Published by EH.Net (September 2019)

Sheila Dow, Jesper Jespersen and Geoff Tily, editors, The General
Theory and Keynes for the 21st Century. Cheltenham, UK: Edward Elgar,
2018. xx + 208 pp. $130 (hardcover), ISBN: 978-1-78643-987-1.

Reviewed for EH.Net by Robert W. Dimand, Department of Economics,
Brock University.

In July 2016, a conference at University College London celebrated two
eightieth birthdays, those of John Maynard Keynes’s General Theory of
Employment, Interest and Money (1936) and of Victoria Chick, professor
emerita at University College London and author of a landmark
contribution to Post-Keynesian economics, Macroeconomics after Keynes:
A Reconsideration of the General Theory (Chick 1983). Sheila Dow of
the University of Stirling, Jesper Jespersen of Roskilde University in
Denmark, and Geoff Tily, a senior economist at the Trades Union
Congress, have edited two volumes of selected papers from the
conference — the present volume focused on Keynes’s revolution in
macroeconomics and its continuing relevance and a companion volume on
contemporary Post-Keynesian contributions to monetary economics and
economic methodology (Dow, Jespersen and Tily, eds. 2018). Together
these volumes revisit the themes of Victoria Chick’s selected essays
(Arestis and Dow, eds., 1992) and an earlier festschrift (Arestis,
Desai and Dow, eds., 2002). This volume opens with an eloquent
argument “On the Relevance of The General Theory at 80” by Victoria
Chick, making a persuasive case for the continued relevance of both
the conference’s honorees. Professor Chick also contributed (with A.
Freeman) on “The Economics of Enough” to the companion volume.

Robert Skidelsky, Keynes’s biographer, usefully summarizes the
difference between Keynes and orthodoxy: “Since orthodox theory …
believed that unimpeded markets had an automatic tendency to full
employment, the orthodox explanation for the abnormal employment after
the war emphasized a blockage, or set of blockages, to the
price-adjustment mechanism, the remedy for which was to remove such
impediments. Both the political Left and the political Right
subscribed to the blockage theory” (p. 31). This blockage theory is
still the belief that crucially keeps modern orthodoxy, whether called
New Classical or New Keynesian or “new neoclassical synthesis,” from
absorbing Keynes’s message.

Perhaps the single most substantial contribution among the fourteen
chapters, and the one most likely to be frequently cited on its topic,
is by Radhika Desai on “John Maynard Pangloss: Indian Currency and
Finance in imperial context.” While acknowledging “elements of truth”
in claims that some aspects of Keynes (1913) prefigured his later
views on international monetary reform, such claims “privilege the
technical over the political … ignoring the fact that the genius of
the Bretton Woods proposals which, by contrast, were original to
Keynes, lay not in the technicalities of managing money but in
Keynes’s vastly changed conception of the purposes for which to do so”
(pp. 116-17). While other contributors are hesitant to be
unenthusiastic about anything that Keynes wrote at any stage of his
career (upholding Keynes not just against his neoclassical critics but
against non-neoclassical economists such as Kalecki), Desai (p. 124)
states frankly that “While there was intellectual merit in his lucid
and informative synthesis [in Keynes 1913], that is all it was.”

Gerhard Michael Ambrosi lucidly examines how the Gibson Paradox of a
positive correlation between the interest rate and the price level,
described by Keynes (1930) as “one of the most completely established
empirical facts within the whole field of quantitative economics,” was
entirely absent from Keynes (1936), but I would have liked to see more
attention to how correlation between interest rates and the rate of
change of prices complicates empirical observation of correlation
between interest rates and the price level. Andy Denis, drawing on his
1988 MA dissertation on Marx and Keynes, argues surprisingly, but with
some intriguing supporting quotations, that Keynes held a labor theory
of value. He also relates Keynes’s decreasing marginal efficiency of
capital to Marx’s falling rate of profit due to a rising organic
composition of capital, but Keynes’s downward-sloping
investment-demand schedule, at a moment of time, does not seem to me
close to Marx’s tendency for the profit rate to fall over time.

Maria Cristina Marcuzzo (p. 26) quotes Robert Skidelsky’s important
reminder, in his biography of Keynes, that “There are many different
ways of telling the story of the General Theory of Employment,
Interest and Money, and many different stories to be told about it.”
Nonetheless, the contributors mostly share a story about the General
Theory that emphasizes unquantifiable uncertainty (without mention of
Frank Knight, or of limited knowledge invoked by Hayek and other
Austrian economists to reach anti-Keynesian policy conclusions) with
other stories viewed, to quote the title of a book by one of the
editors, as Keynes Betrayed (Tily [2007] 2010). There is no mention of
the Clower-Leijonhufvud story that takes seriously Keynes’s rejection
of Say’s Law of Markets, arguing that it (or Walras’s Law) applies
only to notional demands, not to quantity-constrained effective
demands. The amount of unsold labor, multiplied by the wage rate,
should not be counted in the budget constraint for goods, so excess
supply of labor need not imply excess demand for anything else. The
only mention of Say’s Law (by Heinz Kurz on p. 186) quotes an
introductory remark by Keynes (1936) viewing Say’s Law as the
proposition that “the economic system was always operating at its full
capacity” without going on to Keynes’s later, fuller explanation that
under Say’s Law parts of the economy could operate below full capacity
provided there was an equal amount of excess demand elsewhere in the
economy (so that, according to such classical economists as Ricardo,
adjustment would only require shifting resources from industries in
excess supply to those in excess demand). There is also no mention of
the General Theory’s Chapter 19, on changes in money wages, which has
been invoked by Hyman Minsky and James Tobin to argue that faster
adjustment of prices and money wages, instead of restoring full
employment, would be destabilizing (but Minsky and his financial
instability hypothesis appear in a footnote in Heinz Kurz’s chapter on
Schumpeter and Keynes, p. 195n).

The contributors have no tolerance for restatements of the General
Theory as a system of simultaneous equations (see Marcuzzo on p. 18,
quoting Chick). In December 1933, in the concluding lecture of eight
lectures on “The Monetary Theory of Production,” Keynes summarized his
theory as a system of four equations (see Rymes 1989, Dimand 2007) but
discarded that approach in his book, either because it was a tentative
formulation that he found wanting or because he followed Marshall’s
advice to use mathematics as an aid to inquiry, translate into English
and then burn the mathematics. The editors quote one of those four
equations in their introduction (p. xv) without mentioning the system
of equations (or that Lorie Tarshis’s frustration with that lecture
was because Keynes used W for “the state of the news,” having used the
same symbol in earlier lectures for the money wage). Marcuzzo (p. 18)
observes that “it has been a matter of puzzling disappointment to many
of us as to why Keynes did not oppose … the IS-LM distortion.” David
Champernowne and W. Brian Reddaway, authors of the first published
translations of the General Theory into simultaneous equations, both
attended that December 1933 lecture. Keynes had discarded the
simultaneous-equations expression of his theory well before
publication but might hesitate to publicly repudiate young economists
who were reading his book in the light of his own lectures. The
equations in the IS-LM articles neglected a crucial feature of
Keynes’s lecture: explicit inclusion of the “state of the news” as an
argument in each of the consumption, investment and liquidity
preference functions.

Overall, these well-written, lively essays will appeal to Post
Keynesian economists and more widely to readers interested in Keynes’s
General Theory and, together with the companion volume, form a worthy
tribute to Victoria Chick’s contributions to economics.

References:

Philip Arestis and Sheila Dow, eds. (1992) On Money, Method and
Keynes: Selected Essays by Victoria Chick. London: Macmillan.

Philip Arestis, Meghnad Desai and Sheila Dow, eds. (2002) Money,
Macroeconomics and Keynes: Essays in Honour of Victoria Chick, 2
volumes. London: Routledge.

Victoria Chick (1983) Macroeconomics after Keynes: A Reconsideration
of the General Theory. Cambridge, MA: MIT Press.

Robert W. Dimand (2007) “Keynes, IS-LM, and the Marshallian
Tradition,” History of Political Economy 39(1): 81-95.

Sheila Dow, Jesper Jespersen and Geoff Tily, eds. (2018) Money, Method
and Contemporary Post-Keynesian Economics. Cheltenham, UK: Edward
Elgar.

John Maynard Keynes (1913) Indian Currency and Finance. London: Macmillan.

John Maynard Keynes (1930) A Treatise on Money, 2 volumes. London: Macmillan.

John Maynard Keynes (1936) The General Theory of Employment, Interest
and Money. London: Macmillan.

Thomas K. Rymes, ed. (1989) Keynes’s Lectures 1932-35: Notes of a
Representative Student. London: Macmillan.

Geoff Tily ([2007] 2010) Keynes Betrayed: The General Theory, the Rate
of Interest and ‘Keynesian’ Economics. Basingstoke, UK: Palgrave
Macmillan.


Robert W. Dimand is Professor of Economics at Brock University, St.
Catharines, Ontario, Canada, and recently author of Irving Fisher
(Palgrave Macmillan, 2019) and editor of The Routledge Handbook of the
History of Women’s Economic Thought (with Kirsten Madden, 2018) and
The Elgar Companion to John Maynard Keynes (with Harald Hagemann,
2019).

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