KEYNES WAS A KEYNESIAN
The State of Interpretation of Keynes
edited by John B. Davis
Boston: Kluwer Academic Publishers, 1994.
A half dozen papers together with formal comments and an introduction
have been assembled to help establish the state of interpretation of Keynes.
The contributors to this volume are ideologically like-minded but geographically
diverse (Australia, Brazil, Canada, Great Britain, Italy, and the United
States are represented). Their book, whose title belies a certain narrowness
of focus, is not for everyone; it reflects the concerns of one particular
Keynesian school, best described, in my judgment, as Post Keynesian fundamentalism.
Academics who continue to
be amused and intrigued with the still-growing literature on the economics
of John Maynard Keynes have had to learn to distinguish among the several
different schools that draw inspiration from the master. Hyphenated or
adjectival Keynesianism includes, for instance, both Neo-Keynesianism,
which is based on an assumed wage and price stickiness, and New Keynesianism
which attempts to explain the stickiness. Neo- and New Keynesianism share
certain methodological presuppositions with Neo- and New Classicism but
do not share in the judgment that markets are generally self-equilibrating..
Interpreters who prefer to blend Keynes's ideas with those of the old classical
school, which featured a cost-based production theory, have adopted "post"
as their adjective of choice. Readers of this literature have been asked
to maintain a distinction between Post Keynesianism and Post-Keynesianism--a
distinction as subtle as the difference in labelling.(1)
But whatever the particular labeling, most interpreters have come to see
as virtual opposites Keynesian Economics and the Economics of Keynes,
as contrasted in the title of Axel Leijonhufvud's 1968 book.
Murray Rothbard used to
proclaim gleefully that "Keynes was a Keynesian."(2)
He took great pleasure in the irony that by so proclaiming he set himself
apart from most all modern interpreters. Keynes favored monetary manipulation
and fiscal activism, deficit finance and income redistribution, all for
the purpose of spending our way out of depression. When his attention turned
from short-run policy to long-run reform, his enthusiasm for these stop-gap
measures gave way to his anticipations of a future utopia--and to schemes
for ensuring and hastening its arrival. The inherent uncertainty of the
future, in his view, gave centralized decisionmaking a clear advantage
over the decentralization that characterizes market economies. Keynes advocated
the "socialisation of investment" and the "euthanasia of the rentier."
The rate of interest, which "rewards no genuine sacrifice," could and should
be driven to zero, at which point capital would cease to be scarce and
the distribution of income would be more equitable. In a matter of two
generations, the economic problem of scarcity can be solved, such that
our grandchildren can occupy themselves with questions of aesthetics rather
than questions of economics.(3) This is
the uninterpreted Keynes.
Post Keynesians emphasize
Keynes's vision of utopia and the associated reform proposals almost to
the exclusion of his diagnosis of depression and prescription of short-run
demand-management policies. In fact, standard textbook Keynesianism, whose
graphics and equations make the case for monetary and fiscal activism,
are repeatedly described in the Davis volume as "bastardized Keynesianism"
(Joan Robinson's term) so as to provide an appropriate contrast with the
more radical Keynesianism adopted by the volume's contributors. If Post
Keynesians did nothing but embrace these utopian aspects of Keynes, they
would more accurately be described as Keynesian fundamentalists. But they
do more. They add to the chronic demand deficiencies featured in Keynes's
General Theory the ideas about supply first articulated by the classical
economists and subsequently exhumed by Piero Sraffa just before the Keynesian
Revolution. Sraffa's Production of Commodities by Means of Commodities,
written during the 1930s though not published until 1960, is offered as
the supply-side counterpart to Keynes's demand-side theorizing. Michael
Lawlor's contribution, "The Own-Rates Framework as an Interpretation of
the General Theory: A Suggestion for Complicating the Keynesian
Theory of Money," identifies Sraffa's (ill-tempered) review of Hayek's
Prices and Production as the foundation underlying this new approach
to monetary theory adopted by Keynes. As a duo, however, Sraffa and Keynes
give us an unlikely and ill-fitting rendition of supply and demand.
Post Keynesians typically--but
not in the volume under review--suggest still more complications: a dual
market structure consisting of both competitive and oligopolistic firms,
mark-up pricing (practiced by the oligopolists) to finance new investment,
and Marxian class conflict. The Davis volume avoids what would otherwise
appear to be a hopeless grab bag of ideas by focusing on Keynes--his vision,
philosophy, methods, analyses, and tactics. One of the formal comments
(Allin Cottrell's) even includes a warning against perceiving Keynes as
"a closet post Keynesian, harboring all kinds of heresies but suppressing
them for the sake of perceived polemical advantage!" Another comment (Robert
Prasch's) questions the idea that Sraffian supply fits well with Keynesian
demand. Had Keynes thought it did fit well, why did he not say so? Why
did he say, instead (in his often quoted letter to George Bernard Shaw),
that "when my book has been duly assimilated and mixed with politics and
feelings and passions, . . . the Ricardian foundations of Marxism will
be knocked away"? Prasch is persuasive that what Keynes believed would
be "knocked away," here, was Sraffa. If the grab-bag features of Post Keynesianism
are left undiscussed while the relevance of Sraffa is in some doubt, then
the term Post Keynesian fundamentalism seems appropriate. Further, the
volume's editor, if not all the contributors, may not be so tightly bound
to the "Post," in which case we would be back to the uninterpreted utopian
Keynes.
It is one thing to proclaim
that Keynes was a Keynesian, (again) as Rothbard so often did; it is quite
another to treat Keynes's vision as a relevant or fruitful reflection of
economic reality. But The State of Interpretation of Keynes will
strike the reader as something of a stocktaking; the papers constitute
background reports that form the basis for updating the Post Keynesians'
research agenda. As explained in the editor's introduction, Keynes's ideas
deserve--and now may get--a fresh hearing. The particular occasion for
this stocktaking together with the particular focus of several of the papers
is both curious and revealing.
There are two circumstances
that have combined to put the original Keynes back in the limelight. First,
there is the crumbling of bastardized Keynesianism with its graphical apparatus
and algebraic expression of government-spending multipliers and tax multipliers
and all that. Neoclassical modes of thought have long restricted the thinking
of mainstream economists and have made Keynesian economics look very unKeynesian.
Recent trends, according Davis, have been in the direction of flouting
the strictures imposed by formal Neoclassicism and exploring a number of
issues, including those of power and entrepreneurship. Methodological permissiveness
may allow economists to look beyond the formalized income-expenditure relationships
and get a fresh view of The General Theory. Second, Keynes's ideas
seem to Davis to have a certain relevance in Keynes's time and in ours--a
relevance that may have been lacking during most of the post World War
II period. The decades-long capitalist-communist stalemate separated two
periods characterized by political pluralism, relative disorder, and internationally
based uncertainties. So the time is right, once again, to focus on the
expectations that govern the economic process in the face of uncertainty
and to think about the institutional arrangements most conducive to a healthy
economy.
Davis finds similarities
in the 1930s and the 1990s in terms of global political turbulence. He
fails, however, to give due weight to the key difference between these
two periods. In the 1930s the world was moving rapidly in the direction
of centralization; in the 1990s it is undergoing substantial decentralization.
Ironically, the perceived similarities of circumstances then and now cause
Davis and several other contributors to this volume to rethink the meaning
of Keynes's call for "a somewhat comprehensive socialisation of investment."(4)
A healthier reading of world history might have caused these scholars to
rethink the meaning of Ludwig von Mises' claim of the "impossibility of
economic calculation under socialism."(5)
In fact, the very concepts that Davis hopes to see back in play, such as
the concepts of power and entrepreneurship, help to bolster Mises' case
for decentralized decisionmaking.
As with almost every other
aspect of Keynes's writing, the phrase "socialisation of investment" is
in for some interpreting. What did Keynes have in mind? While no one believes
that he was thinking of outright state ownership of the means of production,
other possible meanings involve further questions that neither Keynes nor
his followers have adequately addressed. It is clear in his discussion
following the call for socialized investment that Keynes is concerned with
the "volume" and not the "direction" of employment. Keynes argues as if
the government--or rather, "forces outside the classical scheme of thought"(6)--could
control the volume without affecting any other aspect of the market economy.
What sort of powers would government have to wield to be able to exert
such a force? And how would the quality of entrepreneurial decisions be
affected if entrepreneurs had to anticipate the use--and possible misuse--of
such powers? There are no answers to these questions that put socialization
in a favorable light. The simple fact is that the conceptually distinct
aspects of "volume" and "direction" as applied to employment or output
are governed by a single set of market forces. Joan Robinson, who recognized
the actual unity of these market forces but favored a more wholesale form
of socialization, chided Keynes for even wanting to control volume without
controlling direction. Direction, in her view, needed some controlling,
too.(7)
In an alternative interpretation,
one discussed in Hans Jensen's contribution, "forces outside the classical
scheme" are not exerted by the state per se but rather by semi-public
bodies. Keynes seemed to have envisioned large, privately owned firms with
public-spirited managers. Readers of Keynes or of the Davis volume can
only wonder what kind of power the state needs in order to maintain a public-spiritedness
among these managers--and, again, what this kind of power might do to the
entrepreneurial spirit among them and others. A discussion by Robert Dimand
offers still another interpretation of the socialization of investment.
Several years before the General Theory, Keynes had proposed a National
Investment Board that would give the government some control over the volume
of investment. An NIB, though, sounds suspiciously like a peacetime version
of the United States' War Industries Board of the World War I era. Rothbard
is noted for identifying the WIB as an important precursor of the subsequent
New Deal policies that came to be closely identified with so-called bastardized
Keynesianism.(8)
The Post Keynesians seem
to be seriously concerned about what, exactly, Keynes may have had in mind.
Many of the contributors, and especially Davis himself in his discussion
of "Keynes's Philosophical Thinking," employ a what-did-he-know-and-when-did-he-know-it
strategy in their attempts to sort things out. Davis also warns against
a careless mixing of Keynes's philosophy and economics: Ideas are not easily
transplanted whole across decades and disciplines. The alternative that
none of the contributors considered is the simplest one--though not the
most satisfying for those who consider Keynes the fountainhead of economic
wisdom: Keynes himself did not know what he meant. Keynes did not know
what the appropriate supply-side counterpart to his theory was. He did
not think through the implications--or recognize the virtual impossibility--of
a zero rate of interest. He did not know how, exactly, a comprehensive
socialization of investment could be implemented. Neither, we might add,
did the more radical socialists have any clear ideas on the particulars
of the economic mechanisms in a socialist state. These and similar answers
to many other questions seem to be the most plausible basis for understanding
the General Theory.
The viability of Keynesian
economics, bastardized or otherwise, may be as hotly contested now as it
was in Keynes's own time. And the Post Keynesian interpreters, with or
without the hyphen, may never discover just what, exactly, Keynes meant.
But as interpretations continue to proliferate, this collection of papers
provides its readers a close encounter with the original Keynes. The experience
may cause them to doubt whether Keynesianism in any of its guises can provide
a healthy understanding of economic reality or a suitable guide to prescribing
policy or proposing reform.
1. Paul Davidson defines the unhyphenated Post Keynesians very broadly and then identifies a classically oriented subset, to which he awards the hyphen. Further, he prefers to call Post-Keynesians Neo-Keynesians, a label I have used for the Keynesian component of the Keynesian-Neoclassical Synthesis found in modern textbooks. See Davidson, "Post Keynesian Economics: Solving the Crisis in Economic Theory" in Daniel Bell and Irving Kristol, eds., The Crisis in Economic Theory (New York: Basic Books, Inc., 1981), pp. 151-173,
2. "That Keynes was a Keynesian--of the much derided Keynesian system provided by Hicks, Hansen, Samuelson, and Modigliani--is the only explanation that makes any sense of Keynesian economics." Murray N. Rothbard, "Keynes, the Man" in Mark Skousen, ed., Dissent on Keynes: A Critical Appraisal of Keynesian Economics (New York: Praeger Publishers, 1992), p. 196.
3. Quoted phrases are from John Maynard Keynes, The General Theory of Employment, Interest, and Money. (London: Macmillan, 1936), p. 376-78. For assessments of the utopian Keynes, see Joseph T. Salerno, "The Development of Keynes's Economics: From Marshall to Millennialism," Review of Austrian Economics 6, no. 1, (1992): 3-64, and Roger W. Garrison, "Keynesian Splenetics: From Social Philosophy to Macroeconomics," Critical Review, 6, no. 4 (1993): 471-492.
4. Keynes, General Theory, p. 378.
5. Ludwig von Mises, Human Action: A Treatise on Economics, Third Rev. Ed. (Chicago: Henry Regnery Company, 1966), p. 698.
6. Keynes, General Theory, p. 378.
7. Joan Robinson, "What Has Become of the Keynesian Revolution?" in Milo Keynes, ed., Essays on John Maynard Keynes (Cambridge: Cambridge University Press, 1975), pp. 123-131.
8. Murray N. Rothbard, "War Collectivism of World War I" in Ronald Radosh and Murray N. Rothbard, eds., A New History of Leviathan: Essays on the Rise of the American Corporate State (New York: E. P. Dutton and Co., Inc., 1972), pp. 66-110.