A historiographical exhumation of J.A. Hobson's Over-Saving Thesis: General theory versus historiography

Abstract

The discussion of J.A. Hobson's understanding of over-saving has been largely confined within John Maynard Keynes' famous critique in the General Theory. I argue that gauging Hobson's contribution by ‘general theory’, that is, by an ahistorical, non-evolutionary yardstick, is to miss the larger part of Hobson's achievement. Hobson's conception of over-saving was contained within an evolving historiography of capital accumulation and took on various meanings depending on whether Hobson was discussing a competitive or monopolistic environment. I show that Keynes' ‘corrected’ version of over-saving was implicitly contained within Hobson's analysis of an evolving monopolistic industrial structure.     

On Keynes' inverse relation between real wages and employment: a debate over excess capacity ∗

This article examines Keynes's argument in favour of an inverse relation between employment and the real wage rate. In examining the debate over the inverse relation that took place during the 1930s the article argues that the failure of Keynes's critics to persuade him to relinquish the inverse relation can be traced to his own unrecognized use of a concept of marginal productivity different from theirs but that the larger unresolved issues persisting throughout that debate and continuing till the present are those relating to the formulation of ‘excess capacity’ during a depression and the specification of the supply side of the underemployed economy. Drawing on that debate but contrary to Keynes's own response, the article will propose a respecification of excess capacity such that the labour market directly incorporates aggregate demand independently of changes in the price level, and where an increase in employment is not predicated on a reduction in real wages even in the presence of (neoclassical synthesis) diminishing returns.     

Of clouds and clocks and Keynes: conceptions of reality and the growth of knowledge function of money ∗

In this paper, John Maynard Keynes' General theoryand the concept of money are given an evolutionary interpretation. This interpretation is based on Karl Popper's delightful essay ‘Of clouds and clocks: an approach to the problem of rationality and the freedom of man’. The essay presents two things: Popper's conception of indeterminism and his general theory of abstractions. Popper's general theory concerns the role of abstractions and rule-governed, hierarchical systems of abstractions in structuring an indeterministic and uncertain world. He applies his general theory to science.Popper maintains that science is an abstract, rule-governed, linguistic process that facilitates criticism as a way of learning about our world. Popper calls this the growth of knowledge function of science. Popper's general theory can be applied to Keynes' General theory. Following Popper, I argue for a conception of the economy as a rule-governed, monetary language of commerce that facilitates critically minded inquiry in the domain of ordinary economic transactions. A monetary system facilitates the growth of commonsense knowledge in the economy. I call this the growth of knowledge function of money. An awareness of indeterminism and a growth of knowledge like function of money seem to pervade Keynes' General theory.     

Keynes,Ricardo and the classical theory of interest

Keynes made harsh and repeated attacks on the work of Ricardo, blaming him particulary for what Keynes called the ‘classical theory’ of interest. Garegnani and others argue that Keynes' criticisms of the classical theory of interest apply to later neoclassical writers, but not to Ricardo. This paper re-examines Keynes' criticisms. It argues that Keynes attacked Ricardoapos;s theory of interest despite his awareness that Ricardo did not hold the ‘classical theory’. Moreover, Keynes not only expressed sympathy for Ricardo's understanding of interest, but his criticisms which do apply to Ricardo do not address Ricardo's theory of interest.     

The Point of Effective Demand

Abstract

Keynes's principle of effective demand conceives competitive equilibrium in terms of the choices of entrepreneurs, investors and consumers, rather than of the optimal allocation of factors of production. In The General Theory, effective demand is distinguished from aggregate demand and from income, expected or realised, and there is no suggestion that equilibrium means the convergence of expectations. Reconsideration of Keynes's use of time and equilibrium periods leads to the conclusion that he treats employment as in continuous equilibrium, at the point of effective demand, determined by the state of expectation, the correctness of which is strictly irrelevant. The nature of the equilibrium represented by the point of effective demand is here described, not in terms of the multiplier, but in terms of the continuous equilibrium of supply and demand in short-term forward markets. This reading is faithful to Keynes's conception of aggregate demand as dependent upon the expectations of entrepreneurs, and it resolves the meaning of his ‘long-period employment.’ Formal appendices identify the differences between Keynes and Walras and the nature of the multiplier. The paper concludes that the Keynesian cross and ‘Swedish’ analysis should be abandoned, and the Walrasian conception recognised as only the limiting case of general competitive equilibrium in a monetary economy.     

Transition from the classical to the Keynesian Perspective

This paper intends to recast the IS-LM to an analytical framework that reflects, more pertinently than the conventional version, Keynes's central analytical message in his General Theory resulting from his secession from the classics. The secession is imagined to be a process of transition from a simple analytical framework of the classics to this recast form of the IS-LM. Moreover the arguments in the paper occasionally touch on certain misleading conventional views pertaining to the issues.     

A tale of two traditions: Pierre Force's Self-interest before Adam Smith

Abstract

The paper compares different strands of New Keynesian Economics with regard to Keynes' original work. Two issues are analysed in detail. First, the explanations provided by Keynes and New Keynesians of nominal and real wage behaviour. Second, the different theories concerning the ability of flexible nominal wages in assuring full employment. It is argued that, although involuntary unemployment is a central problem both in Keynes' and New Keynesians' views, referring to the role of nominal and real wages in explaining unemployment, New Keynesians theories present important features that differ, sometimes substantially, from the concepts developed by Keynes in his General Theory.     

Mentor Bouniatian on cycles and equilibrium

Although Mentor Bouniatian's theory of the business cycle is no longer referred to, it used to be often cited for its emphasis on time-lags (wherein he anticipated Aftalion) and for its early use of the acceleration principle. There are, moreover, additional elements of interest: he identified the conditions for a moving equilibrium, with some traits similar to the so-called ‘Harrod-Domar model’, he introduced the exogenous/endogenous distinction in business cycle theory, he was among the pioneers of the idea that growth cannot be dissociated from cycles and crises, and he discussed aspects of the ‘fallacy of composition’ problem.This paper examines these features of Bouniatian's theory of cycles and crises (as well as some frankly unsuccessful ones), both in terms of their relationships with contemporary developments in this area of research and in terms of their internal logic and methodology and their role in Bouniatian's analytical construction. As an upshot it is argued that although Bouniatian attempted to couch his theory in terms of the marginalist toolbox, his views on cycles ranges were more akin to the tradition of heretics, for he thought of crises not as a temporary deviations from equilibrium but perceived instead equilibrium as a temporary state of affairs in a world where overcapitalization is the norm rather than an exception.     

Keynes's realisms

Abstract

Some authors pointed to a realist orientation in Keynes's thought. However, since ‘realism’ is a wide and sometimes equivocal term, one may ask what kind of realism Keynes's realism is. This paper argues that Keynes held to an ontological, logical–semantic and epistemic realism. Whereas ontological realism has metaphysical connections, logical–semantic realism involves a notion of truth, and epistemological realism presupposes a theory of knowledge. The character of the subject matter circumscribes the scope of this last kind of realism. Epistemological realism is related to the role of intuition and convention in Keynes's thought, the meaning and evolution of which is explained.     

Andre Gunder Frank: ‘Unity in Diversity’ from the Development of Underdevelopment to the World System

The purpose of this article is to critically review the work of Andre Gunder Frank. This is no easy task given the prolific and controversial nature of his life work. His main distinction is as a paradigm breaker and a paradigm maker. Frank is one of the founders of contemporary world system theory. He coined some memorable expressions such as the ‘development of underdevelopment’ and ‘Re-Orient’. Indeed, these two concepts highlight two distinct phases in his work. His first phase is characterised by his writings on dependency theory and his initial understanding of world system theory broadly in line with Amin, Arrighi and Wallerstein. His second phase is distinguished by what he considers to be the ‘Eurocentric’ interpretation of world system theory of Wallerstein and others as well as by his critique of his own earlier work. While some of Frank's analyses and assertions proved to be wrong, he provided much inspiration to a new generation of scholars and activists, some of whom provided the necessary empirical evidence and theoretical rigour lacking in parts of Frank's work. But he excelled in his mission of providing the big picture, asking the unimaginable questions and exploring hitherto inconceivable interrelationships.     

Aggregate Demand and Aggregate Supply: Will the Real Keynes Please Stand Up?

Two recent articles in this journal present conflicting interpretations of the Aggregate Demand/Aggregate Supply (D/Z) model contained in Chapter 3 of Keynes's General Theory. This paper evaluates the two interpretations to determine which aligns more closely with Keynes's own views.     

Logic,rationality and knowledge in Ramsey's thought: reassessing ‘human logic’

This paper reconsiders Frank Ramsey's essay on subjective probability (1926) as a consistent way to articulate logic, rationality and knowledge. The first part of the essay builds an axiomatic theory of subjective probability based on ‘formal logic’, defining rationality as choice-consistency. The second part seems to open up different horizons: the evaluation of degrees of belief by ‘human logic’. Because of the interest Keynes (1931) had taken in ‘human logic’, it was considered to be a possible alternative to the formal logic underlying the neoclassical theory of individual behaviour. The analysis of Ramsey's method in the entire paper, the relation between logic and rationality it constructs and the conception of uncertainty it reveals, lead me to note on the contrary that Ramsey's human logic was a complementary logic rather than an alternative to formal logic. Defining a standard to evaluate beliefs formation according to a frequentist criterion, it completes a normative representation of rationality which supports an original theory of knowledge that appears more in line with further developments of neoclassical methodology than with Keynesian economics.     

Confronting the Geopolitical Aesthetic: Fredric Jameson,The Perfumed Nightmare and the Perilous Place of Third Cinema

This essay explores the conceptual limitations within Fredric Jameson's notion of the geopolitical aesthetic through an analysis of Jameson's now classic reading of The Perfumed Nightmare; this film is central to his concept of the utopic character of film more generally and, moreover, to his argument on the embeddedness of Third World representations within a global, capitalist system. We suggest that, although Jameson acknowledges the underlying constructed and relational character of ontological categories such as film (despite their reification under capitalism), his theory of historical materialism demands that they also be understood as formed with regard to a socio-economic totality. And, because the recognition of a totality requires a master narrative within which all can be understood and framed within a logic of equivalence, Jameson must by default conceive of epistemology as fundamentally divided between a true and a false consciousness. Taking our own cue from recent developments in anti-essentialist thought, we conceive of such cultural forms as the temporarily fixed embodiment of broader-scale discourses that continually construct and deconstruct the world as we know it, including our understandings of the ‘real’ as well as the ‘economic’, the ‘political’ and the ‘cultural’. In our own re-imagining of The Perfumed Nightmare, we provide a partial response to this, noting how these realms are constituted from the temporary ‘fixing’ of a series of people- and place-based identities, such as those constituted under the rubric of ‘gender’. Accordingly, we re-work the term ‘cognitive mapping’ as the attempt to outline the web of significations within which objects are embedded as well as the concomitant lines of fracture and contradiction that allow for such objects to become meaningful in a host of other contexts.     

Can a Dictator Turn a Constitution into a Can-opener? F.A. Hayek and the Alchemy of Transitional Dictatorship in Chile

Commenting on the Pinochet regime, Friedrich Hayek famously claimed in 1981 that he would prefer a ‘liberal’ dictator to ‘democratic government lacking liberalism.’ Hayek's defense of a transitional dictatorship in Chile was not an impromptu response. In late 1960, in a little known BBC radio broadcast, Hayek suggested that a dictatorial regime may be able to facilitate a transition to stable limited democracy. While Hayek's comments about Pinochet have generated much controversy, this paper neither provides a blanket condemnation of his views (he did not advocate dictatorship as a first-best ‘state of the world’) nor tries to excuse his failure to condemn the Pinochet junta's human rights abuses, but instead provides a critical assessment of Hayek's implicit model of transitional dictatorship.     

Creative Destruction or Regressive Stagnation? Comments on articles by Paul Davidson and James Galbraith

In considering the relevance of Keynesian economics in the late twentieth century, there are two questions to be asked: first, to what extent do ‘Keynes's insights’ help in analysing the world today; and secondly, to what extent does the ‘globalisation’ of the world economy, affect the implementation and efficacy of Keynesian economic policies. The articles by Galbraith and Davidson tackle these two questions: James Galbraith considers the relevance of Keynesian concepts in analysing the global economy of today, and Paul Davidson discusses Keynesian policies given the changes in the world economy.     

Keynes' decision rule,on “expectation” in the general theory

Keynes' behavioural foundation of liquidity preference is formalized by combining to a decision rule his marginal efficiency of capital with a non-expected-utility preference relation on random variables. It is argued that this preference relation is meant when he uses the term “expectation” in the General Theory. The preference relation is simply determined by three parameters (among them the median) of the probability distribution but does not share the disadvantages of mean-variance-preferences.     

International Markets and Open Economy Macroeconomics: a Keynesian view

This paper attempts to sketch a Keynesian response to the gap between the reality of international capital markets and the ‘standard paradigm’ of economic theory that underpins the policy model offered to poor countries in relation to their participation in the world economy and their national macroeconomic management. Recent work on imperfect markets, much of it from self-styled ‘New Keynesian’ point of view, implies a substantial modification of this standard paradigm to allow for non-price clearing but this does not appear to to have been integrated with new trade theories, while the implications of systemic volatility and credit rationing behaviour have not been theorized. The paper suggests that a return to Keynes's original approach to investor uncertainty and global demand might not only help to integrate international macroeconomic theory in a plausible manner but also contribute to the foumulation of more desirable policy positions.     

An overview of probability,expectations, uncertainty and rationality in Keynes's conceptual framework 1

Keynes's writings on the cognate topics of probability, expectations, uncertainty and rationality exhibit considerable complexity. This paper seeks to provide a clarifying overview of his position on these topics, both in his main philosophical workThe treatise on probability, and his main economic workThe general theory. It is argued that the most useful approach for understanding the deeper structure of Keynes's thought in each work is by means of a two-dimensional, two-domain analysis.Such an analysis helps demonstrate some of the ways in which the conceptual framework of The treatise on probability provides an essential part of the philosophical foundations of The general theory, while at the same time recognizing some of the key differences between the two works. It also illuminates Keynes's non-neoclassical theorization of rationality, and his path-breaking attempt to develop a theory of rationality under irreducible uncertainty.     

Explaining the aggregate price level with Keynes's principle of effective demand

The mainstream view of Keynes's principle of effective demand is that it states something about quantities—and about quantities only. The principle is held to determine the levels of output and employment in a world not governed by Say's law. This paper argues that the principle of effective demand goes beyond this to explain not only ‘real’ activity levels but also the aggregate price level. A variant of the post-Keynesian D/Z-model is brought together with Marxian reproduction schemes to derive this result.     

Foucault,Weber and the history of the economic subject

Abstract

The present paper begins with a presentation of Foucault's lectures on economic issues. Departing from his previous views on government, Foucault offered a new approach to eighteenth-century liberalism and neo-liberalism, interpreting these political theories in terms of what he called biopolitics. Then the paper endeavours to demonstrate that the line of reasoning pursued by Foucault coincides with that found in Weber's sociology of religion. In as much as Weber studies the relation between the religious and the economic, the paper draws a parallel between the Weberian concept of ‘life conduct’ and the concept of ‘technique of the self’ advanced by Foucault in order to study the moral foundation of the economic agent.