------ EH.NET BOOK REVIEW ------
Title: The Anti-Keynesian Tradition

Published by EH.NET (February 2011)

Robert Leeson, editor,/ The Anti-Keynesian Tradition/. Basingstoke, UK:
Palgrave Macmillan, 2008. ix + 212 pp. $100 (hardcover), ISBN:
978-1-4039-4959-2.

Reviewed for EH.Net by Thomas Mayer, Department of Economics, University of
California –Davis.

This book is inappropriately titled. It is /not/ an exposition of the
anti-Keynesian tradition since it ignores the work of many major contributors
to this tradition, such as Karl Brunner, James Buchanan, Friedrich Hayek and
Allen Meltzer. While two of the essays discuss Friedman’s work, they deal
with his 1953 methodological essay and with his early (1941-43), essentially
Keynesian, views. Moreover, the book contains only one essay on new classical
theory -- a description of how Kydland and Prescott developed their joint
research program. It also has one chapter on the Phillips Curve. Insofar as
anything distinctive ties the various essays together it is their use of
archival material. The inappropriateness of its title matters because it is
likely to send economists who seek an exposition of the anti-Keynesian
tradition on fruitless trips to the library.

There are ten papers. Leeson’s introduction provides brief summaries of the
subsequent papers, and commends archival research for providing many insights
and resolving disputes as well as for slaying erroneous creation myths and
caricatures. However, he does not mention another important use of archives.
We economists like to pretend that our conclusions flow inexorably from our
premises or from irrefutable empirical evidence. But earlier drafts and
correspondence preserved in the archives can reveal a more subjective and
less inexorable process, one that is both more open to doubt and more human.

In the second chapter, Warren Samuels, who has been our generation’s
foremost archivist of economic writings, describes his accumulation and
publications of archives. These include correspondence and unpublished papers
and lecture notes taken by students. One issue which these archives clarify
is Friedman’s claim about the Chicago oral tradition in monetary theory.
His chapter also discusses some nitty-gritty problems in publishing these
archives, a topic that I wish had received more discussion.

The next chapter, by Ross Emmett, discusses the origin of Frank Knight’s/
Economic Organization/. Initially written as a mimeograph for Chicago’s
introductory social science course, it had a checkered history, including
unauthorized publication. Knight tried to develop it into a full-scale
textbook, which he never published./ Economic Organization/ had a significant
influence on Paul Samuelson’s classic text. This essay is likely to
fascinate those who have a strong interest in Frank Knight’s work, but not
others.

In the subsequent chapter, Enrico Levrero describes Friedman’s views in
1941-43 on taxes and the inflationary gap. Friedman himself subsequently
describes his views at the time as “thoroughly Keynesian” (p.  47).
Levrero does valuable work in documenting just how Keynesian they were,
though he does point out some elements of a quantity theory. (Does this imply
something about Friedman’s claim regarding a Chicago tradition?) His
documentation comes primarily from publicly available sources, and hence this
chapter does not fit the overall purpose of this book. But I am very glad
that Leeson included it.

Thomas Gale Moore then has a three plus page vignette on his strongly
positive experience as a graduate student at Chicago in the late 1970s. It is
not clear why this was included, but it is a delightful description of an
almost ideal university setting, though ignoring its drawbacks, such as
clannishness, arrogance and unwarranted certitude.

New classical economists and other formalists often seek to justify their use
of unrealistic assumptions by referring to Friedman’s essay, “The
Methodology of Positive Economics.” In Chapter 6 J. Daniel Hammond, who has
previously published much archival research on Friedman’s essay, rightly
points out that there is much more to it than the claim that assumptions need
not be realistic. Indeed, an important component of Friedman’s essay is his
rejection of the Walrasian economics that permeates new classical theory. To
Friedman the most important issue is that a theory be tested, whether it is
tested by its assumptions or by its predictions is a lesser issue. Formalists
who believe that Friedman has provided them with a safe haven should read
Hammond’s chapter (and also Uskali Maki, /The Methodology of Positive
Economics/).

Many economists seem to believe the following history of the Phillips
curve:  Phillips empirically estimated the unemployment-trade off curve.
This enhanced the case for stabilization policy, since the government could
now choose its preferred point. But Phillips ignored expectations, and
Friedman by introducing adaptive expectations showed that any trade-off would
only be temporary. Subsequently, Lucas by switching to rational expectations
demolished the case for even that. In the eighth chapter, Leeson and Young
show that this is not so. Phillips paid attention to the effect of inflation
on expectations, and it was he who suggested the use of adaptive expectations
to Friedman. Moreover, Phillips far from advocating counter-cyclical
policies, worried that, due to their effects on expectations, they could
introduce dynamic instability.

The following chapter by Michael Oliver, much of it based on archival
resources, summarizes the views of the Bank of England and the U.K. Treasury
on devaluation and flexible exchange rates from 1960 to 1970.  It is not
concerned with explaining them by public choice theory, but essentially just
describes them.  Oliver concludes that it was primarily not the work of
academic economists, but necessity, which drove Britain into floating.

In Chapter 9, Warren Young uses both published and unpublished material (much
of it correspondence) to painstakingly describe the evolution of Prescott and
Kydland’s work. This should be highly interesting to many macroeconomists,
particularly to new classical economists. It is more technical than most of
the other chapters in that its full appreciation requires considerable
familiarity with the literature.

In the final chapter Fiorenzo Mornati discusses Pareto’s economics as
revealed by his correspondence (nearly 5000 letters which have been
published) along with his publications. While Pareto is now thought of mainly
in connection with the Pareto criterion, indifference curves and his law of
income inequality, Mornarti shows that there is much more to his economics
than this.

Thomas Mayer is emeritus professor of economics, University of California,
Davis. His most recent book is /Invitation to Economics/. He is currently
working on an evaluation of the use of significance tests in economics

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Geographic Location: Europe, North America
Subject: History of Economic Thought; Methodology
Time: