The State of Interpretation of Keynes

257 Pages·1994·20.383 MB·English

by  John Davis (auth.), John B. Davis (eds.)

TTHHEE SSTTAATTEE OOFF IINNTTEERRPPRREETTAATTIIOONN
OOFF KKEEYYNNEESS
RECENT ECONOMIC THOUGHT SERIES
Editors:
Warren J. Samuels WilliamDarity, Jr.
Michigan State University University of North Carolina
East Lansing, Michigan, USA Chapel HilI, North Carolina, USA
Other books in the series:
Mercuro, N.: TAKING PROPERTY AND JUST COMPENSATION
de Marchi, N.: POST-POPPERIAN METHODOLOGY OF ECONOMICS
Gapinski, J.: THE ECONOMICS OF SAVING
Darity, W.: LABOR ECONOMICS: PROBLEMS IN ANALYZING
LABOR MARKETS
CaldwelI, B. and Boehm, S.: AUSTRIAN ECONOMICS:
TENSIONS AND DIRECTIONS
Tool, Marc R.: INSTITUTIONAL ECONOMICS:
THEORY, METHOD, POLICY
Babe, Robert E.: INFORMATION AND COMMUNICATION IN
ECONOMICS
Magnusson, Lars: MERCANTILIST ECONOMICS
Garston, Neil: BUREAUCRACY: THREE PARADIGMS
Friedman, James W.: PROBLEMS OF COORDINATION IN
ECONOMIC ACTIVITY
Magnusson, Lars: EVOLUTIONARY AND NEO-SCHUMPETERIAN
APPROACHES TO ECONOMICS
Reisman, D.: ECONOMIC THOUGHT AND POLITICAL THEORY
Burley, P. and Foster, J.: ECONOMICS AND THERMODYNAMICS:
NEW PERSPECTIVES ON ECONOMIC ANALYSIS
Brennan, H.G. and Waterman, A.C.: ECONOMICS AND RELIGION:
ARE THEY DISTINCT?
Klein, Philip A.: THE ROLE OF ECONOMIC THEORY
Semmler, WilIi.: BUSINESS CYCLES: THEORY AND EMPIRICS
Little, Daniel: ON THE RELIABILITY OF ECOONOMIC MODELS:
ESSAYS IN THE PHILOSOPHY OF ECONOMICS
TIIE STATE OF INTERPRETATION
OFKEYNES
edited by
John B. Davis
of
Marquette U niversity
Milwaukee, Wisconsin
"~.
Springer Science+Business Media, LLC
Library of Congress Cataloging-in-Publication Data
The state of interpretation of Keynes / edited by John B. Davis.
p. cm. -- (Recent economic thought series)
Includes index.
ISBN 978-94-010-4610-7 ISBN 978-94-011-1392-2 (eBook)
DOI 10.1007/978-94-011-1392-2
1. Keynesian economies. I. Davis, John Bryan. 11. Series.
HB99.7.S698 1994
330. 15'6--dc20 94-34751
CIP
Copyright ~ 1994 by Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers, New York in 1994
Softcover reprint ofthe hardcover 1st edition 1994
All rights reserved. No part of this publication may be reproduced, stored in
a retrieval system or transmitted in any form or by any means, mechanical,
photo-copying, recording, or otherwise, without the prior written permission of
the publisher, Springer Science+Business Media, LLC
Printed on acid-free paper.
Contents
ContributingAuthors vii
1
Introduction: The Interpretation ofKeynes's Work
John B. Davis
2
Changes in Output in Keynes's Treatise on Money 13
Edward J. Amadeo
Comment: Edward Amadeo's Contributions to the
Interpretation ofKeynes's Economics 27
Robert E. Prasch
3
The Own-Rates Framework as an Interpretation ofthe
General Theory: A Suggestion for Complicating the
Keynesian Theory ofMoney 39
Michael Syron Lawlor
Comment: Michael Lawlor's Own-Rates Interpretation ofthe
General Theory 91
ColinRogers
4
Rethinking the Keynesian Revolution 103
Robert W. Bateman
Comment: Expectations, Confidence and the Keynesian Revolution 123
Robert W. Dimand
5
Keynes's Vision: Method, Analysis and "Tactics" 131
G. C. Harcourt and Claudio Sardoni
Comment: Keynes's: Vision and Tactics 153
AllinCottrell
v
vi
6
Aspects ofJ.M. Keynes's Vision and Conceptualized Reality 167
Hans E. Jensen
Comment: J.M. Keynes's Vision and Conceptualized Reality:
What Endures? 205
John E. Elliott
7
Keynes's Philosophical Thinking 223
John B. Davis
Comment: The Keynesian Probability-Relation:
In Search ofa Substitute 245
Jochen Runde
Index 253
Contributing Authors
Edward J. Amadeo Michael Syron Lawlor
Economics Economics
PontificiaUniversidade Cat61ica Wake Forest University
do Rio de Janeiro Winston-Salem, NC 27109
Rio de Janeiro
Brazil 22453 Robert E. Prasch
Economics
Bradley W. Bateman University ofMaine
Economics Orono, ME04469
Grinnell College
Grinnell, IA 50112 ColinRogers
Economics
Allin Cottrell University ofAdelaide
Economics Adelaide 5001
Wake Forest University Australia
Winston-Salem, NC 27109
Jochen Runde
John B. Davis Girton College
Economics Cambridge CB3 OJG
Marquette University Great Britain
Milwaukee, WI 53233
Claudio Sardoni
Robert W. Dimand Dipartimentodi Scienze
Economics Economiche
Brock University Universitadegli Studi di Roma
St. Catharines, Ontario L2S 3Al "La Sapienza"
Canada Rome
Italy
John E. Elliott
Economics
University of Southern California
Los Angeles, CA 90089
G. C. Harcourt
Faculty ofEconomics and Politics
Cambridge University
Cambridge CB3 9DD
Great Britain
Hans E. Jensen
Economics
University ofTennessee
Knoxville, TN 37996
vii
1
INTRODUCTION:
THE INTERPRETATION OF KEYNES'S WORK
John Davis
By all accounts, interest inJohn Maynard Keynes's economic, political, and
philosophical thinkinghas undergone a tremendous revival in the last decade.
The proliferation of a wide range of scholarly papers, the appearance of a
number of monumental biographies, and the completion of the thirty volume
CollectedWritings all markareturnofinteresttowhatKeyneshimselfbelieved
and said. Indeed this new interest in Keynes's work seems to have only been
exceeded in the past by the attentiondevoted to Keynes after the publicationof
The General Theory, when Keynes's economic ideas revolutionized not only
thinking about the economy as a whole, but also larger views about social
responsibilitytowardunemployedlaborandtheroleofthestateintheeconomy.
Coming almost a half century after Keynes's first impact, then, the question
naturally arises, why this new interest in ideas that have long been a
fundamentalpartofmodemeconomicsandWesternsocialdemocracy? Why are
Keynes's ideas now again a matter ofcentral concern if, as has been said on
many occasions, 'we are all Keynesians now'?
Onewidely accepted answer has todo withthe inevitableperilsofindividual
success. Keynes'sthinkinggaverisetothephenomenonofKeynesianism, which
involved the reformulation and translation of the ideas and arguments of The
General Theory into, first, the context of real world economic policies, and
second, the reasoning structures of economists who often possessed very
different theoretical inclinations and values. On the first score, Keynesianism
arose in the post-war nineteen fifties when economic policy issues were no
longer those that had dominated the earlier depression years when Keynes had
written. Thus Keynesians thoughtthat ifmassive unemploymentwas no longer
an issue, Keynes's explanation of how one addressed unemployment could
alternativelybeappliedtothequestionofhowtostayclosetofullemployment
'fine-tuning' as it was often put. While this may have seemed straightforward
for relatively uncomplicated times ofrising outputand low inflation,one thing
thismeantwasthatKeynes's deeper critiquesofthe natureofprivateinvestment
went largely ignored. On the second score, economic theory - it is sometimes
forgotten -wasalsoundergoingotherrevolutionsduringthetimeKeynes wrote,
revolutions ifless easily named and associated with single individuals, still no
lessinfluentialamong the majorityofeconomists. Perhaps thebest label for the
most important of these competing revolutions is Walrasianism. The general
equilibrium conception of the economy as a whole, with its own agenda of
normative arguments regarding the efficient allocation of resources, competed
with Keynesianism, and was in good part responsible for re-directing much of
whatwas accepted and acceptableinKeynes's thinkingas Keynesianism.1From
these two perspectives, then, it should come as no surprise that Keynes's
2 THE STATE OF INTERPRETATIONOF KEYNES
successes - as would be thoseofany single thinker's-were necessarily mixed.
KeynesianismfromthebeginningexpandedandchangedKeynes's ideas, and in
so doing thus created future opportunities for the reinvestigation of what
Keynes's himselfhad really said and meant. The return ofinterest to Keynes's
own ideas, it might accordingly be said, just reflects the natural ebb and flow
of thought we find in the history of ideas, where individuals of great stature
periodicallyundergo re-examinationinoureffortstoevaluatetheirideas inlight
oftheir influence.
Thisanswer, however, whileittellsus muchabout why interestwouldreturn
to Keynes at some point, tells us littleabout why that interest developed in the
last decade or so in particular. But here too there are elements of a plausible
explanation. Mainstream macroeconomists today generally seem to agree that
Keynesianism failed to respond effectively to two related challenges in the late
nineteenseventies, oneinthedomainofreal worldeconomicpolicy-makingand
one in the domain ofeconomic theory. With respect to macroeconomic policy,
the consensus seems tobe that Keynesianism - and thus Keynes's own thinking
as well - possesses an inflationary bias, and is consequently more appropriate
todepression-typeeconomiesthan the sorts ofeconomieswehave today. In the
world of economic theory, on the other hand, many macroeconomists believe
that Keynes misunderstood the nature of expectations, and that an analysis of
specificallyrationalexpectationsmakes muchofhisthinkingirrelevant. Against
both of these charges, economists now classified as post-Keynesian have
responded, first, that Keynes himself was quite sensitive to the problem of
inflation, and second, that Keynes's emphasis upon uncertainty rather reflects
a superior understanding of expectations requiring far less heroic and more
realistic assumptions about individual behavior than does the rational
expectations view. Nonetheless, in place ofa once monolithicKeynesianism in
policy and theory, there now exists debate between a number of different
schools and orientations in macroeconomics. Post-Keynesians see this as the
inevitableconsequence ofthe original misinterpretationofKeynes's thinkingin
Keynesianism, and argue thatoncethepost-warreconstructionboomhadrun its
course, Keynesianism, with its view ofinvestment and money conformable to
Walrasianism, wasboundtocollapse. Onlythen, itfollows, mightKeynes'sown
thinking in The General Theory re-emerge to explain the nature of modern
capitalist economies. The revival ofinterest inKeynes's thinkingthus comes at
the current time, because it tookmore thantwodecades for Keynesianismto be
unmasked, and because Keynes's own thinking is uniquely able to explain
current economic conditions.
Iwishtoamplify thisaccountofnew interestinKeynes'sthinkinginaneffort
to also say something about its intensity and depth. The account given above
tells us both that a figure ofKeynes's importance wouldat some pointundergo
re-examination, and that this re-examination began when it did because ofthe
recent historyofdebateovermacroeconomic policyand theory. Butitstands in
danger ofunderestimating the intensity ofcommitment to recovering Keynes's
ownthinkingonthepartofmanycontemporaryscholars andpolicy-makers who
THE INTERPRETATION OF KEYNES'S WORK 3
arguethatKeynes's thinkinghasbecomeespeciallyrelevanttotoday'seconomic
conditions.Ontheface ofthings, thisseemsaparadoxicalclaim, sinceKeynes-
as his recent biographies so well demonstrate - was very much a figure ofhis
times, and the economic world today is certainly different in many important
respects from the time when he wrote. Thus extending the standard account of
revivalofinterestinKeynes's thinkingturnsonsortingoutthepuzzlingbusiness
ofjust what it was inKeynes that was, ifnot timeless, then at least makes our
timemuchlikehis. Iwillarguethatthereare two thingsthatfitthisdescription,
oneconcerningtherecentpathofworldhistoryandoneconcerningtheon-going
development ofeconomics as a discipline. In connection with each I will also
draw conclusions about promising and likely paths of development in future
Keynes scholarship.
I turn first to recent world history. The general and particular effects ofthe
astoundingpace ofchange in the social political world in recent years are still
beyond our full comprehension. For almost everyone, the nearly half century
from the end of World War Two to the early nineteen nineties created a
conception of world order - or disorder - that revolved around a planet
threatening deadlock between two geopolitical systems, simply put, capitalism
andsocialism. Thefuture was always thoughtto bethatonlyonesystemwould
survive, so that for many years this future was framed in terms of two well
defined (opposed) strategies of political and economic development, one of
which history would ultimately show to be correct. The world that is emerging
at the endofthe twentiethcentury, however, is evidently afar more pluralistic
and more complicated one in terms ofboth political and economic power. Not
only does world politics, between nations and peoples, seem to raise entirely
new issues, but strategies of social economic development formerly thought
coherentnowencounterethnicand religiousresistance. Atthesame time, anew
setofissuescuttingacross all societies threatens to overwhelmus, for example,
the disruptive effects on local communities and peoples of an increasingly
volatileinternationaleconomiccompetition,the questionofthesustainabilityof
the world environment, and the destructive effects on world peace ofancient,
fratricidal ethnicconflicts. Moreover,capitalism,theapparentvictororsurvivor
of the past superpower conflict, depending upon one's point of view, still
confronts a host ofproblems, not the least of which is persistent stagnation in
world output along with the associated problems of unemployment and
inadequate living standards for millions of people across the globe, a number
made larger by thebreakdownoftraditionaleconomies inthe developingworld
by the extension ofthe world market.
Does this recall the times in which Keynes lived? His world was also a
politically pluralistic one that was not to settle into massive ideological
oppositions until the last decade of his life. The interwar world economy he
knew and wroteaboutwas inastate oftransitioninamanner much liketoday's
world economy, where shifting economic power and changing conditions of
production undermined industries and employment in economies once
prosperous,whilecreatingtradeconflictsandcurrencyfluctuationsvis-a-visnew
centers ofeconomic development. Unemploymentand material need were then