Toshaiki Hirai, Journal
of the History of Economic Thought, Vol. 38 (4), December, 2016
On Skidelsky’s Keynes and Other Essays:
Selected Essays of G.C. Harcourt,
Palgrave Macmillan, 2012, pp. xi+342
1. The book under review is composed of many essays
written, mainly, in the first decade of this century by Prof. G.C. Harcourt, an
eminent economist representing the Cambridge Keynesians; it covers a wide range
of related theories, book reviews, intellectual biographies, autobiography, and
so forth. Therefore, by its very nature the book deals with diversified themes,
which makes it somewhat difficult for a reviewer to decide where the focus
should be turned. That said, the author’s fundamental views or stances running
through the book are fairly evident, which is why the reviewer has chosen to
take up and discuss these views or stances rather freely.
2. Prof. Harcourt’s central
messages
The author’s main messages – two messages in this
section, and two in the next section - running through the book might be
summarized as follows.
(Message 1) The essential path of economics has been traced out by
economists M. Kalecki and R. Goodwin, who are most highly evaluated for their
‘cyclical growth approach’ (cf. pp. 221, 230, 323), and N. Kaldor for ‘his
cumulative causation processes’, which is explained in terms of ‘two types of
wolf pack – convergence or cumulative causation’ (cf. 228, 230, 323). Also
recognized as major pathfinders are J. Robinson and P. Sraffa, who are highly
praised for construction of the Classical theory of value (cf. 206), and L.
Pasinetti.
These economists are
presented as the main figures representing the essential course of economics,
i.e., the Cambridge Keynesian School (hereafter CK) which developed after the
Second World War.
The CK has conspicuous features. Firstly, it
lays its foundations on Ricardo-Sraffa-Marx’s theory of value, in spite of the
fact that Keynes praised the Malthusian theory, rejected the Ricardian theory,
used a method of equilibrium analysis in various areas, and neglected Marxian
theory. (It should be noted that this first feature was not recognizable in the
Cambridge of the interwar period.) The author highly evaluates Marx as being on
an equal footing with Keynes (cf. Ch.6).
Secondly, the CK claims to be the true successor to
Keynes’s theory (cf. section 3 below).
(Message 2)
The wrong direction in economics was taken along the Marshall-Pigou line which,
emphasizes equilibrium (the first group of the ‘wolf pack’ analogy) – i.e. the
line based on Neo-classical theory (cf. 324). It includes not only the
Neo-classical Synthesis but also the New Classical economists (cf. 76) as well
as the New Keynesians (cf. 231).
We will begin by considering the Neo-classical Synthesis. Such had been
the mainstream economics which included Keynesian economics at the
macroeconomic level and Walrasian economics as microeconomic component up until
the 1970s. The Keynesians who belong to this Synthesis are just called
“Keynesians”, represented notably by P. Samuelson, J. Tobin and J.R. Hicks. The
IS-LM model is emblematic here. The CK as represented by J. Robinson, Sraffa
and Pasinetti criticized the “Keynesians” on various points including the
concept of price as index of scarcity, “the need to measure capital in units
independent of value and distribution, [and] a method which used comparisons
based on differences to analyze processes associated with changes” (324).
Returning to the Neo-classical Synthesis, Keynesian
economics gave rise, in tandem with empirical analysis by means of
econometrics, to the “Keynesian Revolution”, and exerted a great influence not
only on economics, but also on economic policy and social philosophy.
At the level of history of economic thought, the CK
was not able to rule the roost in the world of economics.
The author points out two
phenomena which allowed for the dominance of the Neo-classical Synthesis. One
lies in the fact that many economists had been brought up on Samuelson’s
textbook, Economics, while Tarshis’s was neglected, which had tragic
consequences (cf. 150). The other is that the prevalence of understanding
Keynes’s theory in terms of the general equilibrium framework brought about
another tragedy (cf. 151).
Let us now turn to the New
Classical economists and the New Keynesians – recent phenomena in
macroeconomics. The author seems to sum them up, following J. Robinson, as
“Pre-Keynesian theory after Keynes” (cf. 257). The New Classical economics,
which has the representative agent with rational expectations, has become the
orthodoxy since the 1980s, while the New Keynesian economics has emerged, with
its belief in the stickiness of the market mechanism and acceptance of the
theoretical tools of the New Classical economics. (The reviewer agrees with the
author in holding that they are not useful in capturing the real world.) The
author laments that Cambridge has, at present, become a US-clone (cf.219).
In this connection, we may observe that the
Neo-Classical Synthesis, like the “Keynesians”, has disappeared from economics
except for introductory courses. Most macroeconomists had become either
New-Classical economists or New Keynesians, but the Lehman Shock has shattered
confidence in them, and we have since seen a revival of the original Keynes.
However, nobody knows how genuine macroeconomics should be constructed.
With regard to the
Post-Keynesians, the book deals solely with the CK. The explanation of, among
other things, the CK in Chs.21 and 22 is very instructive.
The 1980s saw the famous
Trieste Post-Keynesian Summer Schools underway. The three different strands
gathered there: the US Post-Keynesians (Davidson, Minsky), the Cambridge
Keynesians (Kaleckians), and the Sraffians (Neo-Ricardians). Their differences
led to what came to be known as the “Trieste Problem”. In a word, in Cambridge,
through J. Robinson, Kalecki and Srafa, the second and third groups became
prevalent (we have so far referred to them as the CK). The author belongs to
this group, adopting the so-called “horses for courses” approach, although in
this book, unlike some other books of his, he does not specifically dedicate a
chapter to this complicated problem.
3. On the Treatise and
the General Theory
(Message 3)
The General Theory has the following features (cf.224, 322)
Central position of the rate of interest
Determination of prices different from that
of Neo-classical economics
Analysis
by means of aggregate demand and supply functions
Short-term
analysis
Underemployment
equilibrium
Monetary
analysis from the start
Importance of uncertainty and
shifting equilibrium
(Message 4) The Treatise belongs to the Marshall-Pigou line,
including the quantity theory (cf. 26, 222. General equilibrium theory is also
included here). Keynes then developed quite a new (revolutionary) theory in the
General Theory.
With regard to (Message 3), the reviewer is in total
agreement. In my understanding, there are three central themes we can identify
as running through the General Theory:
Contrasting potentialities ― stability, certainty and simplicity versus
instability, uncertainty and complexity; Monetary economics; Underemployment
equilibrium as embodying equilibrium, stability, and fluctuation.
As for (Message 4)* , I regard the Treatise as
belonging to the Wicksell connection - a new monetary economics, criticizing the
quantity theory, the classical dichotomy, and Say’s Law.
The most
significant feature of the Treatise
theory might arguably lie in the
coexistence of a Wicksellian theory and “Keynes’s own theory”. What characterizes the period up to mid-1932 was that Keynes
maintained and improved upon “Keynes’s own theory,” disregarding the
Wicksellian theory. Towards the end of 1932, he put forward a new formula for a system of commodity
markets in the manuscript entitled “The Parameters of a Monetary Economy”. There emerged the model consisting of a system of
simultaneous equations based on the equality of investment and saving in which
profits do not relate to the determination of prices and output. This marked a
turning point towards the General Theory.
The three 1933 manuscripts constitute the origins of
Chapter 3 of the General Theory. They
substantially discuss both an equilibrium condition for the level of employment
and its stability condition, although no concept appears corresponding to the
aggregate supply function of the General Theory.
By the end
of 1933, he had established
the following points: a system of determining the level of employment; the
consumption function; the fundamental psychological law; the liquidity
preference theory; the marginal efficiency of capital; and the multiplier
theory. In the
spring and summer of 1934, Keynes put forward almost the same theoretical
framework as that of the General Theory in the area of consumption and
investment theories (the “eve of the General
Theory”).
Through these passages, Keynes finally arrived at the General
Theory.
*What follows comes from T.
Hirai, Keynes’s Theoretical Development
- From the Tract to the
General Theory, Routledge, 2008.
4. On Keyes’s Activities in the WW2
The author reviews Skidelsky’s John Maynard Keynes in great
detail. There are many instructive points. Here I will confine my attention to
XV-XVIII (43-48), which addresses Keynes’s activities during WW2. The author
highly evaluates “How to Pay for the War”, noting three significant points
(cf.47). He also argues that the defeat of the International Clearing Union
(ICU) plan (Keynes’ plan) in favour of the White plan (cf.264) represented a
loss for the post-war world.
In this respect, the reviewer would add a further
point: we might see the
“internationalist” system designer and political pragmatist as two facets of
Keynes? I find them constantly appearing in his postwar
activities in the commodity problem, the rescue and reconstruction problem, and
an international monetary system negotiation. Keynes as a system designer
formulated proposals showing excellence at the level of “internationalism”,
while, in the process of negotiations, he revealed his capacities as a
political pragmatist pursuing the interests of the British Empire.
In the case of the international monetary system,
around June 1943 Keynes, in practice, put his own ICU plan aside, and tried to
arrive at some sort of compromise by reforming the White plan through
monetization of unitas. This effort failed due to the resistance of the US. In
the end, Keynes even came round to justifying the White plan on the ground that
it was much more crucial to secure financial aid from the US – a justification
difficult to understand from the point of view of the ICU plan.
5. On Social Philosophy
(Evaluation of Capitalism)
The author argues that democratic socialism as advocated by Kalecki
would be the best way forward. Nevertheless, he acknowledges that the time for
it has passed, so the “mixed economy” (a more humane economy) should be the
second best (cf.267).
He also argues that capitalism should be examined as a
cumulative causal relation rather than in terms of the equilibrium point of
view, and is highly critical of Neo-liberalism (as the title of Ch.7 shows).
He has been involved in Australian political and
economic issues for many years. He advocates an incomes policy linked to the
issues of pension reform and the labor market. These issues are considered in relation
to Kaleckian theory (cf. 144, 265). He also emphasizes the Kaleckian dilemma in
managing the economy before and after full employment. (cf. 143, 260-261).
Unlike the usual academic books, this book
contains the author’s biography (his racial identity and situation, activities
in the anti-Vietnam Wars, and so forth) and book reviews of many distinguished
economists with whom the author has worked together – Pasinetti, Asimakopulos,
the latter of which the reviewer found most interesting, and so forth.
To resume my opening remarks, the book is rich in a
wide range of topics. For all readers it represents (as indeed it has been for
the reviewer) a good opportunity to approach various topics anew through the
author's own perspective and views.
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