Dear Steve,

	You may be on to something big, something old, wrongly buried, and vital to exhume for current use. "Consumption" per se does not make jobs.  Consumption just takes off the shelf goods already produced.  It is REPLACEMENT that makes jobs. 
	Textbook macro glosses over replacement by taking it for granted as a passive function of consumption. However, the rate of replacement of capital is an independent force, largely determined by the nature of capital in being. Consuming the services of, let us say, Hoover Dam, does not require replacement of the dam for scores of years.
	Mill was on the right track when he wrote that "Capital is kept in existence from age to age not by preservation but by perpetual reproduction". The employment associated with any quantity of capital depends on its rate of reproduction, aka TURNOVER. 
	I may not make the next meeting of HET where you will give your paper.  Please send me the paper as soon as it is ready; I am eager to learn what you will have to say.

Sincerely,

Mason Gaffney
	

-----Original Message-----
From: Societies for the History of Economics [mailto:[log in to unmask]] On Behalf Of Steve Kates
Sent: Sunday, August 21, 2011 1:05 AM
To: [log in to unmask]
Subject: Re: [SHOE] Is textbook HET systematically false?

Bruce Littleboy has raised a very interesting issue. How can we get past
the conventional views of our subject when looking at its history? The
Keynesian Revolution came with its own pre-packaged history of classical
theory and as Bruce mentions, with its own history of Say and Say’s Law.
In my _Say’s Law and the Keynesian Revolution_ (Edward Elgar 1998:
161-169) I look at the way in which Say’s Law, Ricardo and Malthusian
economic theory had a remarkable transformation the very moment _The
General Theory_ was published. The change was virtually instantaneous.
The entire way in which even the history was written was immediately
adjusted to conform to what Keynes had written. 

I am not sure that there is an answer to this other than to be aware
that this mainstream bias effect is necessarily pervasive in mainstream
histories of economics. The other example I have been working on (for a
paper I will deliver to the UK HET next month) is Mill’s “demand for
commodities is not demand for labour”. No one any longer understands
what Mill meant and it is clear from the evidence that amongst those who
could make neither head nor tail of it was Alfred Marshall. My argument
is that the intervention of the marginalist revolution had made it near
impossible for a mainstream economist to understand Mill, even though as
recently as 1876, Leslie Stephen had described Mill’s proposition as
“the best test of a sound economist”. 

But it is not just the mainstream who have this problem since it is not
just the winners who write the history. Sometimes the ones who lost out
also write histories. Indeed whatever it is we “know” and believe seem
to prevent us from making sense of other positions. This is what happens
to mainstream histories of economics. The past is interpreted in light
of what exists and what we understand today. The question that is asked
is how did we get to where we are, but as economists we must of
necessity begin with some kind of truth as our foundation from which we
look at what others have said and done. In the history of ideas, it is
mainstream beliefs that will almost certainly have the most powerful
influence in determining how to describe what came before. 

Think about what Mill wrote about the demand for commodities not being
demand for labour. His words would have been the foundation for the most
insightful analysis and forecast for what would happen following the
introduction of the stimulus packages in 2009. Going to him now might
provide some true insight into what went wrong. But the likelihood that
anyone will try to make sense of things using Mill is pretty remote,
unless, of course, one understands what he wrote and believes it
already. 



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