From Keynes to Piketty : the century that shook up economics PDF
Preview From Keynes to Piketty : the century that shook up economics
From Keynes to Piketty The Century that Shook Up Economics PETER DE HAAN F rom Keynes to Piketty P eter de Haan F rom Keynes to Piketty T he Century that Shook Up Economics P eter d e Haan I SBN 978-1-137-60001-1 ISBN 978-1-137-60002-8 (eBook) D OI 10.1057/978-1-137-60002-8 L ibrary of Congress Control Number: 2016936105 © T e Editor(s) (if applicable) and T e Author(s) 2 016 T e author(s) has/have asserted their right(s) to be identif ed as the author(s) of this work in accordance with the Copyright, Designs and Patents Act 1988. T is work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specif cally the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microf lms or in any other physical way, and trans- mission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. T e use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specif c statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. T e publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. P rinted on acid-free paper T is Palgrave Macmillan imprint is published by Springer Nature T e registered company is Macmillan Publishers Ltd. London T o Marisales P refa ce S ometime ago I read an obituary about the American sociologist Daniel Bell. It said that two of his books were included in the Times Literary Supplement List of the 100 Most Inf uential Books since World War II. To satisfy my curiosity, I compared the T imes Literary Supplement (T LS) list with my own list of books written by economists. To my delight I dis- covered that most of the books on my list were also included in the TLS list. However, there are also dif erences. T is is partly explained by the fact that the T LS list ends in the 1990s, while my list ends in 2014. And, surely, the criteria applied by the ones who put together the T LS list were dif erent from mine. T e f rst criterion I applied was that the selected books should best ref ect the often turbulent political and economic developments since the early part of the twentieth century. T e second criterion was that the selected works should be ref ective of the ups and downs of mainstream economic theories (in particular Keynesianism and neoclassical theory) and how these theories inf uenced public opinion and policymaking in the political domain. T e third selection criterion was that the books should explain the factors behind these economic ups and downs. T o put a bit of historical order in my list, I cut it into seven distinct periods and brought the selected books that represented the political, eco- nomic, and intellectual ‘signs of the times’ under the period concerned. Two books written by John Maynard Keynes f tted the f rst period, vii viii Preface s panning the time between the start of the First World War and the end of the Great Depression. T e Economic Consequences of Peace (1919) pretty much predicted what would happen after the ill-fated Treaty of Versailles, while T e General T eory of Employment, Interest, and Money (1936) ushered in the Keynesian revolution. D uring the second period, encompassing the 1940s, economists like Joseph Schumpeter and Karl Polanyi struggled with the question whether socialism would not be a better option than capitalism. After all, capi- talism had not brought much improved economic life after the ‘Gilded Age’ had abruptly ended. In C apitalism, Socialism and Democracy (1942) Schumpeter investigated whether socialism could eclipse capitalism. He concluded that it very well could. T e main theme of Karl Polanyi’s T e Great Transformation (1944) is that self-regulating markets required sub- ordinating society to the market. It means no less than the running of society as an adjunct to the market, instead of the economy embedded in social relations. Unchecked, they lead to excesses as conf rmed by the endless—and sometimes extreme—ups and downs of entire economies. A fter the end of the Second World War a third period—this time of af uence—started which was enjoyed by the industrialised countries. Pent-up demand, reconstruction, and Keynesian policies resulted in robust growth, full employment, higher incomes for all and social secu- rity formed the constituent parts of af uence. John Kenneth Galbraith epitomised the period in T e Af uent Society (1958). And so did Tibor Scitovsky, zooming in on af uence’s troubling aspects in T e Joyless Economy (1976). But the ‘Golden Age’, as this postwar period was called, didn’t last. T e fourth period began in the f rst half of the 1970s when wages and prices in industrialised countries spun out of control. Growth sputtered, inf ation soared, and so did unemployment. T is lethal mix became known as stagf ation. Keynesians wrung their hands; they couldn’t explain, nor redress, what was happening. Neoclassical economists main- tained that they knew how to solve the problems. Milton Friedman and Friedrich Hayek were the intellectual leaders of the neoclassical counter- revolution, discarding Keynesianism. Hayek’s T e Constitution of Liberty (1960) and Milton Friedman’s C apital and Freedom (1962) wielded enor- mous inf uence, not only in economics but also in terms of economic Preface ix policy. Nonetheless, there were economists who questioned the neoclas- sical assumptions. Albert Hirschman, for example, argued in E xit, Voice and Loyalty (1970) that when the market fails to achieve an optimal state, society will recognise the gap, and non-market social institutions will arise and attempt to bridge it. A fter the ‘Lost Decade’ of the 1980s (and for many developing countries well into the 1990s), period number f ve started. T e study of economic growth again f ourished, with a particular focus on devel- oping countries. Douglass North’s Institutions, Institutional Change and Economic Performance (1990) is a classic work in which he demonstrates the importance of institutions in explaining economic growth or stag- nation. His book greatly inf uenced development economics and devel- opment practitioners. Before North, Peter Berger had published T e Capitalist Revolution at the right time, that is, in 1986 when capitalism was riding high. He presented 50 propositions about prosperity, equality, and liberty. He concluded that capitalism was to be preferred to a socialist order. After the dragon of stagf ation had been slain, a fairly long period of stability followed. Neoclassical economists believed that ‘T e Great Moderation’, as this period was coined, would last forever. Even Nobel Prize laureates made statements that the economic science had developed the instruments to f ne tune the economy. But they should have known better. Surely there were economists who sent out warnings about insta- bilities in the system, but they were not heard. And then, in 2007, the housing bubble burst, not only in America, but also in countries such as Ireland and Spain. Period number six, a dark period, began. Banks started to have trouble. A year later, credit dried up all of a sudden. Banks and insurance companies failed. T e process was contagious; the entire f nancial sector nearly collapsed. Governments intervened with unprecedented emergency rescue operations, but they could not prevent the Great Recession and the Euro-zone crisis from hap- pening. In taming the crisis, Keynes was re-appreciated by economists and policymakers alike. Neoclassical economics was blamed for what had gone wrong. Not all recession-ridden countries applied Keynesian anti- depression policies; some resorted to austerity. John Cassidy in his book H ow Markets Fail: T e Logic of Economic Calamities (2009) describes what went wrong and what was done about it.
The list of books you might like
