The Anti-Keynesian Tradition

Published by EH.NET (February 2011)

Robert Leeson, editor, The Anti-Keynesian Tradition. Basingstoke, UK: Palgrave Macmillan, 2008. ix + 212 pp. $100 (hardcover), ISBN: 978-1-4039-4959-2.

Reviewed for EH.Net by Thomas Mayer, Department of Economics, University of California ?Davis.

This book is inappropriately titled. It is not an exposition of the anti-Keynesian tradition since it ignores the work of many major contributors to this tradition, such as Karl Brunner, James Buchanan, Friedrich Hayek and Allen Meltzer. While two of the essays discuss Friedman?s work, they deal with his 1953 methodological essay and with his early (1941-43), essentially Keynesian, views. Moreover, the book contains only one essay on new classical theory — a description of how Kydland and Prescott developed their joint research program. It also has one chapter on the Phillips Curve. Insofar as anything distinctive ties the various essays together it is their use of archival material. The inappropriateness of its title matters because it is likely to send economists who seek an exposition of the anti-Keynesian tradition on fruitless trips to the library.

There are ten papers. Leeson?s introduction provides brief summaries of the subsequent papers, and commends archival research for providing many insights and resolving disputes as well as for slaying erroneous creation myths and caricatures. However, he does not mention another important use of archives. We economists like to pretend that our conclusions flow inexorably from our premises or from irrefutable empirical evidence. But earlier drafts and correspondence preserved in the archives can reveal a more subjective and less inexorable process, one that is both more open to doubt and more human.

In the second chapter, Warren Samuels, who has been our generation?s foremost archivist of economic writings, describes his accumulation and publications of archives. These include correspondence and unpublished papers and lecture notes taken by students. One issue which these archives clarify is Friedman?s claim about the Chicago oral tradition in monetary theory. His chapter also discusses some nitty-gritty problems in publishing these archives, a topic that I wish had received more discussion.

The next chapter, by Ross Emmett, discusses the origin of Frank Knight?s Economic Organization. Initially written as a mimeograph for Chicago?s introductory social science course, it had a checkered history, including unauthorized publication. Knight tried to develop it into a full-scale textbook, which he never published. Economic Organization had a significant influence on Paul Samuelson?s classic text. This essay is likely to fascinate those who have a strong interest in Frank Knight?s work, but not others.

In the subsequent chapter, Enrico Levrero describes Friedman?s views in 1941-43 on taxes and the inflationary gap. Friedman himself subsequently describes his views at the time as ?thoroughly Keynesian? (p.? 47). Levrero does valuable work in documenting just how Keynesian they were, though he does point out some elements of a quantity theory. (Does this imply something about Friedman?s claim regarding a Chicago tradition?) His documentation comes primarily from publicly available sources, and hence this chapter does not fit the overall purpose of this book. But I am very glad that Leeson included it.

Thomas Gale Moore then has a three plus page vignette on his strongly positive experience as a graduate student at Chicago in the late 1970s. It is not clear why this was included, but it is a delightful description of an almost ideal university setting, though ignoring its drawbacks, such as clannishness, arrogance and unwarranted certitude.

New classical economists and other formalists often seek to justify their use of unrealistic assumptions by referring to Friedman?s essay, ?The Methodology of Positive Economics.? In Chapter 6 J. Daniel Hammond, who has previously published much archival research on Friedman?s essay, rightly points out that there is much more to it than the claim that assumptions need not be realistic. Indeed, an important component of Friedman?s essay is his rejection of the Walrasian economics that permeates new classical theory. To Friedman the most important issue is that a theory be tested, whether it is tested by its assumptions or by its predictions is a lesser issue. Formalists who believe that Friedman has provided them with a safe haven should read Hammond?s chapter (and also Uskali Maki, The Methodology of Positive Economics).

Many economists seem to believe the following history of the Phillips curve:? Phillips empirically estimated the unemployment-trade off curve. This enhanced the case for stabilization policy, since the government could now choose its preferred point. But Phillips ignored expectations, and Friedman by introducing adaptive expectations showed that any trade-off would only be temporary. Subsequently, Lucas by switching to rational expectations demolished the case for even that. In the eighth chapter, Leeson and Young show that this is not so. Phillips paid attention to the effect of inflation on expectations, and it was he who suggested the use of adaptive expectations to Friedman. Moreover, Phillips far from advocating counter-cyclical policies, worried that, due to their effects on expectations, they could introduce dynamic instability.

The following chapter by Michael Oliver, much of it based on archival resources, summarizes the views of the Bank of England and the U.K. Treasury on devaluation and flexible exchange rates from 1960 to 1970.? It is not concerned with explaining them by public choice theory, but essentially just describes them.? Oliver concludes that it was primarily not the work of academic economists, but necessity, which drove Britain into floating.

In Chapter 9, Warren Young uses both published and unpublished material (much of it correspondence) to painstakingly describe the evolution of Prescott and Kydland?s work. This should be highly interesting to many macroeconomists, particularly to new classical economists. It is more technical than most of the other chapters in that its full appreciation requires considerable familiarity with the literature.

In the final chapter Fiorenzo Mornati discusses Pareto?s economics as revealed by his correspondence (nearly 5000 letters which have been published) along with his publications. While Pareto is now thought of mainly in connection with the Pareto criterion, indifference curves and his law of income inequality, Mornarti shows that there is much more to his economics than this.?

Thomas Mayer is emeritus professor of economics, University of California, Davis. His most recent book is Invitation to Economics. He is currently working on an evaluation of the use of significance tests in economics

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