This whole discussion has been very interesting but it seems a bit confusing, if not confused. 

I'm thinking of statements such as RL's recent on Keynes's General Theory not being useful since "it fails to tackle the malfunction of capitalism directly." I'm not sure we are talking about the same definition of capitalism, and certainly not the same theory of capitalism. As far as I know, there are at least two major definitions in use, and which definition one typically prefers tends to be aligned with political worldview. In either case, the two definitions would be along the lines of: capitalism as an unhampered, freed market (free also from privilege but not private property, through natural rights or whatever), and capitalism as a state/government based system of sanctioned privilege (one might also call it fascism, state capitalism, the "third way" etc.). There is no such thing as the former in today's world (except for in political rhetoric), but we certainly have quite a bit of the latter - of differing severity/intensity. Also, the latter is certainly struggling with severe malfunctions and contradictions, whereas I find no basis in economic theory for the same kind of statement about the first. I'm guessing RL is referring primarily to the latter?


PLB

______________________________
Per L. Bylund
Applied Economics
Division of Applied Social Sciences
University of Missouri

[log in to unmask]
www.PerBylund.com


-----Original Message-----
From: Societies for the History of Economics [mailto:[log in to unmask]] On Behalf Of Robert Leeson
Sent: Thursday, November 10, 2011 8:17 AM
To: [log in to unmask]
Subject: Re: [SHOE] Backhouse and Bateman, "Wanted: Worldly Philosophers"

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