996) and is most recently a co-editor of Liberalism and the Welfare State: Economists and Arguments for the Welfare State (2017).

Copyright (c) 2020 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (February 2020). All EH.Net reviews are archived at

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

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.


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
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII


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Schwab, Robert M.
Schwartz, Anna J.
Schweikart, Larry
Schwekendiek, Daniel
Scott, Carole E.
Scott, Peter
Scranton, Philip
Self, James K.
Selgin, George
Sent, Esther-Mirjam
Sexton, Terri A.
Shammas, Carole
Shanor, Charles A.
Sharpe, Pamela
Shearer, Ronald A.
Shepherd, James F.
Sheridan, George J.,Jr.
Sheriff, Abdul
Shiue, Carol H.
Short, Joanna
Shubik, Martin
Shughart, William F.,II
Shy, John
Sicilia, David B.
Sicotte, Richard
Sicsic, Pierre
Siklos, Pierre
Silva, Jonathan
Silver, Morris
Simons, Kenneth L.
Simpson, James
Singleton, John
Sivin, Nathan
Sjostrom, William
Skemp, Sheila L.
Smil, Vaclav
Smiley, Gene
Smith, Daniel Scott
Smith, Fred H.
Smith, John K.
Smitka, Michael
Snooks, Graeme D.
Snowden, Kenneth A.
Snyder, D. Jonathan
Snyder, Jonathan
Sokoloff, Kenneth L.
Sorensen, Todd
Southall, Roger
Spechler, Martin C.
Spoerer, Mark
Spolaore, Enrico
Squatriti, Paolo
St. Clair, David J.
Stabile, Donald
Stabile, Donald R.
Stallbaumer-Beishline, L. M.
Stanciu Haar, Laura N.
Stanger, Howard R.
Stead, David
Stebenne, David
Steckel, Richard H.
Steeples, Douglas
Steindl, Frank
Stewart, Larry
Stitt, James W.
Stobart, Jon
Subramanian, Lakshmi
Sullivan, Richard J.
Sullivan, Timothy E.
Sumida, Jon
Sundstrom, William A.
Surdam, David
Surdam, David G.
Sutherland, Heather
Suzuki, Masao
Swearingin, Steven D.
Sylla, Richard
Szenberg, Michael
Szostak, Rick
Tabak, Faruk
Tallman, Ellis W.
Tandy, David
Tarry, Scott E.
Tassava, Christopher
Tauger, Mark B.
Taylor, Alan M.
Taylor, Christiane Diehl
Taylor, Graham D.
Taylor, Ranald
TeBrake, William
Teagarden, Ernest
Tebeau, Mark
Teichgraeber, Richard F.
Temin, Peter
Thomasson, Melissa A.
Thomson, Ross
Thornton, Mark
Tiffany, Paul
Tilly, Richard
Tolliday, Steven
Tollison, Robert D.
Toma, Mark
Tomlinson, Jim
Toninelli, Pier Angelo
Toniolo, Gianni
Touwen, Jeroen
Traflet, Janice M.
Trescott, Paul B.
Triner, Gail D.
Troesken, Werner
Tulchin, Joseph S.
Tuttle, Carolyn
Tweedale, Geoffrey
Twomey, Michael J.
Tympas, Aristotle
Ugolini, Laura
Vedder, Richard
Vedder, Richard K.
Velde, François R.
Ventry, Dennis J.
Verdon, Nicola
Ville, Simon
Virts, Nancy
Vitell, Scott J.
Vivenza, Gloria
Volckart, Oliver
Voth, Hans-Joachim
Vries, Peer
Wahl, Jenny
Wahl, Jenny B.
Wale, Judith
Wallis, John J.
Wallis, John Joseph
Wallis, Patrick
Walsh, Lorena S.
Walsh, Margaret
Walvin, James
Wanamaker, Marianne
Ward, Marianne
Wardley, Peter
Waterman, A. M. C.
Weber, Cameron M.
Wegge, Simone A.
Weidenmier, Marc D.
Weiher, Kenneth
Weir, Robert E.
Weir, Ron
Weiss, Thomas
Wells, Wyatt
Wendt, Ian C.
West, Martin
Westerman, Thomas D.
Whaples, Robert
Whatley, Christopher A
Whatley, Warren C.
Wheatcroft, Stephen
Wheeler, Hoyt N.
Wheelock, David C.
White, Eugene N.
White, Michael V.
White, Nicholas J.
Whitehead, John C.
Whitman, T. Stephen
Wicker, Elmus
Wilkins, Mira
Will, Pierre-Étienne
Williamson, Samuel H.
Wilson, John
Wilson, John F.
Winpenny, Thomas
Winpenny, Thomas R.
Wishart, David M.
Woeste, Saker
Wolcott, Susan
Wolf, Nikolaus
Wolff, Robert
Wood, Geoffrey
Wood, John
Wood, John H.
Woodward, Ralph Lee
Worden, Nigel
Wright, Gavin
Wright, Robert E.
Wright, Tim
Wuthrich, Bryan
Wynne, Ben
Yeager, Mary A.
Young, Garry
Young, Jeffrey T.
Zalewski, David A.
Zamagni, Vera
Zeiler, Thomas W.
Zevin, Robert
Zieger, Robert H.
Ziliak, Stephen
Ziliak, Stephen T.
de Fátima Brandão, Maria
del Mar Rubio, M.
van der Beek, Karine
van der Eng, Pierre
Álvarez-Nogal, Carlos
Ó Gráda, Cormac

Celebrating Irving Fisher: The Legacy of a Great Economist

Author(s):Dimand, Robert W.
Geanakoplos, John
Reviewer(s):Jovanovic, Franck

Published by EH.NET (May 2009)

Robert W. Dimand and John Geanakoplos, editors, Celebrating Irving Fisher: The Legacy of a Great Economist. Malden, MA: Blackwell Publishing, 2005. xv + 456 pp. $40 (cloth), ISBN: 1-4051-3307-4.

Reviewed for EH.NET by Franck Jovanovic, Department of Labour, Economics and Management, TELUQ-UQAM (Universit? du Qu?bec ? Montr?al).

Irving Fisher is undeniably one of the economists who have most influenced the discipline, because, among other things, he counts among the first to have introduced mathematical economics and modern economic theory to the United States. While his excessive optimism during the 1929 stock market crash damaged his reputation as an economist, his contributions to economics covered many areas of the discipline and are still widely influential.

The major challenge of this book, edited by Robert Dimand and John Geanakoplos, therefore is to lead contemporary economists who are not historians of economic thought in a discussion of Fisher?s contributions and the themes he analyzed. The book rises to and meets its challenge. This tour de force highlights the fact that Fisher?s work continues to influence current research in economics and, as James Tobin emphasizes, ?Fisher is cited for substance rather than for history of thought? (p. 20). However, while this book focuses on Irving Fisher, it is important to specify that it is not strictly speaking a work of history of economic thought, but a work of economic analysis on contemporary themes that Fisher analyzed several decades ago.

The book is a new edition of a special issue published in 2005 in the American Journal of Economics and Sociology (Vol. 64, No. 1), which collected revised versions of papers presented at a symposium at Yale in May 1998 to commemorate the fiftieth anniversary of the death of Irving Fisher. In addition, some of these articles had previously been published, such as the three Tobin contributions or the introductory chapter which is an adaptation of Dimand (1997). By way of a dozen themes, this book presents the main contributions of Irving Fisher to the discipline of economics. Each topic is treated in one article and then commented upon by one or several other contributions, totaling twenty-seven contributions.

James Tobin and William Barber each wrote one of the two biographical articles on Fisher. They place the work of Fisher back into the institutional landscape of his time and back into the history of economics. One of their focuses is the importance of mathematical economics and of the empirical in Fisher?s work. It is his interest in mathematics that led Fisher to break with the practices of economists of his time who were influenced by political economy. In addition to these two contributions, the foreword by George Fisher, a grandson of Irving Fisher, the introductory chapter by Dimand and Geanakoplos and two chapters by James Tobin about two publications by Fisher, Elementary Principles of Economics and The Nature of Capital and Income, constitute the chapters whose content is most informative for a reader interested in economic thought.

William Brainard and Herbert Scarf analyze how Fisher studied a general equilibrium model in his thesis, defended in 1891. They use Matlab software to simulate and, consequently, test the hydraulic model (with pumps and levers) developed by Fisher; they also go beyond the analysis of Fisher by simulating the dynamics of such an equilibrium.

Robert Hall examines, in his contribution, Fisher?s proposal to stabilize the price level in an economy. He suggests that Fisher?s work is particularly relevant for countries that have no central bank, such as Chile in the second part of the twentieth century; a suggestion that James Tobin denies in his commentary on this article.

Peter Phillips focuses on two major issues for which Fisher remains known today: the question of the real rate of interest and on what nowadays is called the Fisher effect (i.e., the real interest rate is independent of the nominal interest rate). Phillips tries in particular to overcome the lack of consensus about the time series of the real rate of interest by supposing that they are not stationary and by proposing a semi-parametric model. However, as noted by John Rust in his commentary, like Phillips? contribution, the literature that attempts to test the validity of the Fisher equation ?has employed increasingly sophisticated econometric methods to test an equation that even Fisher admitted had dubious validity? (p. 175).

Robert Dimand comes back to the concept of Corridor of Stability. This concept, which was originally introduced by Leijonhufvud in 1973, states that an economy will adjust itself only if the shocks of demand are sufficiently small. Dimand suggests that this concept already existed in the work of Tobin, Keynes and Fisher. This article, based on the ?debt-deflation? theory, proposed by Fisher in 1933 to explain the importance of the crisis of the 1930s, stresses that, by separating the major shocks from the small shocks, models based on the concept of corridor of stability could explain why the adjustment mechanisms of conventional macroeconomic models are often invalid, especially during severe recessions.

The contribution of Shoven and Whalley on tax policies is based on Fisher?s book Constructive Income Taxation, published in 1942. Among all contributions to this book, this article provides the best actualization of Fisher?s work. It suggests that Fisher?s idea to replace a tax on income alone with a consumption tax (spendings tax), a progressive tax on income less savings, was particularly innovative for its time. This situation could explain the relatively small influence of Fisher?s book.

In his article, John Geanakoplos examines the theory of impatience that allows Fisher to determine the interest rate in a model of an economy with a finite number of periods. This article shows that in some overlapping generations models (OLG) the interest rate at steady state depends on impatience. Thus, it goes beyond an apparent contradiction between the results of OLG by ?proving that in stationary OLG economies with land, the interest rate at the unique steady state does depend on impatience? (p. 257).

Erwin Diewert suggests the rehabilitation of the work of Bennet and Montgomery, two authors who are contemporaries to Fisher. They developed a theory of index numbers, which is another question for which economists and statisticians still recognize Fisher?s contributions today. By this way, this article aims to offer an alternative approach to that proposed by Fisher.

The last two articles deal with considerations on the health of populations. William Nordhaus suggests that the measurement of economic welfare might be improved by including the evolution of the health of populations. In a commentary paper to Nordhaus, Robert Dimand makes links between this article and Fisher?s work. Victor Fuchs uses some recommendations and positions taken by Fisher during his life to extrapolate on how he might have assessed the evolution of health public policies taking place in the United States during the twentieth century.

This book could interest readers familiar with Fisher?s work who want to discover the current economic work on topics studied by Fisher, topics that are still central in economics. Readers who are not familiar with Fisher?s work will be probably more confused because, as such, there is no presentation of Fisher?s work. In fact, the contributions update and test some models, assumptions or findings by this economist. It is regrettable that the book, whose title suggests that it is dedicated to the work of Irving Fisher, neither offers an exhaustive presentation of the work of the author nor an analysis of his contributions. Moreover, some contributions of this book only hold a tenuous link with the work of Fisher: they seize questions that Fisher dealt with, but they do not make any direct link with the writings of Fisher. Similarly, it is unclear if the notations are those of Fisher or those of the authors; therefore it is not always possible to separate the work of interpretation done in this book from the work of Fisher himself.


R. Dimand, 1997. ?Irving Fisher and Modern Macroeconomics,? American Economic Review, 87: 442?444.

A. Leijonhufvud, (1973) 1981. Information and Coordination: Essays in Macroeconomic Theory, New York: Oxford University Press.

J. Tobin, 1987. ?Irving Fisher,? in J. Eatwell, M. Milgate and P. Newman, editors, The New Palgrave: A Dictionary of Economics, vol. 2: 369?76.

Franck Jovanovic is Professor of economics at TELUQ-UQAM (Universit? du Qu?bec a Montr?al). He is working on the history of financial economics. His recent publications include the edition of a special issue of Revue d?Histoire des Sciences Humaines on the history of financial economics; ?The Construction of the Canonical History of Financial Economics,? published in History of Political Economy (40. 3: 213-42); and Pioneers of Financial Economics: Twentieth-Century Contributions, volume 2, edited with Geoffrey Poitras, Cheltenham: Edward Elgar.

Subject(s):Macroeconomics and Fluctuations
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

The Development of Monetary Economics: A Modern Perspective on Monetary Controversies

Author(s):O'Brien, D. P.
Reviewer(s):Dimand, Robert W.

Published by EH.NET (June 2008)

D. P. O’Brien, The Development of Monetary Economics: A Modern Perspective on Monetary Controversies. Cheltenham, UK: Edward Elgar, 2007. xv + 265 pp. $115 (hardcover), ISBN: 978-1-84720-260-4.

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

The eminent historian of classical political economy Denis O’Brien, Professor Emeritus of Economics at the University of Durham, has gathered together his work on monetary economics from Jean Bodin in the sixteenth century to Thomas Joplin and Walter Bagehot in the nineteenth century. Some of the chapters have been previously published, while others are new. All have been written since his Thomas Joplin and Classical Economics (1993) (one chapter of which is reprinted here) and since his earlier collection, Methodology, Money and the Firm (2 volumes, 1994). A companion volume collects his writings in the same period on non-monetary aspects of classical economics. Seven of the nine chapters (not counting the five-page introduction) have been published from 1993 to 2003, but the book is a unified, coherent historical analysis of the classical theory of monetary policy and its roots, parts of which were published as the project progressed, rather than an ex post assemblage of disparate essays. Any scholar interested in the Currency School/Banking School debate or in the emergence of the concept of a lender of last resort will need, and want, to read this material. Any such scholar will, indeed, have already read parts of the book that have appeared in prominent and easily accessible places, such as the three chapters published in History of Political Economy (on Jean Bodin’s quantity-theoretic analysis of inflation in 2000, on monetary base control and the 1844 Bank Charter Act in 1997, and on the concept of lender of last resort in 2003). An essay on Bagehot and stabilization appeared in the Scottish Journal of Political Economy in 2001, and two chapters, on the Banking School/Currency School controversy and on the stability analysis of those two schools, are reprinted from Blaug et al., The Quantity Theory of Money from Locke to Keynes and Friedman (1995). But the two new chapters, on John Law’s Money and Trade (1705) and on John Locke’s debate with his critics about the rate of interest (the two chapters being linked by Law’s borrowing of Locke’s argument that a plentiful supply of money encourages economic growth), are also necessary reading for anyone studying that era of monetary economics, and it is well worth rereading the other essays together as components of a connected historical narrative and analysis. O’Brien argues that a close look at the critiques of Locke by Joseph Massie and David Hume, and at their empirical claims about how the interest rate is related to the profit rate, reveals that historians of economics have been too generous to Massie and Hume as critics of Locke, and too harsh on Locke. Given the extent and accessibility of the reprinted chapters, and given the price of academic books, the temptation is to persuade one’s university library to order the book, rather than buying a personal copy. Apart from the chapter on Jean Bodin, in which the Salamanca School is also discussed, the story is exclusively British (and David Hume appears primarily as a critic of Locke, rather than as a pioneering theorist of international monetary equilibrium).

As O’Brien’s readers have come to expect, these essays are erudite and clearly argued, and include rational reconstruction of earlier theorizing as formal models. Chapter 9, the one chapter from O’Brien (1993) reprinted in the present volume, is “Joplin’s Model: A Formal Statement.” (O’Brien discerns in Joplin a complex model that anticipated the neo-Keynesian synthesis of income-expenditure and monetary models.) Chapter 3 includes “A Formal Statement of Law’s Model.” Chapter 8, on Bagehot, includes “A Formal Treatment of Stability” (showing that the model is stable when Bagehot’s prescription is followed for the Bank Rate, emphasized by Bagehot as the core policy tool). Chapter 10 is a formal treatment of the stability analysis of the Banking and Currency Schools with an inbuilt cycle and with the money supply (rather than the Bank Rate) as the policy variable. As O’Brien (p. 5) summarizes the findings of Chapter 10, “Employing a formal treatment, it proves possible to demonstrate that the prescriptions of the Currency School would, had they targeted the right money supply, have been stabilizing, while those of the Banking School left the price level indeterminate and magnified fluctuations. At best, and only after filling a major gap in the theoretical position of the Banking School, any equilibrium would only be a saddle point.” The clause about targeting the right money supply is crucial. O’Brien presents careful regression analysis in Chapter 6 to argue that the British price level was controlled by the country bank note issue rather than by the Bank of England note issue, and that the Bank of England note issue did not act as a monetary base controlling the country bank note issue, so that Thomas Joplin (in many ways the hero of O’Brien’s story) was correct that the Bank Charter Act of 1844 targeted the wrong money supply. The Currency School’s advocacy of counter-cyclical control of the money supply by the Bank of England to stabilize the price level and the balance of payments had a sounder theoretical basis than the Banking School’s leaning to a more passive money supply, but, as a matter of fact rather than theory, the Bank of England did not control the British money supply.

Not only was Joplin insightful in his critique of the Bank Act of 1844, but, according to O’Brien, Joplin’s analysis of the liquidity crisis of 1825 set out the case for a lender of last resort that is usually attributed to Walter Bagehot (with earlier partial discussions by Sir Francis Baring and Henry Thornton). Joplin stressed the importance of a central reserve that would enable the lender of last resort to lend freely at a penalty rate during a liquidity crisis (contrast the actions of the Federal Reserve since August 2007, expanding credit during a liquidity squeeze but also repeatedly lowering its target for the overnight inter-bank rate) and argued that lending by the lender of last resort during a liquidity crisis would not raise the price level because of the increase in demand for precautionary balances. O’Brien (pp. 163-66) notes that Joplin’s 1825 analysis was immediately taken by Vincent Stuckey, of the banking firm Stuckey and Bagehot, and speculates that, through Stuckey, Joplin’s 1825 article influenced Stuckey’s nephew Walter Bagehot.

O’Brien’s blend of careful reading, historical context, representation by formal models, and cliometrics is skilful and lucid. These essays are of lasting value and have established O’Brien alongside David Glasner, Thomas Humphrey, David Laidler, Anna Schwartz, and Neil Skaggs as one of the foremost authorities on British classical monetary economics. This has been one of the most studied areas of the history of economic thought, yet, as O’Brien demonstrates, there are still new and important things to say about the subject.


Mark Blaug, Walter Eltis, D.P. O’Brien, Don Patinkin, Robert Skidelsky, and G. Wood, 1995. The Quantity Theory of Money from Locke to Keynes and Friedman. Aldershot, UK: Edward Elgar.

John Law. 1705. Money and Trade Considered with a Proposal for Supplying the Nation with Money. Edinburgh: Andrew Anderson. Reprinted New York: A. M. Kelley, 1966.

D.P. O’Brien, 1993. Thomas Joplin and Classical Macroeconomics: A Reappraisal of Classical Monetary Thought. Aldershot, UK: Edward Elgar.

D.P. O’Brien, 1994. Methodology, Money and the Firm, 2 volumes. Aldershot, UK: Edward Elgar.

Robert W. Dimand is Professor of Economics, Brock University, St. Catharines, Ontario, Canada. Email: He recently published on “Macroeconomics, Origins and History of” and “Monetary Economics, History of,” in The New Palgrave Dictionary of Economics, second edition (2008).

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):19th Century

Pioneers of Financial Economics: Volume 2, Twentieth-Century Contributions

Author(s):Poitras, Geoffrey
Reviewer(s):DeGennaro, Ramon P.

Published by EH.NET (October 2007)

Geoffrey Poitras, editor, Pioneers of Financial Economics: Volume 2, Twentieth-Century Contributions. Edward Elgar: Cheltenham, UK, 2007. x + 244 pp. $130 (cloth), ISBN: 978-1-84542-382-7.

Reviewed for EH.NET by Ramon P. DeGennaro, Department of Finance, University of Tennessee, Knoxville.

Pioneers of Financial Economics: Volume 2 is arranged in three parts. Part I is titled “Early Contributions.” My favorite chapter in this section is Robert W. Dimand’s discussion of Irving Fisher and his students. This is partly because the chapter is so well done, partly because Fisher did so much, and partly because Fisher could be so audacious at times. Part II is titled “The Modern Finance Revolution: The Inside Perspective.” If forced to choose among the five fine articles in this section, Hal Varian’s article about Harry Markowitz, Merton Miller and William Sharpe would be a narrow winner. Varian is simply a gifted writer who successfully translates these Nobel laureates’ work into concise, clear language, using a graph and only a few equations. Part III is titled “Alternative Perspectives on the Revolution.” Here, my favorite is Donald MacKenzie’s contribution, “The Emergence of Option Pricing Theory.” This is entertaining because it conveys the process of discovery and the intellectual struggles that Black, Scholes and Merton endured. Getting from the idea to the famous Black-Scholes and Merton formula wasn’t easy, even for them.

I enjoyed the articles and recommend the book particularly to economic historians and sociologists interested in the evolution of ideas. Prospective readers should be aware that this book has an agenda, though. This agenda becomes clear as early as the introduction, which throws down the gauntlet between what it calls “traditional finance” (it sometimes uses “old finance”) and “new finance.” The dividing line is approximately Markowitz’s work or the Modigliani and Miller papers. There is no doubt which side the book favors and to its credit it makes no bones about it. It absolutely favors traditional finance. Part II, which in the context of this book champions new finance, contains four reprints and only one original contribution. The articles in the other parts of the book are new. This cannot be due to chance, especially given a revealing sentence about the reprints in the introduction: “Each of these chapters is an excellent example of the narrow interpretations of the intellectual history of financial economics and inflated claims for scientific significance common in modern financial economics” (12). Or this: “A key objective of Part II is to explore the process of prestige creation and reinforcement in modern financial economics” (8).

In short, a key reason for including the five chapters dedicated to new finance is to assert that those who write tributes to Nobel laureates within the field are making inflated claims, and to show that the prestige which the new finance enjoys is allegedly built on a house of cards. Readers will ask why, from among the tens of thousands of articles from which to choose, the book includes articles that it believes are deeply flawed, if not to grind the axe in a particular way?

If an attempt to frame Pioneers of Financial Economics as a contest between traditional finance and new finance must be made, and if a winner must be chosen between them, readers would find the result to be more credible if the playing field were not so obviously tilted. For example, the book makes no effort to conceal its distaste for modern portfolio theory. By way of support it correctly notes that many market professionals still perform security analysis, which the book treats as the purview of traditional finance. But it rarely if ever mentions mutual funds, which are a trillion-dollar counterexample highlighting the success of portfolio theory. The many studies showing that indexing beats active management, far more often than not, are apparently too trivial to mention. The book claims that, “One of the oddities of modern financial economics has been the success of this movement in securing the academic high ground in the finance curriculum of business schools despite proving relatively sterile in practical implications.” Such statements likely will persuade very few readers. They see that options and futures trading are booming, along with sophisticated risk management techniques. Banks and corporations routinely hedge using tools built on modern finance. Businesses design executive compensation contracts to include securities to align their incentives with other investors. Regulators invoke capital structure theory to require banks to issue securities designed to provide early-warning signals of financial distress. Investors hold mutual funds. Exchange-traded funds are growing rapidly. If the book wants to make a convincing case in a battle between old and new, it would do better to show that these innovations have their roots in traditional finance rather than simply to ignore them.

The choice of a post-Keynesian economist to write the final chapter is consistent with the book’s slant. I do not believe that I am alone in thinking it strange to select a post-Keynesian economist to write the final chapter of a book on the pioneers of financial economics. This in no way minimizes or denigrates Keynes’s contributions to the field of economics. They speak for themselves. The choice merely seems … strange.

Given the agenda, a different title would work better. In Defense of Traditional Finance would be just fine. Search engines would find the book for readers seeking such material, and casual library or bookstore browsers would know immediately what to expect when they pick up the book.

While I would have preferred that Pioneers of Financial Economics had chosen a more balanced approach to the perceived battle between old and new, readers would have been still better served not to cast it as a contest at all. This battle is over and everyone knows who won. The proponents of old finance are sure that they won, the proponents of new finance are sure that they won, and just about everyone is satisfied with this outcome. In truth, most of us have no time to take sides in battles outside of our specialty. Perhaps we would all benefit by borrowing from Kian-Guan Lim, who ends his fine chapter on the evidence in support of and against the Efficient Market Hypothesis by writing, “… we could also move on.”

Ramon P. DeGennaro is the SunTrust Professor of Finance at the University of Tennessee. He also conducts research as a Visiting Scholar at the Federal Reserve Bank of Atlanta. He has published more than thirty-five refereed articles on financial market volatility, the term structure of interest rates, financial institutions, and investments. His other publications include research reports, book chapters and book reviews. The opinions in this article are his own and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.

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

Keynes, Chicago and Friedman

Author(s):Leeson, Robert
Reviewer(s):Samuels, Warren J.

Published by EH.NET (February 2005)

Robert Leeson, Keynes, Chicago and Friedman. London: Pickering & Chatto, 2003. xi + 381 pp. and vii + 534 pp. $325 (cloth), ISBN: 1-85196-767-2.

Reviewed for EH.NET by Warren J. Samuels, Department of Economics, Michigan State University.

I. The Controversy and its Possible Resolution Was there a “Chicago” Quantity-Theory oral tradition, or not; and if so, what was it?

Robert Leeson, of Murdoch University, has collected some fifty contributions to a narrow but intriguing topic in the history of the Chicago School and monetary economics: whether or not, prior to Milton Friedman’s publication in 1956 of his restatement of the quantity theory, there had been (as he claimed) an oral tradition at the University of Chicago of the quantity theory; and, if there was, of what did it consist? Friedman attributed to that oral tradition a model in which the quantity theory was “in the first instance” (vol. 1, p. 1, Leeson quoting Friedman) a theory of the demand for money; indeed, a stable demand for money. Friedman claimed that the tradition was spawned by Henry Simons and Lloyd Mints directly and by Frank Knight and Jacob Viner at one remove. Thirteen years later, Don Patinkin questioned the validity of Friedman’s interpretation of the quantity theory and his “Chicago” version (vol. 1, p. 87). Patinkin identified “The Other Chicago” version thusly: “The quantity theory is, first and foremost, not a theory of the demand for money, but a theory which relates the quantity of money (M) to the aggregate demand for goods and services (MV), and thence to the price level (P) and/or level of output (T); all this in accordance with Fisher’s MV=PT” (vol. 1, pp. 89, 91). After a further twenty-two years Patinkin held that the disagreement was not about “whether or not there was such an oral tradition, but what the nature of that tradition was” (vol. 1, p. 381). Friedman also has modified his position.

Leeson has gathered the important material pertinent to the questions about the Chicago “oral tradition.” He has mastered both that material and the intellectual environment in which the controversy took place, an environment dominated by Keynes’s General Theory. Of the two volumes’ total of 915 pages, some 180-plus pages contain Leeson’s essays on the contents of his four parts: The Initial Controversy, The Debate Widens, How Unique was the Chicago Tradition?, and Towards a Resolution of the Dispute. What does Leeson conclude?

Leeson places a great deal of interpretive weight on Friedman having taken Mints’s graduate course in money and banking (Economics 330) during his first year as a graduate student at Chicago in 1932-33. Leeson has been fortunate in having been given access by Friedman to his notes from Mints’s Economics 330. Leeson notes that “Friedman’s lecture notes are currently in his possession and have not been processed into his archives at the Hoover Institution” (vol. 2, p.515n.1). The next important round may well center on the notes. The course was organized around Keynes’s Treatise, one feature of which was “an increased emphasis on money demand in a revised quantity theory framework” (vol. 2, p. 486).

Additional interpretive weight is placed by Leeson on a private seminar held by graduate students; quite a group, for they included Friedman, Albert G. Hart, George Stigler, Allen Wallis, Kenneth Boulding, and others, as well as a stream of visiting economists.

Leeson concludes:It therefore seems likely that Friedman took the ideas he was exposed to in Economics 330 and used them as an organising framework with which to understand the ‘macroeconomic’ dislocation of the 1930s. If intense student discussion is admissible as an ‘oral tradition’ then Friedman’s assertion has some validity. A version of the quantity theory which was ‘in the first instance a theory of the demand for money’ was apparently ‘a central and vigorous part of the oral tradition’ at Chicago at least among graduate students in 1932-3 (and possibly until the General Theory made Keynes a suspect figure). (Vol. 2, p. 488)

One difficulty with Friedman’s initial position has to do with the concept of an “oral tradition.” Friedman was part of the 1932-33 (and beyond) discussion; the “oral” part of the concept is unobjectionable. But the “tradition” part is highly suspect, on which more below.

A second difficulty is that many different readings were given the Treatise (not unlike the later General Theory), each reading stressing different combinations of variations within a general quantity theory framework. This meant, on the one hand, that a variety of oral “traditions” likely co-existed throughout the discipline and, on the other hand, that some or many of them included significant attention to the demand for money. Leeson stresses the latter: “Friedman’s initial assertion about Chicago uniqueness in this context must now appear unreliable. … It is therefore improbable that the Treatise — with its emphasis on money demand — informed ‘macroeconomic’ discussions in Chicago only. Indeed, Friedman in the preface to these volumes has retreated from his initial assertion about Chicago uniqueness” (vol. 2, pp. 488, 489). In his preface, Friedman begins his defense saying that he early “was baffled … at what all the fuss was about. … very little was at stake.” He then takes, correctly but irrelevantly, the position that if he has been “confused about the origin of the ideas … it would not affect by an iota the validity or usefulness of those ideas.” He concludes that he remains “persuaded that I was the beneficiary of a Chicago oral tradition, but this evidence convinces me that I gave Chicago more credit for uniqueness than was justified. “The issue,” he repeats, “is entirely about the origin of ideas, not about the validity of content” (vol. 1, p. x). Friedman seems to have taken too much for granted; Chicago was no more homogeneous than was the discipline as a whole on the quantity theory.

Leeson is claiming, therefore, only that Friedman’s assertion had “some” validity — in the sense that much “macroeconomic” discussion at Chicago and elsewhere in the early 1930s resembled his 1956 restatement, that “tradition” is too strong, and the uniqueness claim is wrong and must be dropped.

II. Historiographical Considerations

The collection bears on several historiographical considerations.

1. The historical record is uneven. Political history leaves many documents. Social and economic history, until relatively recently, left few lasting markers, but often sufficient indirect evidence to enable imaginative scholars to intuit larger patterns. With only sparse materials bearing on an interpretive problem, historians of thought and others may well find it easy to leap to conclusions. But where one has a vast body of evidence, such leaps seem presumptuous. With sparseness, the world may seem simpler than it actually was; with plentitude, the big, bloomin’ confusion is amply evident. So it is with the problem of the Chicago “oral tradition.”

The existence and content of an “oral tradition” plus our ability to discern them are highly problematical. Until very recently, as historical time goes, the technology to record oral communication did not exist. Even now, absent mechanical recording, the oral, once uttered, no longer endures (vide Adam Smith on unproductive labor). One result is false and/or biased memory.

Clarence E. Ayres, a long-time friend of Frank Knight, was like Knight an imposing and convincing lecturer. It turns out that institutionalists trained by Ayres had different views of institutionalist doctrine (such as the so-called Veblen-Ayres dichotomy) depending on when they sat in Ayres’s classes. There was an oral tradition at Texas centering on Ayres, but for that reason it registered important variations over time. I would expect the same at Chicago, the notable difference being that Friedman, Stigler et alia were more successful.

2. Schools of thought, one surmises, once were loosely and partly non-deliberately and partly deliberately formed. As schools became obvious vehicles for promoting ideas and reputations, they became more highly, if still loosely, organized. Friedman and Stigler, as part of their professional activity, engaged in the role of cheerleader for “Chicago.” Friedman’s claim may well have been an example of the Chicago propensity to promote itself by self-publicizing its beliefs. Stigler was the premier practitioner but rare is the public presentation — e.g., papers given at professional meetings — by a Chicagoan that does not make some claim for the unique brilliance of the Chicago point of view. Leeson aptly quotes Stigler “that it was both ‘true, and necessary to their survival’ that ‘learned bodies are each run by a self-perpetuating inner clique'” (Leeson, vol. 1, p. 296). The twin objectives were the promotion of ideas, a certain definition of reality with which to influence policy; and the quest for power in both the economics profession and the larger world. Such constitutes the deliberate invention of tradition, and the members of the Chicago School have much company, in the world of academic public relations, in constructing suitable advertisements for themselves and their ideas. With the Chicago School on the cutting edge of theoretical development, such promotion is to be expected.

When it comes, therefore, to “Friedman’s motives” — I would prefer “style” — Leeson opines that “If his ‘Restatement’ [of the quantity theory] exaggerated the degree of continuity with respect to earlier Chicago versions of the quantity theory this may have been a rhetorical flourish designed to provide an additional motivational stimulus to his students” (vol. 2, p. 490). True enough, as far as it goes; Leeson has gone further (Leeson 2000a and 2003, both dealing with Friedman’s and Stigler’s struggle for influence). The Stigler-Friedman strategy was directed not only to motivate students but to influence the discipline of economics and its world of policy. That Keynes and others also practiced this strategy (vol. 2, p. 491), enables us to identify and put it into perspective.

Moreover, Friedman’s methodological position served the purpose of erecting his economic theory, here his monetary theory, as the maintained hypothesis under the guise of “predictive power.”

In any event, the quantity theory in any form is no substitute for a comprehensive macroeconomics. There is more to history of the quantity theory than the price level as a function of either the supply of money or the demand for money. There also are several different “monetary theories of production.” There is less to the quantity theory than its devotees often would have us believe. The quantity theory is not alone in deriving its attractiveness from its utility for mobilizing political psychology.

3. Significant differences existed over what is “absolute truth” in monetary economics, whether such existed, and if it did, what it was; over the relative weight to be given to inflation and unemployment as policy goals; over what is “sound” or “proper” monetary policy; and the evaluation of current policies and current events.

Some authors treated the quantity theory as a matter of causal relation and explanation, often differing as to the content and direction of explanation, whereas others saw it as a truism, identity or tautology.

The epistemological nature of much discussion of the quantity theory was mixed. Some of it was theory as hypothesis. Some was comprised of declarative statements without supporting evidence or with carefully constructed evidence. Who is to say which version of the quantity theory is correct? Is there one correct version? What are the criteria of correctness — and the meta-criteria by which to chose from among the criteria, et seq.?

These questions are difficult to answer, for two reasons. First, consider W. H. Hutt’s distinctions between “rational-thought,” “custom-thought,” and “power-thought.” “Rational-thought” is disinterested objective inquiry leading to the accumulation of undisputed social-science knowledge (once class-driven ideology has been removed). “Custom-thought” is modes of thinking infused with implicit premises derived from tradition and customary ways of doing and looking at things. “Power-thought” is modes of thought and expression that are constructed to influence power, politics, and policy, through their service in psycho-political mobilization (Hutt 1990, p. 3 and passim). All three types of thought, especially the latter two, are found in the literature collected by Leeson. Second, inasmuch as no theory, or no version of a theory, can cover all pertinent variables and answer all our questions, correctness by any definition is elusive — especially when various versions of the quantity theory have been adopted to weaken if not destroy the targeted opponent, Keynesian economics. Here, power and persuasion rank well above scientificity (amply developed in Leeson 2000a and 2003).

Economic arguments are used to manipulate political psychology and political psychology is used to manipulate economic policy. Ideology and wishful thinking have relatively easy entry, especially for economists and politicians who favor creation of a certain felicitous picture in the public’s mind as part of the process of creating/manipulating public opinion.

Monetary theory and policy (like many other fields in economics) were characterized by over-intellectualization and economic politics, treated as if conducted cognitively and in sterile environments, whereas they existed in a real world of power play, selective perception, psychology, uncertainty, the quest for wealth and prestige, and efforts to influence the economic role of government. Monetary policy is a function of power, ideology, tradeoffs, power play over the distributions of opportunity, income and wealth. Each model of monetary theory was more or less attractive to particular ideologies and invoked as a weapon in support of policies based on ideology, practical politics, etc.

III. How Different Versions of the Quantity Theory Could Exist

The question of the existence of a Chicago oral tradition and its possible content must confront the variety of forms given the quantity theory. Many individual quantity theorists had their own positions to advance; they had different perspectives, and monetary theory comprised many different considerations on which their different, and changing, perspectives could be brought to bear. Quantity-theory formulations could vary among theorists and each was nested in a larger and variegated model of the money economy. It is impossible to cover all this in a short review but at least the following can be said in abbreviated form.

Sophisticated versions of the quantity theory were possible but because of the vast number of possible complications, advocates were often interested in simple versions easily discussed and taught. The quest for singular explanations of macroeconomic phenomena — real balance effects, sticky or inflexible prices, etc. — was also relevant. Notice the phrases “in the first instance” (Friedman) and “first and foremost” (Patinkin). What, if anything, comes afterward? The problem is, in part, that economists tend to adopt the simplest and most highly stylized versions of their theories, often caricatures of the sophisticated versions held by at least some leading theorists. Advocates were either unaware of the magnitude of possible complications or had their perception thereof narrowed and/or finessed by ideologically driven a priori beliefs, and so on.

The quantity theory exhibited highly variegated content. The quantity theory was ubiquitous. One formulation or another constituted the core of what most individual economists seem to have understood as monetary theory. While the quantity theory was its most conspicuous component, monetary theory included more than the quantity theory. Disagreements centered in part on different versions of the quantity theory using different elements of monetary theory. Ralph Hawtrey’s pure monetary theory of the business cycle had widespread impact for many years. Dennis Robertson, Irving Fisher, John H. Williams, Alfred Marshall, and pre-General Theory John Maynard Keynes, among others, were more conspicuous than any Chicagoan — with the exception of James Laurence Laughlin, who opposed the quantity theory.

It took centuries for the Fisherian and Cambridge versions of the quantity theory to become increasingly the analytical norm. Neither version emerged fully grown. When velocity of circulation (V) is used, attention is drawn to such technical matters as the facility with which the banking system transfers balances between accounts. When 1/K is substituted for V in Fisher’s version, it both resulted from and reinforced attention to the reasons for holding money. What looked to some to involve only a mathematical change, for others now meant that attention was directed to the reasons why people might want to hold money. What we now call real balances (or real balance effect) or liquidity preference was long appreciated and treated as hoarding.

The money economy could be examined in pure abstract terms, independent of monetary, banking and other financial institutions, or with an emphasis on the institutions that helped form and operated through the money economy. Significant disagreements existed as to the nature and substance of fundamental monetary and other macroeconomic processes, the nature and origin of actual monetary and macroeconomic problems, and the solutions to those problems. Considerable confusion results from some economists’ claims that their agenda for government monetary/macroeconomic policy constitutes non-interventionism whereas all other agendas are interventionist.

Major controversies were waged over what is money, the monetary standard, the role of reserves, what commercial banks do, the nature and role of a central bank; fractional reserves and the money multiplier; the Cambridge cash-balance approach, Wicksell’s monetary theory, and so on.

Some work postulated the economy to be fundamentally stable (e.g., through great weight given to Say’s Law); others postulated particular combinations of quantity-theory and business-cycle models. Changes in M could be deemed to affect only changes in P and nominal Y (i.e., T). Changes in Y (or T) could be seen as leading to changes in M and thence in P; or changes in Y (or T) could be seen as leading to changes in P and thence in M. Different supplementary assumptions might lead to changes in the direction of flows of causation or influence. Especially critical was whether an increase in Y (or T) was possible: whereas an increase in M and thence P could lead to an increase in Y (or T) at less than full employment, at full employment an engineered increase in M could not lead to an increase in real Y (or real T).

Much work seemed directly or indirectly influenced by monetary and banking arrangements existing within some form of gold standard. A monetary system predicated upon gold meant that changes in either gold or money meant a change in the other and in the price level. Currency and credit could be treated differently (as was done by Fisher, for example), influenced by differences in view of specie, paper and bank balances.

The relation of reserves to M could vary, as could the money multiplier, reasons for holding money or spending on consumer and/or capital goods, the respective roles of commercial banks and central banks (including targets), the relation of interest rates to the quantity theory variables, neutral versus non-neutral money, and so on.

Friedmanian monetarism — to the extent it can be meaningfully generalized — proposed that the private sector is stable, or would be stable in the absence of monetary and fiscal policy; that changes in the supply of money, vis-a-vis a stable demand for money (expectable in a stable economy) lead to changes in the interest rate and, especially, the price level; that changes in the supply of money generate changes in spending; that prices are generally flexible; and that vis-a-vis all other factors only money matters or money matters most (hard versus soft monetarism). The Keynesian fiscalist alternative — to the extent it too can be meaningfully generalized — proposes that the private sector is unstable, and that government can reinforce this instability, introduce its own instability, or counter instability; that changes in spending are governed by more than changes in the supply of money; that changes in the supply of money are the consequence, not the cause, of changes in spending — in part, the supply of money is a function of the demand for money; prices are generally inflexible; inflation is largely or typically a function of aggregate demand increasing beyond the full employment level; that increases in the supply of money can generate inflation but changes in the supply of money are not the critical factor governing changes in spending; that price-level instability is not the only monetary/macroeconomic problem, because full employment is not guaranteed and the supply of money is key to neither the price level nor the level of real income.

In addition, the two schools — monetarism and fiscalism — identify different transmission processes applicable to changes in the supply of money leading to increased spending. The fiscalist argues that increases in the supply of money are endogenous, resulting from increases in the demand for money by borrowers in order to spend more, and that the increases in the supply of money limit increases in interest rates (generated by the increased demand for money) and thereby increases investment and income. The monetarist argues that increases in the supply of money are exogenous (generated by the central bank), leading to excess money balances which leads to greater spending, to return monetary balances to desired levels. The differences turn on whether the increases in the supply of money are endogenous or exogenous, whether the increased supply of money is felt through the lowering of the interest rate or the creation of excess balances, and whether a stable economy and a stable demand for money is a suitable or a utopian premise.

Furthermore, modeling the demand for money is no simple matter. Even putting aside (and there is no conclusive reason to do so) the fiscalist-Keynesian model of transaction, speculative and precautionary motives, the monetarist demand for money has been modeled differently by different people and even by Friedman himself. The demand for money most generally is said to be a function of permanent income, wealth, price level, expected rate of inflation, and liquidity preference; more narrowing, it is a function of permanent income, wealth, and price level, all felt by Friedman to be relatively stable in the short run (i.e., if the economy is left to run well on its own), plus the interest rate.

Anyone not permanently wedded to either monetarism or fiscalism likely might consider a much more complex interplay of monetary and spending variables and relationships, including structural and expectational factors. Keynesian fiscalism is likely more capable of encompassing a wider range of variables than is the quantity theory. A major point, however, is that there are a multitude of possible complex interplays of all such variables, relationships and factors. An even more important general point is that all of the foregoing constitutes the social construction of economic theory. The argument over the content of the Chicago oral tradition is part of that process. Only in part is the argument a controversy about the actual economy. It is primarily, albeit not solely, a quest for a theory with which to successfully challenge Keynes and fiscalist economics and its policies. In very large part, the argument is about the control of government policy. It is the quest to define and then to enlist a Huttian custom-thought in the service of a Huttian power-thought. The quest for power and control over policy thus drives economic theory (a quest that pervades Friedman’s work; see Samuels 2000; Leeson 2000a and 2003).

The question thus arises as to whether the quantity theory — in whatever form — is itself (1) a definition of economic reality, (2) a tool of analysis with which to investigate economic reality or (3) an instrument of rhetoric with which to mobilize and manipulate political psychology. For example, Leeson says that James W. Angell (who taught Friedman monetary theory at Columbia) “used the quantity theory to advance the proposition that the principal cause of unemployment was ‘excessive variations in the volume of bank credit.’ Angell also prefaced his analysis with a statement about his preference for ‘planned economies …'” (vol. 1, p. 290). Economists of my generation will recall how Samuelson and Friedman, in their televised debates in the 1960s, each invoked aggregate demand and the supply of money; but Samuelson had changes in aggregate spending drive changes in the supply of money, whereas Friedman had changes in the supply of money drive changes in aggregate spending. More is at stake than a conflict about direction of causal flow, just as when advocates of both under-consumption and over-investment theories of the business cycle pointed to the same data to prove their case: unsold goods.

Perusal of several standard reference works confirms the foregoing argument that the quantity theory is not something given but a matter of social construction, a work in progress, and thus characterized by multiple specifications and interpretations. The entry in the Elgar Companion to Classical Economics indeed opens with the caution One of the conclusions drawn by Hugo Hegeland … from his thoroughgoing study of the historical development and interpretation of the quantity theory of money was that “the interpretation of the quantity theory shows almost as many variations as the number of its interpreters.” This assertion is hardly an exaggeration and even after half a century of further intensive research in this field it is probably as valid now as then. … the theory is like a chameleon. From the outset writers on the subject have understood [the] quantity theory of money to mean sometimes very different things …” (Rieter 1998, p. 230)

Why should the Chicago tradition, oral or otherwise, be different?

The opening of the entry in the Penguin Dictionary of Economics asserts that the theory states the relationship between the quantity of money and the price level. The entry goes on to mark the importance of what is or is not assumed, and says of Friedman that the theories of the demand for money, “based on a quantity theory of money approach, do not differ a great deal from the theories based on the Keynesian framework” (Bannock, Baxter and Rees 1972, p. 339). Is the Chicago tradition, a la Friedman, different (from Keynesian treatments)?

The Routledge Dictionary of Economics has Friedman reviving “interest in the [quantity] theory by expounding it as a theory of demand for real balances” (Rutherford 1995, p. 379). The MIT Dictionary of Modern Economics has the theory be one of the demand for money, saying that it “formed the most important component of macroeconomic analysis before Keynes’ General Theory …” (Pearce 1992, p. 356).

A careful reading of all the cited reference works will reveal different positions on whether full employment is an assumption or a conclusion, what else has to be assumed, and so on.

At least one reference work indicates how far the rationality assumption has come in monetary theory: “The underlying premise of the basic quantity theory is that no rational person holds money idle, for it produces nothing and yields no satisfaction,” adding some pages later, “that is, people demand money only for transaction purposes” (Johnson, Ley and Cate 1997, pp. 518, 525). These authors also write that “In the area of policy it would be easy to exaggerate the differences between the Keynesian and monetarist positions. … However, in general, the notion of policy ineffectiveness as elaborated and expanded over the past 30 years by Friedman and others may represent the monetarists’ greatest challenge to the Keynesian heritage. For good or ill, it is an opinion which has come to enjoy considerable support. Moreover, whether monetarism and the modified quantity theory represents a theory of money at all, or a monetary theory of trade and the business cycle, is an open question, one that in part depends on one’s macroeconomic perspective, of which they are certainly a number in fashion” (idem, p. 525). The Chicago tradition, oral or otherwise, is not alone in its attitude of pushing its perspective.

This book must be read, therefore, with cognizance of its elusive background. If a reader is tempted to agree with some statement made by an author included in Leeson’s collection, that reader must ask, on what narrowing premise(s) does this statement rest? The hermeneutic circle is involved between orienting perspective and conclusionary position. However, I am also convinced that my stricture about the hermeneutic circle is and must be self-referential.

IV. A Contribution to the Resolution of the Dispute

Mints was not the only instructor in Economics 330. In volume 23-C (2005) of Research in the History of Economic Thought and Methodology, I am publishing F. Taylor Ostrander’s notes from Charles O. Hardy’s course in Economics 330 given in 1933-34, the next academic year following Friedman’s enrollment in Mints’s course. The notes indicate that Hardy discussed the work of Hawtrey, Frederic Benham, Fisher, Keynes and Laughlin and suggest that the demand for money was part of the course but by no means as central as the notion of an oral tradition centering on the demand for money would have it be.

At the time Hardy taught the course taken by Ostrander during 1933-34, Friedman was a fellow student, and monetary economics was represented by Melchior Palyi and Lloyd Mints as well as Simon, Viner and Knight, in addition to Hardy. Hardy was clearly a leading student of monetary policy. Though apparently not regarded as a leading monetary theorist, he evidently knew his theory, as he easily grounded policy in theory and was respected for his contributions to policy analysis.[1] Each of the Chicago economists specializing, at least in part, in monetary economics went his own way, concentrating on some combination of what interested them and what they considered important. Peering over all their shoulders was the well-known anti-quantity theory orientation of the long-time chair of the Department of Economics, Laughlin.

Among Ostrander’s notes are the following statements:

  • The quantity theory is a truism …
  • For Fisher — V was fixed, any change in M forces a corresponding change in P.
  • T being unchanged — the habits of the people with respect to the money they will hold being unchanged — the Keynes formula is convertible into the Fisher formula.
  • Hardy has a preference for a commodity standard, but can not find a suitable commodity. – Even such a commodity theory would not invalidate the Quantity Theory. – Laughlin’s doctrine is essentially that of the 19th century English “Banking School;” the Quantity Theory is that of the “Currency School.”

The following are Ostrander’s notes bearing on the demand for money:

Problem of the Value of Money

  • Money defined by means of its functions – Classical theory emphasized medium of exchange — brings up turnover. But if exchange were always instantaneous, there would not be much need for money — it is not instantaneous. * Thus the function of money as a store of value. – Suspended purchasing power. – Where the real demand for money comes from. * The classical approach does not allow of any good connection between value theory and monetary theory. – Distinction between this use of money and hoarding is only one of degree. [In margin: “?”]

Big changes in prices over short periods are never the result of changes in the supply of money or the supply of goods — but of changes in the demand for money (or goods).

The prospect of a decline in value of money does not of itself overcome the desirability of money as a liquid factor in unsettled conditions. * Liquidity attained by holding goods — expecting price rise — attained by holding money — expecting price fall. – Why is it that people are still speculating on a price fall? The issue is whether the strongest government in the world is strong enough to devaluate its own currency. * Governments can raise prices by issuing greenbacks or by issuing bonds. – [Greenbacks] may be held as an investment — hoarded – no change in prices. – Bonds may be held as investment-no change in prices. – I.e., both bonds or money may be spent, and may be held as investment — only difference between gold and bonds is one of degree.

– Keynes assumes hoards to be unchanged if the demand schedule for hoarding remains unchanged. (Hardy, Hayek, Robertson had assumed the quantity of hoards to be unchanged.) – Thus there is a change in velocity.

This is Wicksell’s theory. Keynes enlarges it, saying it would be true only in a barter economy. In a monetary economy, there are 3 variables. The willingness to save, the willingness to borrow to produce new capital, the relative attractiveness, as a store of value, of monetary funds and of other investments. * Savings made by purchase of new securities, or hoarding. * Investment made by borrowing from investors, or drawing on investors’ hoards. – Equilibrium requires I = S, also — demand for cash balances to be in equilibrium to [sic: with] demand for securities.

Economics 330 was not the only monetary course given at Chicago. Taylor Ostrander also took Economics 332, Monetary Theory, from Melchior Palyi during his year in residence at Chicago. His notes from the class are published in Archival Supplement 23-B (2005). Among conclusions stated in my introductory comments are these: One facet of the lectures is Palyi’s general attitude toward the quantity theory, indeed substantially all monetary theory, as a theory of control. The aspect of quantity theory discussion that loomed so large, namely, automaticity, especially after World War Two, when the quantity theory (properly applied) was lauded as the non-interventionist alternative to Keynesian fiscal and monetary policy, is subdued, but not altogether absent.

Another is the evident variety of ways in which the quantity theory was operationalized, i.e., how M, V, and T were conceptualized and handled. This also contrasts somewhat with post-War usage, when the policy choices, hence exercise of control, latent in the different versions would have been conspicuous — though eclipsed by the lauded automaticity, even though conservatives like Frank Knight pointed out the inevitable non-automatic, non-rule, elements of administering the quantity theory.

Among other things we read that the quantity theory was * A form of approach to supply such as set forth by Bodin and Davenant. * Value of money not a function of demand, but of factors such as velocity, interest rate, or, if ruled by demand, then demand is ruled by something else.

More recently came * Marshall, Fisher [indecipherable words] – Renewed the old control approach, and united it with the Neo-Nominalist approach. – Then came in Keynes, Robertson, Pigou, Fisher. * Velocity stressed — (l’enfant terrible of previous monetary theory) becomes center of interest. – Reformulation of quantity theory in light of Velocity. – Dozens of reformulations due to differ concepts of velocity. – Changes in it, measurement, causes. * Does velocity have a life of its own — or is it a function of other things, or a constant. * Most difficult to approach from statistical, descriptive or theoretical points of view.

Earlier * The old quantity theory approach looked to money and goods (asked or assumed which is variable which is independent). * The new quantity theory looks to the ratio of savings and investment. – First appeared in a paper of Jevons, in [18]70’s.

Generally, Two types of Quantity Theory: (1) Mere functional relationship; algebraic * A formal expression for the demand for money (Pigou). * On one side is money, on the other side is the physical aspect — no causal explanation. [Single vertical line alongside in margin from (1) to here] – Banking School — there can not be an excess or deficiency of money. Price level is influenced by physical side only. (2) An explanation of the cause of exchange.

On the demand for money, we find the following:

The demand for money. * The “Banking School” of Thought — but underlies the “Currency School” too — the difference between them is on another line. * The velocity of circulation is a passive factor, or a non-changing factor. * Cost of production theory of value of metals, and of money generally. * In case of paper money, it substitutes some psychological factor for quantity — or considers quantitative changes a result of psychology. * Policy of this approach is “sound banking based on commercial paper” –“automatic control.”

This approach is more developed by businessmen than by scientists. * Men of not-systematic methods, bankers. – Tooke — descriptive, not abstract. – Adolph Wagner (Germany) – Laughlin (U.S.) — never tried to be systematic. [“!” to left of name]

This approach became that of the 19th century up to the War. * In spite of Marshall and others. * Bankers and Central Bankers wouldn’t listen to any others. * Keynes (Indian Monetary Policy — 1912) * Robertson (Industrial Fluctuation, 1915) [Bracket connects the two lines, Keynes and Robertson, with arrow pointing to next line.] – Both, at this early date, had tendencies more to the anti-quantitative than to quantitative approach. – Mill — could approach the transfer problem from an entirely different point of view from his approach to bank credit — foolish.

Writing about the Banking School, * Money a matter of quantity which can be regulated by control of its quantity by issue. – By affecting demand for money by: – Discount rate – Open market operations – Public works (governments).

As for Adam Smith, * Implies (by not discussing it) a constant elasticity of demand for money.

We also read * In the single country, value of money is based on interaction of supply of and demand for money.

There is more but altogether what is shown (1) indicates more or less conventional attention to the quantity theory as the core of monetary theory and (2) does not indicate a distinctive Chicago approach centering on the demand for money, a claim no one now seems to be making. The earlier negative position of Laughlin has fallen prey to the selective memory of any oral tradition (Friedman wrote the entry on Laughlin for The New Palgrave). Laughlin, who opposed the quantity theory, was chair of the Department of Economics for many years and was a conspicuous person in the profession. Any complete rendition of Chicago “tradition” presumably would have to include his anti-quantity theory position. Perhaps he was an embarrassment treated largely in silence. Mints may or may not deal with his view; Palyi seems to deal with it only in passing. And Friedman seems not to, as well. He is too busy inventing what he wants that tradition to be.

In partial summary, therefore, Leeson is correct that no oral tradition existed at Chicago by 1932-33 with the substance initially identified by Friedman. If one clearly existed (and it is not certain that one did), it likely was different from and more complex, and likely more ambiguous, than what Friedman proposed. And surely the conversation of one year’s graduate students, by itself, is no “oral tradition.” As Leeson shows, they most certainly did not all agree on issues, though this was the framework that they, and Mints, apparently employed to inform their arguments. Graduate students discussed “macroeconomic” issues using a framework that was in some ways similar to Friedman’s 1956 restatement. Friedman’s assertion only has “some validity” if “intense student discussion is admissible as an ‘oral tradition’…” Friedman’s assertion has more validity than Patinkin gave it credit for, but calling it a “tradition” vastly overstates the case (see Leeson 2000b). Both Friedman and Patinkin exaggerated their case. Friedman was a polemicist who sought influence; Patinkin was an historian whose framework was losing influence. There was an element of justification for Friedman’s assertion — he had not invented it in the 1950s, as some detractors suggested. “Traditions” are potent rhetorical devices, and Friedman sought to make the most of this rhetorical device to serve his counter-revolution.


1. Robert Dimand comments in re Hardy as follows: “With regard to F. Taylor Ostrander’s notes on Charles O. Hardy’s lectures in Economics 330 (graduate money and banking) in 1933-34, I suspect that Hardy (whose maintained a Chicago connection even though he was primarily at Brookings) was central to bringing Keynes’s Treatise on Money into Chicago monetary economics. Hardy reviewed the first volume of Keynes (1930) in AER (1931) and wrote a review-article in JPE (1931) about the second volume. Hardy was a particularly enthusiastic and perceptive reviewer of TM (perceptive enough that his enthusiasm did not extend to the “fundamental equations”), so if demand for money entered Chicago monetary economics from TM, Hardy’s lectures may well have been the conduit. In addition, Keynes had expounded the central message of TM at the University of Chicago in three Harris Foundation Lectures on “Economic Analysis of Unemployment” in May and June 1931.Chicago was not isolated from such British developments: Sir William Beveridge presented what became Part II of his Unemployment: A Problem of Industry, 1909 and 1930 (1930) as a series of lectures at the University of Chicago in autumn 1929.”

Dimand continues, saying, “Another stimulus at that time would have been Irving Fisher’s Theory of Interest (1930). Hardy’s review of TM chided Keynes for misunderstanding Fisher’s real/nominal interest distinction, and Frank Knight’s 1931 JPE review-article shows that Fisher (1930) received attention at Chicago (although Knight concentrated on Fisher’s real rate analysis). McCallum and Goodfriend, in their New Palgrave article on money demand, identify (as Patinkin did) Fisher (1930, p. 216) as the first unambiguously correct statement of the marginal opportunity cost of holding money.” (Dimand to Samuels, January 13, 2005)


Graham Bannock, R. E. Baxter, and R. Rees, 1972. The Penguin Dictionary of Economics, Hamondsworth, pp. 338-9.

L.E. Johnson, Robert D. Ley, and Tom Cate, 1997. “Quantity Theory of Money,” in Thomas Cate, Geoff Harcourt, and David C. Colander, editors, An Encyclopedia of Keynesian Economics, Cheltenham, UK: Edward Elgar, pp. 517-526.

Robert Leeson, 2000a. The Eclipse of Keynesianism: The Political Economy of the Chicago Counter-Revolution, New York: Palgrave.

Robert Leeson, 2000b. “Patinkin, Johnson, and the Shadow of Friedman,” History of Political Economy 32, no. 4, pp. 733-763.

Robert Leeson, 2003. Ideology and the International Economy: The Decline and Fall of Bretton Woods, Basingstoke: Palgrave Macmillan.

David W. Pearce, editor, 1992. The MIT Dictionary of Modern Economics, Cambridge, MA: MIT Press, pp. 356-7.

Heinz Rieter, 1998. “Quantity Theory of Money,” in Heinz D. Kurz and Neri Salvadori, editors, The Elgar Companion to Classical Economics, Cheltenham, UK: Edward Elgar. Volume 2, pp. 239-248.

Donald Rutherford, 1995. Routledge Dictionary of Economics, London: Routledge, p. 379.

Warren J. Samuels, 2000. Review of Milton and Rose D. Friedman, Two Lucky People: Memoirs. Chicago: University of Chicago Press, 1998. Research in the History of Economic Thought and Methodology 18A, 2000, pp. 241-252.

Warren J. Samuels is Professor Emeritus at Michigan State University. He is working on the use of the concept of the Invisible Hand in economics. He acknowledges with thanks comments on an earlier draft by Robert Dimand and Robert Leeson.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII