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Two further examples
1. Robert Lucas (1976, 20) generously found Chicago and Carnegie-Mellon
precursors to his famous critique of econometric policy evaluation in
Friedman (1957), Muth (1961) and Knight (1921) (Marschak (1953) and
Tinbergen (1956) were also mentioned). But Lucas failed to cite Phillips
(1968) or Phillips (1972) - both clear forerunners of his critique.
Phillips (1968, Models for the Control of Economic Fluctuations in
Kendal, M. ed. Mathematical Model Building in Economics and Industry,
London: Charles Griffin) was publicly available - although I know of no
evidence that suggests that Lucas was aware of the volume in which it
appeared. Phillips (1972, published in Phillips' CW) remained a
handwritten essay until I discovered Phillips' private paper (no one had
previously thought to ask his widow if such papers existed). But since
Phillips' high inflation Phillips curve (which Phillips never suggested
existed as a policy alternative) was the 'whipping boy' of Lucas'
Critique, the rhetorical impact of Lucas' essay would have been diminished
if not destroyed by citing Phillips as a precursor.
2. The General Theory would also have lost its rhetorical impact if
Keynes acknowledged that much of the book was Pigouvian. For example,
Richard Kahn is believed to be the author of the Keynesian multiplier.
The multiplier (in various forms) has a long history, but Pigou (Keynes'
whipping boy) developed (at the level of theory and policy) the idea of
employment creation having multiple repercussions. There is clear evidence
which indicates that both Keynes and Kahn were aware of Pigou's
multiplier.
Discussing (approvingly) Bowley's calculations of the required magnitude
of counter-cyclical public expenditure to stabilise unemployment at five
per cent, Pigou (Industrial Fluctuations 1927, 294, 116) wrote that "It
will be noticed that Dr. Bowley takes no account of the secondary effects
... the expansion of activity brought about in bad times by 'artificial'
creations of demand is likely to be financed in part by the creation of
new credit by the banks ... In this way secondary influences are set to
work that further enlarge the aggregate real demand for labour. This is a
very important matter". There was, however, "no way of determining
conclusively" the magnitude of secondary repercussions that depended on
relative price changes.
If the "volume of floating capital used in purchase of labour" was below
normal, this deficiency was made up of a primary part, x million bushels
of wheat, and a "secondary part, the outcome of reactions set up through
the monetary mechanisms, of (10 - x) millions. But our artificially
stimulated demand will also carry with it secondary effects of the same
character as those carried by the primary part of the contraction". The
size of the multiplier would depend on whether the government financed the
expansion through monetary policy or through an increase in taxation.
Taxation would reduce, but not eliminate, the multiplier. Pigou then
worked out the algebra of the multiplier generated by "public spirited
producers" expanding their output; concluding that this "cannot accomplish
much towards general stabilisation unless [the] product is one for which
the demand is very elastic". Pigou neglected to expand on the
relationship between x and the desired counter-cyclical target, simply
saying that "unfortunately, we do not know at all how large x is". But he
concluded that "the presumption in favour of some creation or transfer [of
demand] beyond what comes about 'naturally' is very strong" [emphasis in
text] (1927, 294-6, 298-9); "a small injection of money into the
income-expenditure circuit might lead to a progressive and far reaching
improvement in the employment situation ...The process I have been
describing is cumulative and progressive in character ... a spiral upwards
movement ... Plainly, this cumulative process is of great importance"
[emphasis in text] (1933, 242-3).
In May 1929, Keynes and Henderson published (in the Nation) part of their
election pamphlet, Can Lloyd George Do It?, which two years later, was
reprinted in Essays in Persuasion. The Preface was dated November 1931,
and contains some information about Keynes' Cassandra-like frame of mind.
In the macroeconomic creation myth, "Cassandra bec[a]me the Delphic
Oracle" and other sources of wisdom were demoted (Austin Robinson 1947,
53). But Cassandra could not be seen to be croaking in a chorus. In the
version of Can Lloyd George Do It? that appeared in Essays in Persuasion,
Keynes deleted the two paragraphs that follow the words, "We are left with
a broad, simple, and surely incontestable proposition. Whatever real
difficulties there may be in the way of absorbing our unemployed labour in
productive work, an inevitable diversion of resources from other forms of
employment is not one of them". Those two paragraphs read: "This
conclusion is not peculiar to ourselves or to Lloyd George and his
advisers. The theoretical question involved is not a new one. The
general problem whether capital developments financed by the government
are capable of increasing employment has been carefully debated by
economists in recent years. The result has been to establish the
conclusion of this chapter as sound and orthodox and the Treasury's dogma
as fallacious. For example ... our preceding argument has closely followed
Professor Pigou's reasoning in his recent volume Industrial Fluctuations
(part II, chapter X), where he quotes a statement of the Treasury dogma
and expressly declares it to be fallacious ... Indeed we have not been
able to discover any recent pronouncements to the contrary, outside the
ranks of the Treasury, by an economist of weight or reputation (JMK IX,
120-1; Dimand 1988).
Keynes read Pigou's Industrial Fluctuations as soon as it was published,
finding it "rather miserable ... he just arranges in a logical order all
the things we knew before" ([February 1927] cited by Moggridge 1992, 434).
Part II, chapter X, referred to by Keynes in the deleted paragraphs, is
entitled 'Attacks on Industrial Fluctuations'. It contains one of the
clearest statements of the employment multiplier: "In this way secondary
influences are set to work that further enlarge the aggregate real demand
for labour. This is a very important matter" (1927, 294). In Can Lloyd
George Do It?, Keynes concluded his discussion of the (Pigovian?)
employment multiplier with the caution that "It is not possible to measure
effects of this character with any sort of precision" (JMK IX [1929],
107); a Pigovian caution that few economists would now dissent from. But
these words were also deleted from Essays in Persuasion, and Keynes (1936,
113, 121) attributed sole paternity - of this "definite ratio ... a
precise relationship" which in a "typical modern community ... would not be
much less than 5" - to Kahn.
Lambert (1969, 250, 245) reported that "According to Mrs. Robinson,
Keynes threw himself into the working out of his new theory with such
fervour that he forgot all his economics". She also recalled that in
1929, "Keynes gave a copy [of Can Lloyd George Do It?] to Kahn asking him
in effect to make a detailed analysis". Kahn (1976, 24) was "incensed" by
the Treasury view: "To my young mind the important thing was to
demonstrate analytically the hollowness of the arguments that were used
against the adoption of the obvious remedies". Kahn (1931, 173) did not
refer to Pigou's multiplier, although the words "primary" and "secondary"
appear in quotation marks and correspond to Pigou's terminology (1929,
294). Kahn believed (1984, 92) that his use of this terminology was
designed to avoid previous confusions; believing that he had conceived of
the fundamental idea behind his multiplier paper during a
mountain-climbing holiday in August 1930 (Moggridge 1973, 75, n7; Kahn
1972, vii).
Keynes' popular essay, 'The Multiplier' (the first use of the term) was
published in The New Statesmen and Nation on April Fool's Day, 1933.
Robert Leeson
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