Marc Lavoie, “Should Sraffian Economics be dropped out of the Post-Keynesian School?,” Paper prepared for the Conference at the University of Roma Tre, 2–4 December 2010.This subject is particularly interesting because many Post Keynesians have come to the view that Sraffian economics should not be part of “broad tent” Post Keynesianism, as noted by John King writing in 2012:
“Almost no one today regards ‘Post Keynesian-Sraffian’ economics as a single coherent school of thought (an exception is Luigi Pasinetti, 2007). By the end of the last century the Sraffians had been expelled (or, perhaps, had expelled themselves) from the Post Keynesian tradition, and in 2012 it is not at all clear whether the classical surplus approach to political economy (as its few remaining practitioners prefer it to be known) will long survive the retirement of the first post-Sraffa generation of theorists like Heinz Kurz and Neri Salvadori.” (King 2012: 314).Pratten (1996: 439), Arestis, Dunn and Sawyer (1999), Dunn (2000: 350), and Mongiovi (2003: 218) seem to agree with this assessment.
Even though Lavoie himself says that the “project to build a fruitful alternative to neoclassical economics that would be based on a synthesis of the Keynesian monetary production economy and the Sraffian surplus approach is dead” (Lavoie 2010: 9), he still argues that Sraffians should not be expelled from “broad tent” Post Keynesianism (Lavoie 2010: 1), but nevertheless others disagree and even Lavoie himself sees problematic issues with certain aspects of Sraffian economics.
First, Lavoie (2010: 2) notes that Roncaglia (1991) identified three subgroups of Sraffians, as follows:
(1) the Marxian Sraffians, such as Pierangelo Garegnani (1930–2011) and John Eatwell;Debates between the Marxian Sraffians and the Fundamentalist Keynesians were a major source of conflict at the Post Keynesian Trieste summer schools and conferences that were held between 1981 and 1990 (Lavoie 2010: 2), and even to the point of thwarting any synthesis between the various strands of “broad tent” Post Keynesianism, according to some observers (King 2002: 158).
(2) the Ricardian Sraffians, such as Luigi Pasinetti, and
(3) the Smithian Sraffians, such as Paolo Sylos Labini (1920–2005) and Alessandro Roncaglia.
The conflict centred on both methodological issues and Sraffian economic theory and its alleged deficiencies.
Pratten (1996) argued that Sraffian economics was a closed-system model and hence incompatible with the open-systems Post Keynesian approach (Lavoie 2010: 6).
Many Post Keynesians have also found the Sraffian fixation on long period equilibrium positions as a “centre of gravitation” towards which the economy moves as unacceptable, as Arestis, Dunn and Sawyer point out:
“The main characteristic of Sraffian economics relevant here is the use of long-period analysis where there would be an equalization of the rates of profit and full capacity utilization in the long period. The assumption that there are persistent forces that drive the economy toward a normal or long-period position when the world is characterized by uncertainties, nominal contracts, and path dependency sits rather uncomfortably with the general thrust of Post Keynesian economics” (Arestis, Dunn and Sawyer 1999: 544).Many Kaleckians and fundamentalist Post Keynesians reject any tendency to Sraffian long-period equilibrium as empirically irrelevant for a real world economy (Arestis, Dunn and Sawyer 1999: 545).
Lavoie (2010: 10), however, points to the historical association of Sraffianism with Post Keynesian economics through the Cambridge capital controversies and a common preference for government intervention.
But differences also exist:
“Sraffians and Post Keynesians seem to disagree most about the fatal flaws of mainstream theory. For Sraffians the flaws of neoclassical theory are mostly due to their adoption of continuous downward demand curves for investment or for labour, based on diminishing marginal productivity. All Sraffians (Eatwell, Garegnani, Kurz, Mongiovi, etc.) complain of Keynes because he kept an excess baggage of neoclassical theory, a complaint even made by Herbert Simon (1997, p. 14). For several other post-Keynesians, the flaws are to be found in the neoclassical school’s avoidance of fundamental uncertainty, the instability of expectations, and the nonneutrality of money.” (Lavoie 2010: 12).Furthermore, even Lavoie (2010: 11) admits that Sraffian long-period equilibrium remains a contentious issue, and indeed refers to this as “the cause of all the troubles” (Lavoie 2010: 12).
Marxian Sraffians following Garegnani appear to think that competition really brings about a tendency towards a uniform rate of profit in capitalism, and that long-period prices of production are centres of gravity for market prices (Lavoie 2010: 14).
But Lavoie (2010: 16) argues that “dissident” Sraffian strands are compatible with Post Keynesianism, that some Sraffian positions have been caricatured by their opponents (Lavoie 2010: 19–21), and that some modern Sraffians have given up the more extreme positions on long run equilibrium (Lavoie 2010: 23, citing Roncaglia 1995: 120).
For Lavoie (2010: 17), the “conception of production prices … is, in my view, the only remaining obstacle in the attempt to integrate Sraffian and Keynesian analyses.”
Lavoie’s conclusions are worth quoting at length:
“One of the lessons of the present study is that the interpretation of Sraffa’s outputs as actual normal outputs has already been given up by all strands of the Sraffian school. There is no clash here between Sraffians and post-Keynesians: they all recognize that both in the short and in the long period, rates of capacity utilization are likely to be different from their normal level. Even more surprising, many Sraffians accept the possibility of path dependence, a characteristic which other post-Keynesians take to heart as it exemplifies Joan Robinson’s historical time and the presence of radical uncertainty.BIBLIOGRAPHY
What is instead at stake is whether dominant Sraffians are ready to give up the concept of the gravitation towards production prices. This in my view is the crucial issue, as recognized earlier by Frederic Lee, who, despite his sympathies with Sraffian economics and the surplus approach as well as his belief in a ‘Post Keynesian-Sraffian tradition’, rejects the notion of prices of production as centres of gravity (King 1995, p. 195), even concluding some years later that ‘with the long period method problematical, it appears that the Sraffian social surplus approach is a dead end’ (Lee and Jo 2010, p. 21). Arestis, who explicitly supports the position taken by Roncaglia that was stated at the beginning of this conclusion, is just as anxious, claiming that ‘once we have got rid of long-run centres of gravity, we may be able to demonstrate that Sraffian and Post Keynesian economics have much in common’ (King 1995, p. 205).
I would argue that due to specialization and the outpour of literature, Sraffian and other post-Keynesian economists have grown somewhat apart since the 1990s. However, all strands of post-Keynesian economics, when dealing with similar issues, have converged towards each other. … Thus efforts to provide a synthesis of the various strands of post-Keynesian economics ought to be maintained and should keep track of Sraffian economics.” (Lavoie 2010: 23–24).
Arestis, P. 1996. “Post-Keynesian Economics: Towards Coherence,” Cambridge journal of Economics 20.1: 111–135.
Arestis, Philip, Dunn, Stephen P. and Malcolm Sawyer. 1999. “Post Keynesian Economics and its Critics,” Journal of Post Keynesian Economics 21.4: 527–549.
Dunn, S. P. 2000. “Wither Post Keynesianism?,” Journal of Post Keynesian Economics 22.3: 343–364.
Harcourt, G. C. 2001. “Post-Keynesian Thought,” in G. C. Harcourt, 50 Years a Keynesian and Other Essays. Palgrave, London. 263–285.
King, J. E. 1994. Conversations with Post Keynesians. Macmillan, Basingstoke.
King, J. E. 2002. A History of Post Keynesian Economics since 1936. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.
King, J. E. 2012. “Post Keynesians and Others,” Review of Political Economy 24.2: 305–319.
Lavoie, Marc. 2010. “Should Sraffian economics be dropped out of the Post-Keynesian School?,” Paper prepared for the Conference at the University of Roma Tre, 2–4 December.
http://host.uniroma3.it/eventi/sraffaconference2010/abstracts/pp_lavoie.pdf
Mongiovi, G. 2003. “Sraffian Economics,” in J. E. King (ed.), The Elgar Companion to Post Keynesian Economics. Edward Elgar, Cheltenham. 318–322.
Pratten, S. 1996. “The Closure Assumption as a First Step: Neo-Ricardian Economics and Post-Keynesianism,” Review of Social Economy 54.4: 423–443.
Roncaglia, A. 1991. “The Sraffian Schools,” Review of Political Economy 3.2: 187–220.
Roncaglia, A. 1995. “On the Compatibility between Keynes’s and Sraffa’s Viewpoints on Output Levels,” in G. C. Harcourt, A. Roncaglia and R. Rowley (eds.), Income and Employment in Theory and Practice. St. Martin’s Press, New York. 111–125.
Every person who studies Keynes needs to ask an important question: did Keynes accept the IS-LM model?
ReplyDeleteDon Patinkin shows that Keynes gave “consistent approval of the IS-LM interpretation of the General Theory” (Patinkin 1990: 214). Allan Meltzer also shows that Keynes accepted the IS-LM model: “Keynes was willing to accept the IS-LM model with some qualifications, principally about expectations” (Meltzer 1988: 255).
Keynes approved the IS-LM model in a March 1937 letter to Hicks. Referring to the IS-LM model, Keynes said he “found it very interesting and really have next to nothing to say by way of criticism" (Keynes, 1937).
“in his correspondence with Harrod, Reddaway, Meade, and Hicks on their respective review articles, Keynes did not express any objection to the fact that each in his own way had presented the analysis of the General Theory in terms of a general-equilibrium system of simultaneous equations…. all of [these] simultaneous-equation interpretations of the General Theory can essentially be regarded as variations of IS-LM” (Patinkin 1990: 213).
In 1938 Keynes approved Oskar Lange’s general-equilibrium interpretation of the General Theory. Keynes stated that “The analysis which I gave in my General Theory of Employment is the same as the ‘general theory’ explained by Dr. Lange” (Keynes, 1938).
Patinkin points out that “the one diagram that we do find in the General Theory is logically equivalent to the IS curve” (Patinkin 1990: 224).
Post Keynesians claim that Keynes rejected the general-equilibrium framework. According to Paul Davidson, the “general equilibrium explanation of Keynes’s analysis, Hicks’s IS-LM version of Neoclassical Keynesianism, was not representative of Keynes’s general theory framework” (Davidson 2007: 176).
In fact, Keynes did accept the general equilibrium famework: “a basic contribution of the General Theory is that it is in effect the first practical application of the Walrasian theory of general equilibrium” (Patinkin 1991: 27)
Further proof of Keynes’s acceptance of the general equilibrium framework is found in the Treatise on Money: "much of the analytic framework that eventually became the General Theory of Employment, Interest, and Money are found in the Treatise.... The Treatise advances the analysis by recognizing that the interest rate is determined as part of a simultaneous general equilibrium solution ... The analysis of the Treatise introduces the key ideas that became familiar as the IS-LM model" (Meltzer 1988: 111-112).
"Among the many contributions Keynes made to economics, none is more lasting than the stimulus he gave to the development of the theory of output and employment within a general equilibrium framework" (Meltzer 1988: 196).
Finally, Keynes never published a criticism of the IS-LM model. Keynes would have published a criticism of the IS-LM model if he rejected the IS-LM model. The fact that Keynes never criticized the IS-LM model in print poses serious problems for the Post-Keynesians.
Did Keynes accept the IS-LM model? If Keynes rejected the IS-LM model, then the Post Keynesian interpretation of Keynes is plausible. But if Keynes accepted the IS-LM model, then the Post Keynesian interpretation of Keynes is nonsense.
Anonymous,
DeleteWhoever you are, you seem to have a bee in your bonnet about this issue.
Say Keynes did accept the IS-LM model, just for the sake of argument.
Are you trying to defend the truth of the IS-LM model, just because Keynes accepted it? If so, you are clearly committing the appeal to authority fallacy.
"But if Keynes accepted the IS-LM model, then the Post Keynesian interpretation of Keynes is nonsense. "
No, that does not follow. One can reject certain aspects of the GT: say, the assumption of exogenous money and the MEC, and still have a coherent and convincing economic theory of modern capitalism.
A clear case of reading what you want to read into things to confirm your previously held biases. You write:
Delete"Allan Meltzer also shows that Keynes accepted the IS-LM model: “Keynes was willing to accept the IS-LM model with some qualifications, principally about expectations”"
Actually, that Meltzer quote does not suggest that "Keynes accepted the IS-LM model". Rather it clearly states that he had reservations, especially about the inability to incorporate expectations. These are the same reservations held by John Hicks himself who rejected the model in 1981.
If you're going to provide crude arguments from authority you really have to do better than second-hand anecdotal quotes that do not even say what you claim they say. Sorry.
After a careful reading of the WHOLE letter Keynes sent to Hicks (which is the base for Patinkin's allegations), and Keynes' increasing dissatisfaction with Hicks, which led him to attack Hicks, Ohlin and Robertson all together, I believe we can put to rest the myth that Keynes accepted ISLM as a valid interpretation of his General Theory.
DeleteInitially, Keynes made an important remark, which was that increased investment (and expenditure) need not increase the interest rate, independently of the "liquidity trap". That is very problematic for IS-LM, because it implies that when the IS shifts, the LM ALSO shifts (instead of moving along the curve). It means that the curves are not independent. Later on, he criticized Hicks for saying that the interest rate equalizes savings and investment. This is all shown in the Collected Writings, Vol. 14, p. 71-83, and then on the article "Alternative theories of the rate of interest". That myth should stop.
Philip,
DeleteYou obviously have not read Meltzer's book. You should read it, it's excellent.
Keynes wrote a letter to Hicks in March 1937. In that letter, Keynes accepts Hicks's IS-LM model.
However, Hicks used actual income in the LM curve and the IS curve. Keynes's letter indicates that Hicks should have used actual income in the LM curve and EXPECTED income in the IS curve.
Keynes says in the letter: "whilst it may be true that entrepreneurs are over-influenced by present income’, nevertheless ‘expected income for the period of investment is the
relevant variable"
Keynes was just telling Hicks that the investment function should depend on expected income so that changes in expectations can shift the IS curve. Contrary to what said, Keynes's remark clearly shows that Keynes thought the IS-LM model can incorporate expectations!
You are correct: Hicks did reject the IS-LM model in 1981. However, Hicks never said that the IS-LM model was an incorrect interpretation of Keynes's General Theory.
“neither this [1976] article, nor Hicks’ later article on ‘IS-LM—An Explanation’ (1981)—which Post-Keynesians also cite in this connection—say that IS-LM is not a proper interpretation of the General Theory: on the contrary, it seems to me that in both articles Hicks is actually very careful not to say this” (Patinkin 1990: 224).
Like Keynes, Hicks always believed that the IS-LM model was an accurate interpretation of the General Theory. When Hicks rejected the IS-LM model, he was rejecting Keynes's General Theory.
OGB,
DeleteThe problem with your argument is with timing and sequence. "Alternative theories of the Rate of Interest" was published in September 1937.
However, in 1938, Keynes approved Oskar Lange’s general-equilibrium interpretation of the General Theory.
“The analysis which I gave in my General Theory of Employment is the same as the ‘general theory’ explained by Dr. Lange” (Keynes 1938, Collected Writings, Vol. 14, p. 232, n.1)
Lange's analysis is the IS-LM model. This is indisputable proof that Keynes accepted the IS-LM model as the correct interpretation of the General Theory in 1938.
Do you have any evidence that Keynes rejected the IS-LM model AFTER 1938?
"Like Keynes, Hicks always believed that the IS-LM model was an accurate interpretation of the General Theory. When Hicks rejected the IS-LM model, he was rejecting Keynes's General Theory."
DeleteWell, Mr. Anonymous will not be getting published in any history of thought journals any time soon.
I think that he's constructed what Lacan called an "individual myth". This can be done by basically reconstructing the history of thought to reflect exactly what you think it should reflect. It is the history of thought version of being a monetary crank.
Move along. Stop rubber-necking, people.
LK,
ReplyDelete"are you trying to defend the truth of the IS-LM model, just because Keynes accepted it?"
Nothing written in the original post defends the truth of the IS-LM model. It only argues that Keynes accepted the IS-LM model.
Post Keynesians have done an excellent job refuting the IS-LM model. However, Post Keynesians have failed to recognize that Keynes did accept the IS-LM model.
Ironically, Post Keynesians are refuting Keynes when they refute the IS-LM.
"No, that does not follow. One can reject certain aspects of the GT: say, the assumption of exogenous money and the MEC, and still have a coherent and convincing economic theory of modern capitalism."
You are correct that one can reject aspects of the General Theory and still have a coherent theory of modern capitalism. In fact, it is necessary to reject aspects of the General Theory (and IS-LM) to have coherent theory of modern capitalism.
But if Keynes accepted the IS-LM, then it does follow the Post Keynesian INTERPRETATION OF KEYNES is nonsense.
This doesn't mean that Post Keynesian ideas are nonsense. It means the Post Keynesian interpretation of Keynes is nonsense because Post Keynesianism is incompatible with IS-LM.
I'm suggesting that the term/name 'Post Keynesian' is a misnomer if Keynes accepted the IS-LM model.
(1) "Ironically, Post Keynesians are refuting Keynes when they refute the IS-LM."
DeleteAs I said above, Post Keynesians reject a number of things or assumptions Keynes argued made in the GT.
There is nothing "strange" or "usual" about this (which I assume is what you mean by "ironically", a word whose proper meaning most people -- clearly you included -- don't even understand these days).
Rejecting the neoclassical aspects of Keynes does not cause some crisis of coherence in Post Keynesian economics.
In Chapter 2 of the General Theory, Keynes used the marginal productivity of labour concept. Later he was criticised by Lorie Tarshis and Dunlop, who invoked empirical evidence on pro-cyclical wages, and modern Post Keynesians would reject the MPL concept too.
There is nothing "ironical" about Post Keynesians refuting Keynes on the marginal productivity of labour idea.
(2) "I'm suggesting that the term/name 'Post Keynesian' is a misnomer if Keynes accepted the IS-LM model.
That is just a terrible argument.
The expression "Post Keynesian" means literally "after something of or related to Keynes".
That doesn't commit one to everything Keynes said or thought.
On the contrary, "post(after) Keynesian" would suggest that the theory may deviate from Keynes in some ways.
The purpose of the comment was to show that the Post Keynesian INTERPRETATION of Keynes's General Theory is false.
ReplyDeletePost Keynesians make two claims:
1. Keynes did not use the general equilibrium framework.
The “general equilibrium explanation of Keynes’s analysis, Hicks’s IS-LM version of Neoclassical Keynesianism, was not representative of Keynes’s general theory framework” (Davidson 2007: 176).
2. Only the Post Keynesians understand and USE Keynes's analytical framework.
"only the Post Keynesian school of economists remain to carry-on in Keynes's analytical footsteps" (Davidson: 178)
"Keynes's analysis was never understood by the established leaders and trendsetters of the economics profession" (Davidson: 173).
"mainstream 'Keynesian' economists either never read or never understood Keynes" (Davidson: 175).
"few economists actually understood Keynes's different revolutionary analysis" (Davidson: 176).
These two Post Keynesian statements are false if Keynes's accepted the IS-LM model. The evidence shows that Keynes did accept the IS-LM model.
"Faced with Robertson's criticisms, Keynes recants, as indicated by his acceptance of Hicks's IS-LL (later Hicks-Hansen IS-LM) representation of his theory" (Fletcher 2009: 190).
The Post Keynesian interpretation of the General Theory is false because Keynes accepted the IS-LM model. Davidson's Post Keynesian interpretation of Keynes is nonsense.
By the way, LK, I think this is the same guy that was commenting on my blog a while back claiming to be the True Heir of Keynes. His woolly argument and bad grammar tip me off. His comments are in the "not even wrong" territory.
Delete(I particularly like the idea that the General Theory was general equilibrium because Keynes accepted the ISLM but that the ISLM can also incorporate expectations. How expectations can be fitted into a static general equilibrium is anyone's guess! Anyway, I get the feeling that this guy is a student with a small library and a big mouth. Just an FYI.)
Philip,
DeleteTo my knowledge, Keynes never rejected the IS-LM model in print. Keynes had almost a decade to criticize the IS-LM model. Please give me some evidence that Keynes rejected the IS-LM model.
P.S. I've never commented on your blog. I raised this issue on LK's blog because he does an excellent job citing his sources. I figured that if anyone knew where Keynes rejected the IS-LM, it would be LK. I raised this issue here because I want to find where Keynes rejected the IS-LM model.
Obviously Philip, you can't help me find where Keynes rejected the IS-LM model (even with your extensive library).
You wouldn't make a very good historian of thought, Mr. Anonymous. You see, if a person's theory, call it Y, is at odds with another theory, call it X, you do not need a letter to the Times from the theorist of Y saying "I reject X theory" to make the case that X theory was not in line with theory Y put forward by the other theorist.
DeleteIf this is how you approach the history of ideas I think you're going to find yourself very lost indeed. Thus its not surprising that the views you have put forward in the above comments are contorted to the point of being the ramblings of someone who, frankly, comes across as a crank in the field.
"call it X, you do not need a letter to the Times from the theorist of Y saying "I reject X theory" to make the case that X theory was not in line with theory Y put forward by the other theorist."
DeleteYes, I think this point is important. IS-LM sits uncomfortably with other aspects of Keynes' thinking.
But on this issue I have just read King's A History of Post Keynesian Economics since 1936 (2002), pp. 30–32.
It does look like Keynes did not specifically condemn IS-LM, though may have had reservations about Hick's IS-LM version :
http://socialdemocracy21stcentury.blogspot.com/2014/06/keynes-and-is-lm.html
Of course, if there is good evidence I have missed, I will be glad to see it and admit my mistake too.
This is a different anonymous. Just to say that Minsky gave a talk in 1985 on Sraffa's relevance to Macroeconomics and macroeconomic theory. It is in the online archive at Bard.
ReplyDeleteThanks -- do you have a link for it?
DeleteDoes anonymous mean this one?
Deletehttp://digitalcommons.bard.edu/cgi/viewcontent.cgi?article=1320&context=hm_archive
It's not very good. It implies a kind of Keynesian completeness.