The General Theory is not a useful guide to our current predicament because it fails to tackle the malfunction of capitalism directly. Deposit insurance was a direct New Deal engineering remedy. The further direct engineering remedies that are required are completely removed from the visions of Keynes, Hayek and the monetarist Friedman and entirely consistent with the vision of the fiscalist Friedman, the rules-constraint of Henry Simon and the Life Cycle Consumption Optimality of Franco Modigliani.
RL
----- Ursprüngliche Mail -----
Von: "Steve Kates" <[log in to unmask]>
An: [log in to unmask]
Gesendet: Donnerstag, 10. November 2011 09:23:21
Betreff: Re: [SHOE] Backhouse and Bateman, "Wanted: Worldly Philosophers"
It is interesting to see just how relentlessly Roger Backhouse and Brad
Bateman choose to ignore what I wrote. That was the reason I thought I
would bring Allyn Young into the conversation since I understand
perfectly well that some faraway economist living in the antipodes would
have no standing in such discussions but I thought Allyn might.
Nevertheless, I do wish to impress upon them once again that what I am
writing about is a direct response to the issues they raised. And since
the only compass in which these issues can be properly discussed is the
evolution of economic theory over the past hundred years, in every way
this is a subject matter for this site.
Going back to the original NYT article, let me take the final sentence
as the core point Backhouse and Bateman wished to make. What they wrote
was: “If economists want to help create a better world, they first
have to ask, and try to answer, the hard questions that can shape a new
vision of capitalism’s potential.” To do this, they argued, economic
theory should include a major recognition of government and its role. To
emphasise how important this point is, they criticised Hayek and
Friedman for ignoring the important contributions of government,
writing:
“In the 20th century, the main challenge to Keynes’s vision came
from economists like Friedrich Hayek and Milton Friedman, who envisioned
an ideal economy involving isolated individuals bargaining with one
another in free markets. Government, they contended, usually messes
things up. Overtaking a Keynesianism that many found inadequate to the
task of tackling the stagflation of the 1970s, this vision fueled
neoliberal and free-market conservative agendas of governments around
the world. That vision has in turn been undermined by the current
crisis.”
Well, what I am trying to tell them is that I have attempted in my book
on “Free Market Economics” to do exactly what they have argued needs
to be done. It is not perfect but what is? And because of the book's
hostility to Keynes and what he stands for, I fear that if they read it
they would unlikely find much in it that would give them pleasure. But
(a) it is obviously about capitalism (although the word does not appear
anywhere in the book) and (b) it provides a vision of the world in which
economic actions are of necessity buried inside a political structure.
Don’t believe it? Here are the opening three paragraphs of the book:
“This is a book about the market economy.
“A market economy is one in which overwhelmingly the largest part of
economic activity is organised by private individuals, entrepreneurs,
for personal profit. Such entrepreneurs are private citizens not
government employees. They make decisions for themselves on what to
produce, who to hire, what inputs to buy, which machinery to install and
what prices to charge.
“There are, of course, in every nation state legislative barriers put
in place by governments which limit every one of these decisions. No
market is or ever has been even remotely laissez-faire. Entrepreneurial
decisions are circumscribed by the laws, rules and regulations that
surround each and every such decision.”
My aim in writing the book was to explain to governments, and to their
citizens, how an economy can be run so that prosperity for the largest
number is the result. This is not a book about how governments should be
kept away from economic interactions. This is a book that embeds within
the text the very necessity for governments to intervene to make free
markets work. The point that I try to make is that since governments not
only are going to intervene but must, they should do so in a way that
actually does some good.
But Backhouse and Bateman do not just say we need a new vision and
leave it at that. In their article and subsequent post, they are
promoting a book with the title, “Capitalist Revolutionary: John
Maynard Keynes”. In their view, it is in Keynes that we ought to find
that vision. Well the point I wish to make is that it is precisely in
Keynes that we will not find that vision, and that if we economists had
any sense we would abandon Keynesian theory and policy root and branch.
To draw some inference from Keynes that capitalism is in constant need
of reform is about as vacuous a statement as I can imagine. The need for
institutional adjustment to the changing nature of the world is hardly
some great insight.
The Keynesian policy vision has created a global nightmare both
politically and economically, a nightmare whose end is nowhere in sight.
There may be an old guard that wishes to cling to such rancid and
outdated ideas but by now it ought to be obvious beyond argument that
Keynesian policies do not work. There is not a single economy in the
entire world that is safe from the ravages that the stimulus has caused.
By all means, let us find a new vision, but for heaven sake, the last
place we should be looking for that vision is in the works of John
Maynard Keynes.
Dr Steven Kates
School of Economics, Finance
and Marketing
RMIT University
Level 12 / 239 Bourke Street
Melbourne Vic 3000
Phone: (03) 9925 5878
Mobile: 042 7297 529
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