I have stayed out of this, but I decided to throw in my two cents.

 I think both Classical and Keynesian views of the depression make sense.  It is all in the nuance of how one interprets them.  Classicals, such as Mill and Marshall (who I see as following a classical methodogy) and Keynes, who as a follower of Marshall also followed a classical methodology, connected theory and policy together in a different way than did later economists who adopted a Walrasian methodology.
Laws to them were principles that were used to provide insight and to correct arguments. They were not everywhere and always true, and weren't meant to be.

 What became known as Say's Law was simply an argument that some people's argument against too little demand being the cause of recessions was too simple--that real demand is tied to real supply.  It was part of their broader separation of the monetary and real sector that was part of the quantity theory (which also was not a hard a fast theory, but rather general tendencies.)  Keynes was part of that Classical tradition and in the Treatise attempted to shoehorn the depression into it.

 He soon came to believe that it didn't fit well enough, so he devised a new framework--it said that sometimes economies could get out of killter so much so that even if the long run classical model is correct, that is irrelevant because the adjustment is too slow for the political structure.  He never developed his theory--he was pulled into policy and then died--but the outlines of theory were there--today it would be explained as a problem of complex systems dynamical adjustment, where there are lots of temporary basins of attraction that an economy can get stuck in, making it impossible to reach a more desirable basin.

Keynesian policy, which was not seen as permanent,  was designed to push the economy to a preferable equilibria.  The theoretical issues surrounding Keynesian policy all concern dynamical adjustment systems of comlplex systems,  they do not concern  equilibrium issues, although there are issues of multiple equilbira that can also be models.   Keynesian policy as affecting dynamcal adjustment makes sense in the Classical framework, which is why Keynes thought he had corrected a theoretical flaw in Classical theory--the flaw was that it did not sufficiently consider dynamical adjustment properties of the aggregate economy. But Keynesian theory can be seen as an (important) adjustment to Classical theory, not a whole new theory.

That was not the way Keynesian theory was  developed--as it moved to neoKeynesian, Keynesian theory was shoehorned into a unique equilbirum Walrasian model that was not even closely up to the task of providing a solid foundation for Keynes's ideas. That is the insight of Post Keynesians and fundamentalist Keynesians.  Today, in my view,  the interesting theoretical work in macro is being done in the study of dynamical complex systems, and little of that has filtered down to the texts or the general discussion, which is why there is so little ability to talk.

Dave Colander

________________________________
From: Societies for the History of Economics [[log in to unmask]] on behalf of Steve Kates [[log in to unmask]]
Sent: Tuesday, December 11, 2012 2:06 AM
To: [log in to unmask]
Subject: Re: [SHOE] Macro Follies


In relation to James Ahiakpor’s post, I do think Say’s Law was embodied in the classical theory of the cycle right up to 1936 but that’s a separate issue from what he wrote in trying to explain the meaning of this principle and how it was mangled by Keynes. If we are historians of economics, part of whose mission is to make sense of the great economists of the past, then it should be our mission to make sense of Smith, Ricardo, Mill and Marshall. James can follow what they wrote and can make coherent sense of their arguments. He can explain their logic and understands their economics. Whether he is right about the superiority of their arguments relative to Keynes, the question I have is whether those who have been critical of what he (and I) have written can themselves follow and make plausible sense of Smith, Ricardo, Mill and Marshall.

Unless you assume that they were complete idiots, that they believed everything produced would immediately find a buyer and that recessions were a theoretical impossibility, then it ought to be part of our own mission as historians of economics to be able to explain what they and the classical school understood about the nature of saving, investment, recessions and economic adjustment. We should also be able to understand and explain why they would have thought Keynesian economics was fallacious from end to end (and please do read Hubert Henderson’s “Mr Keynes’s Theories” which was his Marshall Society Lecture on 2 May 1936 if you are interested in a classical reply to Keynes written by an actual classical economist).

You don’t have to believe what they wrote, just be able to explain why they thought what they thought and why their arguments were persuasive enough to hold the allegiance of their fellow economists for more than a hundred years through booms and busts, good times and bad. I can easily understand and explain Keynes. Piece of cake, end to end nonsense though I think it is. But those who have been critical of James and myself, can they really explain Marshall and Mill in a convincing matter? Reading some of these posts makes me wonder not whether they can because I see that they can’t, but whether they even think they should be able to since they already seem convinced there is nothing there worth knowing.


Dr Steven Kates
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