Rejoinder to Rosser,O'Donnell,and Carrión Álvarez and Ehnts on their criticisms of my ergodic/nonergodic formulation of Keynes's concept of an actuarial certain future vs. an uncertain future

This article provides my responses to recent criticisms of my argument associating Keynes’s concept of uncertainty with Keynes’s explicit statement that in our world of experience applying the “probability calculus” to historic data does not produce actuarial certain knowledge of future economic outcomes. Furthermore I have tried to explain, using Keynes’ own written statements how Keynes’s General Theory differs from old classical theory, new classical theory, Samuelson’s Keynesian Theory, and New Keynesian Theory.     

A Nightmare in Introductory Economics

In a pair of 1925 lectures, John Maynard Keynes described world economic history with reference to a classification of stages developed by John R. Commons. This article examines Keynes’s two 1925 lectures in the context of Commons’s writings. It spotlights lesser-known aspects of Commons’s scholarship and helps clarify ambiguities in Keynes’s two addresses. It also identifies a key document, written by Commons, upon which Keynes relied when developing his presentations. In addition, the article explains how the work of Commons and Keynes in the 1920s has relevance for the contemporary development of evolutionary Keynesianism (which can also be called Post-Keynesian Institutionalism).     

Vicarelli’s Keynes (and today’s international disorder)

The article speculates about the legacy of Fausto Vicarelli’s interpretation of John Maynard Keynes’s work in the times of a major global crisis. In particular, it puts an emphasis on those aspects of Keynes’s “method” that Vicarelli rightly considered as revolutionary in his Keynes, of 1977, as well as in other writings. The article then turns to Vicarelli’s reconstruction of Keynes’s early work in international economics (Indian Currency and Finance, Economic Consequences of the Peace) and reflects upon the continuing relevance of the philosophy inspiring Keynes’s plans of global reform in the Forties, also in the light of Vicarelli’s (Keynes-inspired) vision of the problem of policy space at the international level.     

The Economic Problem of Happiness: Keynes on Happiness and Economics

By stressing the substantial continuity of vision between John Maynard Keynes’s early unpublished essays and his more mature writings, the paper discusses Keynes’s ethics and focuses on his thoughts about happiness. In particular, we emphasize the anti-utilitarianism of Keynes’s vision and his belief that material wealth is but a precondition to enjoy the possibilities of a good life, and direct attention to problems of incommensurability raised by the multidimensional nature of happiness as considered by Keynes. We then argue that the rediscovery of Keynes’s legacy in this respect may be a precious counterweight to the most controversial aspects of today’s happiness research.     

"The Reality of the Present and the Challenge of the Future": J. Fagg Foster for the Twenty-First Century

This paper revisits J. Fagg Foster’s early assessment of the relevance of John Maynard Keynes’s theory of institutional economics. In his view, neither institutionalists nor most of Keynes’s followers really recognized the importance of Keynes’s theoretical insights. I examine Foster’s views on economic theory, with a particular focus on monetary theory. I apply Foster’s approach to what is now called modern money theory, an approach developed by heterodox economists working in the institutionalist and post-Keynesian traditions. I argue that this approach is consistent with Foster’s, and it offers a way forward to policy formation for the twenty-first century.     

Keynes against Kalecki on economic method

In the past twenty years, there has been considerable debate on the “coherence” of post Keynesian economics, in view of post Keynesian economists’ ambitions to develop a paradigmatic alternative to neoclassical economics. Given the growing importance of methodological aspects in this discussion, this article addresses the differences of approach to economic theory between the fathers of the two most important strands in post Keynesian economics. We thus focus on Keynes’s criticism of Kalecki’s theory of the business cycle and the tensions between Keynes’s logical approach and Kaleki’s formal modeling. We show that in criticizing Kalecki’s theory, Keynes made use of the same methodological criticism (based on detecting logical fallacies in reasoning) he had employed to attack both the classical theory and contemporary “pseudo-mathematical” models. After illustrating these fundamental differences between Keynes and Kalecki about the proper way of doing economics, we draw some conclusions on the possible future evolution of post Keynesian economics.     

Some Misunderstood Aspects of the Final Chapter of Keynes’s General Theory

ABSTRACT

Some seriously misunderstood issues arise in three paragraphs in the last chapter of Keynes’s General Theory concerning the relationship between his theory and orthodox theory. That these passages permit a form of theoretical reconciliation is a view shared by prominent commentators of opposing persuasions. Joan Robinson and John Eatwell strongly criticised Keynes for inconsistency and for opening the door to neoclassical elements that undermine his theorising, while Paul Samuelson made Keynes’s comments the foundation of his textbook neoclassical synthesis. The reconciliation view, however, is based on hasty non-contextual readings and is mistaken. More careful analysis leads to three conclusions: neither internal inconsistency nor neoclassical appeasement exists; Keynes’s paragraphs are aligned with the theoretical positions previously advanced in the General Theory; and what is actually deployed is a complementarity view relating his macro-theory to one particular part of orthodox micro-theory. Rejecting the dominant view, however, does not remove the issue of the absence in Keynes’s work of an adequately exposited micro-theory to accompany his macro-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.     

Keynes’s view of deficits and functional finance: a Modern Monetary Theory perspective

Abstract

The immediate aftermath of the global financial crisis (GFC) was characterised by a resurgence of interest in the work of Keynes. Fiscal policy became at least temporarily acceptable again, in turn leading to government deficits and debt, as a proportion of GDP, reaching levels not seen since before the onset of the neoliberal period. Keynes’s own pronouncements on deficit financing generated renewed interest. Despite the strength of the neoclassical counterattack – which has been relatively successful in reassessing the crisis as a government failure – confidence in orthodox economics has not been fully restored, at least outside the confines of academia. Although the hopes of heterodox economists – that the GFC might mark the beginning of the end of the neoclassical hegemony – have not been realised, the upswing in interest in Keynes’s views has not entirely died away. This paper considers Keynes’s views of deficits and debt and then looks at the controversial area of Keynes’s position vis-à-vis functional finance. The paper concludes by considering how Modern Monetary Theory might increase our understanding of the nature of deficits and debt and thus provide valuable insights which might underpin the use of fiscal policy to pursue public purpose.     

Patinkin as a reader of Keynes’ General Theory: Are wage cuts a good remedy to unemployment?1

Abstract

This paper analyses Patinkin's appraisal of Keynes’ concept of involuntary unemployment while focusing on his reading of the General Theory Chapter 19. On several critical issues, Patinkin departs from Keynes’ original matters of concerns. He leans against an individual criterion for unemployment and implicitly endorses Wicksell's understanding of voluntary unemployment as chosen leisure. His appraisal of involuntary unemployment as a disequilibrium phenomenon ultimately relies on nominal rigidities and assumes the existence of a competitive adjustment process. On all these three critical points, Patinkin departs from Keynes but also initiates the contemporary New Keynesian programme that went even further from Keynes.     

Keynes on State and Economic Development

ABSTRACT

This article has two purposes. On the one hand, it develops Keynes’s concept of economic development. On the other hand, it presents Keynes’s ideas about the role of State, chiefly the State Agenda. Keynes believed that the stage of economic development would only be attained if the State Agenda was in practice. In turn, to Keynes the economic development would be a stage in which the economic problems of society have been surpassed, and the motto of the individual behavior has been changed from the love of money to the love of living.     

Schumpeter’s new combinations

The paper focuses attention on Schumpeter’s achievements in his classic contribution and how these relate to the contributions of other major authors. While deeply indebted to Marx’s vision of capitalism as a system incessantly in travail, Schumpeter was no ‘Marxist’. He shared B?hm’s view that profits are not due to ‘exploitation’, but thought that the latter’s attack on Marx was a failure. There are remarkable differences, but also similarities between the analyses of Schumpeter and Keynes. Marx, Schumpeter and Keynes rejected Say’s law and other basic ideas constituting the marginalist doctrine. They saw capitalism as a restless, crisis-prone system.     

Keynes and the international monetary system: Time for a tabular standard?

This paper discusses proposals for tabular standards in the late nineteenth and early twentieth centuries. In particular, we focus on Keynes’ proposal for an international tabular standard (ITS) as the gold standard unravelled in the 1930s. The paper explains the origins of Keynes’ ITS proposal which pegged the value of an international reserve to a broad index of primary commodities, weighted in terms of their value in world production. We argue that the ITS should be viewed as an important and enduring component of Keynes’ ideal long-run vision for anchoring the international monetary system, even post-Bretton Woods.     

A Keynesian explanation of Indian government bond yields

Abstract

John Maynard Keynes held that the central bank’s actions mainly determine long-term interest rates through short-term interest rates and various monetary policy measures. His conjectures about the determinants of long-term interest rates were made in the context of advanced capitalist economies and were based on his views on liquidity preference, ontological uncertainty, and the formation of investors’ expectations. Is Keynes’s conjecture that the central bank’s action is the main driver of long-term interest rates valid in emerging markets, such as India? This paper empirically investigates the determinants of changes in Indian government bonds’ nominal yields. Changes in short-term interest rates, after controlling for other crucial variables, such as changes in the rate of inflation and the rate of economic activity, take a lead role in driving the changes of the nominal yields of Indian government bonds. This suggests that Keynes’s views on long-term interest rates can also be applicable to emerging markets. The empirical findings reveal that higher fiscal deficits do not appear to exert upward pressures on government bond yields in India.     

Reply to Alan Day Haight

Alan Day Haight is incorrect in understanding Piketty’s paradox as a “dynamic version” of Keynes’ paradox of thrift. Keynes’ paradox of thrift deals with equilibrium conditions relating to the flows of savings and investment. In contrast, the capital output ratio central to Piketty’s paradox deals with a stock (capital) relative to a flow (output). Balanced growth cannot be considered an “equilibrium” condition without specifying an adjustment mechanism whereby balanced growth is re-established when the capital-output ratio becomes unbalanced. As illustrated by the Harrod-Domar case this unbalancing can be particularly degenerative when idle capacity develops.     

Teaching Keynes’s Principle of Effective Demand within the Real Wage vs. Employment Space

This paper reviews several models for teaching Keynes’s principle of effective demand with a special focus on a framework that is familiar to advanced undergraduate students of macroeconomics: the real wage vs. employment space. It is argued that existing approaches to teaching Keynes’s principle of effective demand reflect a tension between two goals: being true to Keynes and translating the effective-demand principle into a story about real wages and employment within a single graphical space. Our main contribution consists of presenting an extended version of a model originally proposed by Lavoie (Rev Radic Polit Econ, 35(2):166–182, 2003), which seems to be a reasonable compromise between these two goals.     

On Britain's Return to the Gold Standard: Was there a ‘Pigou–McKenna School’?

It is common to refer to the ‘Keynes–McKenna school’ in opposition to Britain's return to the gold standard. However, after considering A.C. Pigou's reading of Sir Reginald McKenna's testimony to the Chamberlain–Bradbury Committee and the influence of that reading on Pigou's draft of the Committee's report to the British government, the case is made for the ‘Pigou–McKenna school’ as a policy school that was supportive of a return to the gold standard but against doing so prematurely. This is perhaps more meaningful than reference to the ‘Keynes–McKenna school’, which incorrectly implies that McKenna was opposed to Britain returning to gold.     

Institutionalism and the “Common Man” Through the Lens of Philip Klein: Business Cycles,the Public Sector,and Keynes’s Economics

This article reviews and assesses Philip Klein’s work on business cycles and macroeconomics, the public sector, and the economics of John Maynard Keynes. The article makes several findings. First, Klein built on the pioneering efforts of Wesley Mitchell to advance the development of cycle indicators and to outline an eclectic theory of cycles that remains useful for synthesizing a broad literature. Second, Klein’s essays on macroeconomics contain enduring discussions of the malleability of the “natural” rate of unemployment and the value of a behavioral approach to expectations. Third, he refocused the institutionalist attention on the public sector by introducing “higher efficiency” and other concepts to help explain how government policy plays a role in economic life. Fourth, Klein emphasized the role of fiscal policy in moderating business cycles. Fifth, his work points in the direction of today’s post-Keynesian institutionalism, both by stressing that Keynes was “profoundly institutionalist” in his approach and by arguing that conjoining Keynes and institutionalism would provide a stronger foundation for macroeconomic theory and policy.     

Vicarelli,Keynes, and the unstable nexus between investment,liquidity, and finance

The goal of this article is to reconstruct Keynes’s vision of the unstable nexus between investment, liquidity and finance, as set out by the Italian economist Fausto Vicarelli (1936–1986). As argued in the article, one of Vicarelli’s main contributions consists of explaining the inherent instability of financially sophisticated capitalist economies in terms of the interaction (and double dissociation) between investment, saving, and stock-holding decisions, within a Keynesian framework characterized by the presence of fundamental uncertainty. While Vicarelli’s interpretation of Keynes is best understood in the context of the post-Keynesian literature, its relevance goes beyond that, as its sheds light on current issues related to the post-2008 financial crisis and its policy implications.     

Market forms and effective demand: Keynesian results with perfect competition ∗

In recent years there has been a flourishing of models with microfoundations based on imperfect (or monopolistic) competition that claim to yield Keynesian results which, it is held, are incompatible with perfect competi-tion. The paper shows that Keynes’s results do not depend on market forms but are contingent on his treatment of investment. In Keynes’s analysis, the existence of underemployment equilibria is demonstrated regardless of the assumed market form. Far from taking into account the importance of investment, recent models with ‘Keynesian results’ ignore investment altogether.

The article argues that if the investment demand function, with its distinctive characteristics, is removed, involuntary unemployment can be explained only by imperfections or rigidities that prevent producers from pushing their supply up to the level of full employment. A conclusion that Keynes wanted to avoid.

The introduction of a hypothesis of market forms different from imperfect competition may be useful in order to develop macroeconomics along more realistic lines, however, as the conclusions of the paper suggest, this hypothesis loses its analytical power if made separately from a satisfactory treatment of investment.