Why Keynes would have voted Brexit

If the Master were here...

Just as Keynes condemned the interwar gold exchange standard in 1931, it is unlikely he would have had anything but contempt for the modern EU:

Keynes on Communism

Keynes visited the Soviet Union in the summer of 1925. He evidently tried hard to take a fair-minded view of Soviet Communism to please other people on the left, but just couldn’t do it.

From his essay “A Short View of Russia” (1925):

“Like other new religions, Leninism derives its power not from the multitude but from a small minority of enthusiastic converts whose zeal and intolerance make each one the equal in strength of a hundred indifferentists. .... Like other new religions, it persecutes without justice or pity those who actively resist it. Like other new religions, it is unscrupulous. Like other new religions, it is filled with missionary ardour and ecumenical ambitions. ....

I sympathise with those who seek for something good in Soviet Russia.

But when we come to the actual thing what is one to say? For me, brought up in a free air undarkened by the horrors of religion, with nothing to be afraid of, Red Russia holds too much which is detestable. Comfort and habits let us be ready to forgo, but I am not ready for a creed which does not care how much it destroys the liberty and security of daily life, which uses deliberately the weapons of persecution, destruction, and international strife. How can I admire a policy which finds a characteristic expression in spending millions to suborn spies in every family and group at home, and to stir up trouble abroad? Perhaps this is no worse and has more purpose than the greedy, warlike, and imperialist propensities of other Governments; but it must be far better than these to shift me out of my rut. How can I accept a [sc. communist] doctrine which sets up as its bible, above and beyond criticism, an obsolete economic textbook which I know to be not only scientifically erroneous but without interest or application for the modern world? How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement? Even if we need a religion, how can we find it in the turbid rubbish of the Red bookshops? It is hard for an educated, decent, intelligent son of Western Europe to find his ideals here, unless he has first suffered some strange and horrid process of conversion which has changed all his values.”
http://www.gutenberg.ca/ebooks/keynes-essaysinpersuasion/keynes-essaysinpersuasion-00-h.html

Keynes’ judgement on Marx’s economics is especially interesting:

“How can I accept a [sc. communist] doctrine which sets up as its bible, above and beyond criticism, an obsolete economic textbook which I know to be not only scientifically erroneous but without interest or application for the modern world?”

And we can easily list these erroneous and obsolete doctrines as they exist in volume 1 of Capital:

(1) the size of the working class eventually stabilised and society was swelled by a growing and prosperous middle class and social mobility, contrary to Marx’s prediction of all people – except a small class of capitalists – being reduced to proletarians. Unemployment rates in capitalism are simply a cyclical result of the business cycle: even in the 19th century, unemployment rates did not grow and grow in the long run, as Marx’s theory predicts, but normally simply moved around a point somewhat above full employment, as John Maynard Keynes pointed out:

“our actual experience … [sc. is] that we oscillate, avoiding the gravest extremes of fluctuation in employment and in prices in both directions, round an intermediate position appreciably below full employment and appreciably above the minimum employment a decline below which would endanger life.”
Keynes, J. M. 1936. General Theory of Employment, Interest, and Money , Chapter 18.
https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch18.htm

(3) Marx thought that the large industrial reserve army is a necessary consequence and necessary condition of capitalism, but this is incorrect. In the Keynesian era of full employment, where there was very low unemployment and indeed labour scarcity in the advanced capitalist world, capitalism continued and thrived – indeed we now call it the “Golden Age” of capitalism.

(4) the long-run tendency of capitalism, even in the 19th century, was to massively increase the real wage, which has soared above subsistence level, even for workers (see here and here), contrary to Marx’s theory that the tendency of capitalism is to keep the real wage at a subsistence level (which is the value of the maintenance and reproduction of labour-power).

(5) the growing real wage and rising disposable income even of workers in capitalism also allowed a massive capacity for production of new commodities and new opportunities for employment (e.g., especially in services and middle class employment), which in turn has helped to overcome technological unemployment for most of the history of capitalism, contrary to Marx’s prediction of subsistence wages and increasing technological unemployment. Even if we do experience mass technological unemployment this century, it need not lead to disaster, with demand-management, a guaranteed income and government employment programs.

(6) Marx’s claim that machines, generally speaking, are an unmitigated evil in capitalism whose primary effect to increase the intensity and speed of work by labourers is an outrageous falsehood – a perversion of history and reality. In reality, machines have, generally speaking, tended to decrease the intensity, difficulty and monotony of human labour and often reduced to human labour to lighter work of visual inspection and overseeing of machine work, not physical labour. On this, see here and here. Advanced capitalist nations have also virtually eliminated child labour as well, and in our time have tended to pay women the same hourly wage for the same type of work as men.

(7) highly developed and advanced Western capitalist states like Britain and the US proved the most resistant to communism and Marxism (contrary to Marx’s theory), and when communist revolutions broke out it was in backward Russia and China.

BIBLIOGRAPHY
Keynes, J. M. 1933 [1925]. “A Short View of Russia,” in John Maynard Keynes, Essays in Persuasion. Macmillan, London. 297–311.
http://www.gutenberg.ca/ebooks/keynes-essaysinpersuasion/keynes-essaysinpersuasion-00-h.html

Keynes rejected Wage and Price Flexibility as the Path to Full Employment even in Theory

This is a major error of neoclassical theory, and the mistaken view some people still attribute to Keynes: that wage and price flexibility in theory is still a reliable and effective mechanism for reaching full employment, even if the real world has wage and price rigidities. In fact, Keynes rejected that view.

Curiously, even some Institutionalist economists have failed to understand it. For example, even Gardiner C. Means – the American Institutionalist who developed administered price theory – was unclear about what Keynes’ fundamental arguments were in the General Theory, and whether the theory depended on inflexible wages and prices.

This is illustrated by a fascinating piece of forgotten history told by Means himself: his visit to John Maynard Keynes in July 1939:

“In the summer of 1939, on my way to a holiday in Norway, I made it a point to visit Keynes with the specific purpose of asking him to what extent his explanation of persistent unemployment rested on an assumption of wage-rate or price inflexibility. His answer was a categorical: ‘Not at all.’ I asked the question in several different ways in order to make sure there was no failure of minds to meet and the answer was always the same. I said, ‘Suppose that prices and wage-rates met the classical assumption of perfect flexibility so that, if there were excessive unemployment, the price-wage level would fall frictionlessly. Then with the nominal money stock remaining constant, wouldn’t the rise in the real value of the money stock create added demand which would tend to absorb unemployed workers?’ But still the answer was no. Once interest rates had fallen to their limit there would be no further corrective. We were in complete agreement that, in practice, neither prices nor wage-rates were as flexible as classical theory assumed, but he insisted that his theory of unemployment did not depend at all on this fact.” (Means 1976: 61–62).

You couldn’t have a clearer statement by Keynes himself about what the essence of his theory was. But, despite these emphatic statements by Keynes, Means was dissatisfied with Keynes’ replies.

Later, Means (1976) defended the neoclassical synthesis interpretation of the General Theory contrary to the explicit answers Keynes had given to him in 1939, because Means continued to believe in the efficacy of the real balances effect (Means 1976: 63), which only goes to show how even some Institutionalists – as well as neoclassical Keynesians – failed to understand the fundamental message of the General Theory.

BIBLIOGRAPHY
Means, Gardiner C. 1976. “Which was the True Keynesian Theory of Employment?,” Challenge 19.3 (July/August): 61–63.

Shackle on the Emergence of Uncertainty and Expectations in Modern Economics

From G. L. S. Shackle’s fascinating book The Years of High Theory: Invention and Tradition in Economic Thought 1926–1939 (1967):

“At the opening of the 1930s economic theory still rested on the assumption of a basically orderly and tranquil world. At their end it had come to terms with the restless anarchy and disorder of the world of fact. Partly this transformation was effected by the brutal force of events: by a slump without parallel and the unnerving spectacle of the rise of Nazism in a world cheated of the hope of peace. But partly it was the work of a mere handful of great theoreticians. One thing above all divided the new theory from the old: the discarding of the assumption (which had often been quite tacit) of universal perfect knowledge. What sense did it make to assume perfect knowledge in a world where every morning’s newspaper was opened in fear and scanned with foreboding? But the ferment had been working in the world of theory from the beginning of the 1920s. Frank Knight’s Risk Uncertainty and Profit of 1921 puts entrepreneurship in the forefront of a treatise on value theory which largely sets forth the old orthodoxy. But perhaps its title was a portent. It was in Sweden that expectation was first taken seriously as a prime mover in the economic process. (Marshall, as always, was with the angels, but he did not blow this particular trumpet very loud.) Erik Lindahl and, more incisively and with one brilliant and epoch-marking stroke, Gunnar Myrdal, developed the first ‘economics of expectation’. Myrdal’s essay, published in Swedish in 1931, in German in 1933, and in English only in 1939, would have served very well as the launching-pad for a theory of general output and employment, had the General Theory never been written. 1937 was the year of intensive Keynesian critical debate. In February Keynes himself declared in the Quarterly Journal of Economics that the General Theory was concerned with the consequences of our modes of coping with, or of concealing from our conscious selves, our ignorance of the future. Hugh Townshend, his intellectually most radical interpreter, simultaneously expressed the matter (in the Economic Journal for March) in terms, if anything, even more uncompromising. Uncertainty was the new strand placed gleamingly in the skein of economic ideas in the 1930s.” (Shackle 1967: 5–6).

Myrdal’s “essay” that Shackle refers to here was “Om penningteoretisk jämvikt. En studie över den ‘normala räntan’ i Wicksells penninglära” [“On Monetary Equilibrium. A Study of the ‘Normal Rate of Interest’ in Wicksell’s Monetary Theory”] (Ekonomisk Tidskrift 33 [1931]: 191–302), which was translated into English as Monetary Equilibrium (London, 1939). Myrdal had, according to Shackle, opened the debate about expectations before Keynes.

Later Shackle examines the significance of Gunnar Myrdal’s work Monetary Equilibrium (1931, English trans. 1939):

“In Monetary Equilibrium we have chapter IV. That chapter and its sequel are the battlefield where the decisive action occurs. We have examined their contents and effect in detail. But after them come passages of high interest, confirming and extending the conclusion that, had the General Theory never been written, Myrdal’s work would eventually have supplied almost the same theory.” (Shackle 1967: 124).

I am not sure whether this is a fair assessment, but it is high praise indeed coming from Shackle.

In Monetary Equilibrium, Myrdal seems to have criticised Wicksell’s concept of the “natural rate” and other aspects of the monetary equilibrium approach (Skaggs 1997: 473). Myrdal later advocated countercyclical fiscal policy and even had some understanding of the multiplier process (Skaggs 1997: 474).

Addendum
Philip Pilkington has a fascinating post here analysing Myrdal’s monetary equilibrium theory:

Philip Pilkington, “Gunnar Myrdal’s Monetary Equilibrium Theory: A Summarized Version,” Fixing the Economists, August 12, 2013.

Also, there is another post here on Myrdal and the General Theory:

Philip Pilkington, Gunnar Myrdal’s Prescient Criticisms of Keynes’ General Theory,” Fixing the Economists, August 10, 2013.

BIBLIOGRAPHY
Myrdal, Gunnar. 1931. “Om penningteoretisk jämvikt. En studie över den ‘normala räntan’ i Wicksells penninglära,” Ekonomisk Tidskrift 33: 191–302.

Myrdal, Gunnar. 1939 [1931]. Monetary Equilibrium. W. Hodge & Company, London.

Shackle, G. L. S. 1967. The Years of High Theory: Invention and Tradition in Economic Thought 1926–1939. Cambridge University Press, Cambridge.

Skaggs, Neil T. 1997. “Myrdal, Gunnar (1898–1987),” in D. Glasner and T. F. Cooley (eds). Business Cycles and Depressions: An Encyclopedia. Garland Pub., New York. 473–474.

Keynes on Inventories and the Business Cycle

Philip Pilkington has an enlightening post here on Keynes’ view of the business cycle.

Keynes discusses the business cycle in Chapter 22 of The General Theory of Employment, Interest, and Money (1936).

At the end of the chapter, Keynes has an important discussion of the role of inventories and cycles:

“Even to-day it is important to pay close attention to the part played by changes in the stocks of raw materials, both agricultural and mineral, in the determination of the rate of current investment. I should attribute the slow rate of recovery from a slump, after the turning-point has been reached, mainly to the deflationary effect of the reduction of redundant stocks to a normal level. At first the accumulation of stocks, which occurs after the boom has broken, moderates the rate of the collapse; but we have to pay for this relief later on in the damping-down of the subsequent rate of recovery. Sometimes, indeed, the reduction of stocks may have to be virtually completed before any measurable degree of recovery can be detected. For a rate of investment in other directions, which is sufficient to produce an upward movement when there is no current disinvestment in stocks to set off against it, may be quite inadequate so long as such disinvestment is still proceeding.

We have seen, I think, a signal example of this in the earlier phases of America's ‘New Deal.’ When President Roosevelt’s substantial loan expenditure began, stocks of all kinds—and particularly of agricultural products—still stood at a very high level. The ‘New Deal’ partly consisted in a strenuous attempt to reduce these stocks—by curtailment of current output and in all sorts of ways. The reduction of stocks to a normal level was a necessary process—a phase which had to be endured. But so long as it lasted, namely, about two years, it constituted a substantial offset to the loan expenditure which was being incurred in other directions. Only when it had been completed was the way prepared for substantial recovery.

Recent American experience has also afforded good examples of the part played by fluctuations in the stocks of finished and unfinished goods—‘inventories’ as it is becoming usual to call them—in causing the minor oscillations within the main movement of the trade cycle. Manufacturers, setting industry in motion to provide for a scale of consumption which is expected to prevail some months later, are apt to make minor miscalculations, generally in the direction of running a little ahead of the facts. When they discover their mistake they have to contract for a short time to a level below that of current consumption so as to allow for the absorption of the excess inventories; and the difference of pace between running a little ahead and dropping back again has proved sufficient in its effect on the current rate of investment to display itself quite clearly against the background of the excellently complete statistics now available in the United States.” (Keynes 1964 [1936]: 331–332).
https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch22.htm

This seems to be confirmed by modern studies of the business cycle (Knoop 2010: 18; Sorkin 1997: 569).

Certainly in the golden age of capitalism (1946-early 1970s), a number of US recessions, for example, were essentially what can be called “inventory recessions”: recessions caused by businesses’ accumulating excessive inventories which they were unable to sell when the expected demand failed to materialise or demand did not grow at a sufficiently high rate. This excessive accumulation of stock led to cuts in production and investment (basically, for many companies, changes in capacity utilisation) to liquidate inventories, and that in turn induced recessions (Sorkin 1997: 569).

Of course, since the 1980s the business cycle has been driven by other, perhaps more important, factors too: we have seen a return to the familiar 19th-century and pre-1933 pattern of asset bubbles financed by excessive debt, the bursting of these asset bubbles, financial crises, the collapse of business confidence, debt deflation, and so on.

BIBLIOGRAPHY
Keynes, J. M. 1964 [1936]. The General Theory of Employment, Interest, and Money. Harvest/HBJ Book, New York and London.

Knoop, Todd A. 2010. Recessions and Depressions: Understanding Business Cycles (2nd edn.). Praeger, Santa Barbara, Calif.

Sorkin, A. L. 1997. “Recessions after World War II,” in D. Glasner and T. F. Cooley (eds.), Business Cycles and Depressions: An Encyclopedia. Garland Pub., New York. 566–569.

What was Keynes’ Political Philosophy?

Updated

To cut a long story short, Keynes was a “progressive” liberal, not a conservative and not a direct supporter of the UK “Labour” party, in contrast to some people who seem to think Keynes was a conservative.

Keynes opposed Marxism and communism, and his opinion of Marx’s economics was low, even scornful.

Keynes called himself a “liberal” throughout his life, not a conservative, and his “liberalism” was firmly in the tradition of the progressive, interventionist type that developed in the UK from the late 19th century onwards.

Around 1911 Keynes seems to have had some contact with the Fabian socialists at Cambridge; his father commented in his diary entry for 6 September 1911:

“Maynard avows himself a Socialist and is in favour of confiscation of wealth” (quoted in Moggridge 1992: 190).

We should not be misled by the word “socialist” here. Keynes’ “socialism” at this time wasn’t Marxism, but the progressive liberalism of these years that was in favour of progressive taxation and income tax. Moreover, at this time Keynes’ radical “socialist” views were still compatible with the Liberal idea of support for free trade.

Again, a close look at Keynes’ political and economic ideas in later life shows him to be firmly in the camp of what we would call a progressive, left-leaning liberal.

Keynes tells us this himself in his essay “Am I a Liberal?” (1925), where he rejects both conservatism and Labour party politics:

“Now take my own case—where am I landed on this negative test? How could I bring myself to be a Conservative? They offer me neither food nor drink—neither intellectual nor spiritual consolation. I should not be amused or excited or edified. That which is common to the atmosphere, the mentality, the view of life of—well, I will not mention names—promotes neither my self-interest nor the public good. It leads nowhere; it satisfies no ideal; it conforms to no intellectual standard; it is not even safe, or calculated to preserve from spoilers that degree of civilisation which we have already attained.

Ought I, then, to join the Labour Party? Superficially that is more attractive. But looked at closer, there are great difficulties. To begin with, it is a class party, and the class is not my class. If I am going to pursue sectional interests at all, I shall pursue my own. When it comes to the class struggle as such, my local and personal patriotisms, like those of every one else, except certain unpleasant zealous ones, are attached to my own surroundings. I can be influenced by what seems to me to be Justice and good sense; but the Class war will find me on the side of the educated bourgeoisie.

But, above all, I do not believe that the intellectual elements in the Labour Party will ever exercise adequate control; too much will always be decided by those who do not know at all what they are talking about; and if—which is not unlikely—the control of the party is seized by an autocratic inner ring, this control will be exercised in the interests of the extreme Left Wing—the section of the Labour Party which I shall designate the Party of Catastrophe.

On the negative test, I incline to believe that the Liberal Party is still the best instrument of future progress—if only it had strong leadership and the right programme.”
http://www.gutenberg.ca/ebooks/keynes-essaysinpersuasion/keynes-essaysinpersuasion-00-h.html

So, for Keynes, the conservatives were a sterile road to nowhere; the Labour party was “superficially … attractive,” but on closer inspection was not satisfactory. The party that Keynes chose to identity with was the Liberal Party: “the best instrument of future progress.” The British liberal party that Keynes supported had become increasing progressive by the late 1920s.

When Lloyd George became leader of liberal party for the 1929 general election, he proposed a large program of what we now call Keynesian stimulus to solve Britain’s problem of high unemployment after the disastrous return to the gold standard. At this time, Keynes was an economic adviser to the Liberal party and helped design that program.

Keynes’ greatest work the General Theory and his later writings do not change this assessment. In his last years Keynes was not in sympathy with the more radical aspects of the Labour party and its economic program after it came to power after WWII, such as its nationalisations, which confirms his earlier unwillingness to associate himself with the British Labour party. On April 18, 1946, for example, Keynes, in a private conversation, attacked the Labour government’s decision to “nationalise the road-hauliers, which he regarded as an unnecessary act of regimentation” (Skidelsky 2000: 471).

Finally, the haters of Keynes point to something Keynes allegedly said to Henry Clay when they went to lunch on 11 April 1946, about 10 days before Keynes’ death:

“On Thursday 11 April he had lunch at the Bank after the regular meeting of the court. He sat next to Henry Clay; they discussed the American loan. Keynes said that he relied on Adam Smith’s ‘invisible hand’ to get Britain out of the mess it was in, and went on: ‘I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.’ ‘An interesting confession for our arch-planner,’ Henry Clay noted. The now-retired Montagu Norman, the recipient of Clay’s letter, wrote back: ‘About Keynes ... I think he relied on intellect, which perhaps means that he ignored the “invisible hand”, and I guess he was led astray by Harry White. But surely it is easy to arrange a loan if you ignore its repayment, and is there any hope of that, unless there is to be such an inflation across the Atlantic as will affect their claims and provide an easy way out?” (Skidelsky 2000: 470).

First, the story about what Keynes said appears to be based on a letter of Henry Clay to Montagu Norman on 11 June, 1946 (Skidelsky 2000: 540, n. 43): there is no independent evidence that Keynes made such a remark. Did Clay accurately record what Keynes even said, or exaggerate its meaning somewhat?

As we will see below, Keynes probably did make this remark or something to its effect, but its proper context shows us that it does not have the significance that Keynes’ critics attach to it.

Before I get to that, it is of course laughable to see how the remark is seized upon by libertarians and conservative critics, who all show a type of intellectual bankruptcy akin to that of the Christian fundamentalist who tries to discredit the modern Darwinian theory of evolution by claiming that Darwin repudiated the theory on his deathbed. (We know, of course, that this story is a complete lie invented by a Christian apologist called Elizabeth Hope.)

But suppose it were true: that Darwin recanted the Origin of Species. Would such a thing provide good grounds for rejecting the modern theory of Darwinian evolution? Not in the least. Certainly not if Darwin provided no arguments refuting his original evidence. The theory presented in Origin of Species stands by itself and its truth depends on the cogency of the evidence and arguments. Modern science has reinforced the central ideas of the Origin of Species, and whatever the dying Darwin thought is irrelevant to the modern case that can be made for its truth.

Now suppose, for the sake of argument, the extreme view that Keynes really did repudiate his earlier ideas by this remark. Once again, it is the same with the central ideas of the General Theory, and certainly as refined and developed in modern Keynesian theory, which stand or fall by their own merits and the cogency of the evidence and arguments offered in support of them. In the end, it matters not one whit what Keynes thought in his last days or on his deathbed, certainly if he never provided any evidence for why he rejected his earlier theory. Theories in the natural sciences, social sciences and economics stand and fall on their merits, not on what the original inventor of them said or did on his deathbed or last few days.

But, as it happens, a careful look at the context of the statement attributed to Keynes shows that it is “the American loan” obtained by the UK after WWII, the post war problems of a possible US current account surplus, an international dollar shortage after 1945, and other balance of payments difficulties that are the context of the remark (as described in Moggridge 1992: 822–825). We can see this clearly by looking at Keynes’ posthumously published paper “The Balance of Payments of the United States” (Economic Journal 56.222 [1946]: 172–187), which he had been writing in 1946 (Moggridge 1992: 822). By relying on “a solution of our problems on the invisible hand” Keynes appears to have been talking about allowing alleged long-run natural tendencies to current account and trade account equilibrium in the United States (Keynes 1946: 185) to work, whereby solving any problem of a dollar shortage in the years after 1946.

Yet even in this paper Keynes qualified his views:

“I must not be misunderstood. I do not suppose that the classical medicine will work by itself or that we can depend on it. We need quicker and less painful aids of which exchange variation and overall import control are the most important. But in the long run these expedients will work better and we shall need them less, if the classical medicine is also at work. And if we reject the medicine from our systems altogether, we may just drift on from expedient to expedient and never get really fit again. The great virtue of the Bretton Woods and Washington proposals, taken in conjunction, is that they marry the use of the necessary expedients to the wholesome long-run doctrine. It is for this reason that, speaking in the House of Lords, I claimed that ‘Here is an attempt to use what we have learnt from modern experience and modern analysis, not to defeat, but to implement the wisdom of Adam Smith.’”” (Keynes 1946: 186).

Keynes’ comment to Henry Clay seems to be just a re-statement of the ideas above.

And I see no reason to think that the comment of Keynes shows any rejection of the fundamental ideas of the General Theory. Keynes’ program of monetary and fiscal policy interventions to maintain aggregate demand is essentially compatible with private production of commodities and a capitalist economy. A greater concern for Adam Smith’s “invisible hand” in his last years, perhaps over balance of payments difficulties in the context of the the American loan, does not require that Keynes rejected aggregate demand management, or suddenly became some reborn advocate of complete laissez faire.

BIBLIOGRAPHY
Keynes, John Maynard. 1946. “The Balance of Payments of the United States,” Economic Journal 56.222 (June): 172–187.

Moggridge, D. E. 1992. Maynard Keynes: An Economist’s Biography. Routledge, London.

Skidelsky, R. J. A. 2000. John Maynard Keynes: Fighting for Britain 1937–1946 (vol. 3), Macmillan, London.

Keynes on Deflation and Liquidity Preference in “The Consequences to the Banks of the Collapse of Money Values” (1931)

From Keynes’ essay “The Consequences to the Banks of the Collapse of Money Values” (1931):

“Let us begin at the beginning of the argument. There is a multitude of real assets in the world which constitute our capital wealth—buildings, stocks of commodities, goods in course of manufacture and of transport, and so forth. The nominal owners of these assets, however, have not infrequently borrowed money in order to become possessed of them. To a corresponding extent the actual owners of wealth have claims, not on real assets, but on money. A considerable part of this ‘financing’ takes place through the banking system, which interposes its guarantee between its depositors who lend it money, and its borrowing customers to whom it loans money wherewith to finance the purchase of real assets. The interposition of this veil of money between the real asset and the wealth owner is a specially marked characteristic of the modern world. Partly as a result of the increasing confidence felt in recent years in the leading banking systems, the practice has grown to formidable dimensions. The bank-deposits of all kinds in the United States, for example, stand in round figures at $50,000,000,000; those of Great Britain at £2,000,000,000. In addition to this there is the great mass of bonded and mortgage indebtedness held by individuals.

All this is familiar enough in general terms. We are also familiar with the idea that a change in the value of money can gravely upset the relative positions of those who possess claims to money and those who owe money. For, of course, a fall in prices, which is the same thing as a rise in the value of claims on money, means that real wealth is transferred from the debtor in favour of the creditor, so that a larger proportion of the real asset is represented by the claims of the depositor, and a smaller proportion belongs to the nominal owner of the asset who has borrowed in order to buy it. This, we all know, is one of the reasons why changes in prices are upsetting.” (Keynes 1931: 169–170; reprinted in Keynes 1972: 150–158).
http://gutenberg.ca/ebooks/keynes-essaysinpersuasion/keynes-essaysinpersuasion-00-h.html

So here Keynes is referring to the destabilising effects of price deflation via the process that Irving Fisher would call “debt deflation” a few years later in his classic article “The Debt-Deflation Theory of Great Depressions” (Fisher 1933), though, as Philip Pilkington points out here, it seems that “Keynes is not only aware of the debt deflation theory in 1931 but he also suggests that everyone is aware of it.”

Keynes goes on to point out that the prices of many asset that function as the underlying collateral for bank loans had fallen disastrously during the early years of the depression, and that this induced a further crisis of insolvency in the banking system:

“To sum up, there is scarcely any class of property, except real estate, however useful and important to the welfare of the community, the current money value of which has not suffered an enormous and scarcely precedented decline. This has happened in a community which is so organised that a veil of money is, as I have said, interposed over a wide field between the actual asset and the wealth owner. The ostensible proprietor of the actual asset has financed it by borrowing money from the actual owner of wealth. Furthermore, it is largely through the banking system that all this has been arranged. That is to say, the banks have, for a consideration, interposed their guarantee. They stand between the real borrower and the real lender. They have given their guarantee to the real lender; and this guarantee is only good if the money value of the asset belonging to the real borrower is worth the money which has been advanced on it. It is for this reason that a decline in money values so severe as that which we are now experiencing threatens the solidity of the whole financial structure. ….

In many countries bankers are becoming unpleasantly aware of the fact that, when their customers' margins have run off, they are themselves ‘on margin.’ I believe that, if to-day a really conservative valuation were made of all doubtful assets, quite a significant proportion of the banks of the world would be found to be insolvent; and with the further progress of Deflation this proportion will grow rapidly. Fortunately our own domestic British Banks are probably at present—for various reasons—among the strongest. But there is a degree of Deflation which no bank can stand. And over a great part of the world, and not least in the United States, the position of the banks, though partly concealed from the public eye, may be in fact the weakest element in the whole situation. It is obvious that the present trend of events cannot go much further without something breaking. If nothing is done, it will be amongst the world's banks that the really critical breakages will occur.

Modern capitalism is faced, in my belief, with the choice between finding some way to increase money values towards their former figure, or seeing widespread insolvencies and defaults and the collapse of a large part of the financial structure;—after which we should all start again, not nearly so much poorer as we should expect, and much more cheerful perhaps, but having suffered a period of waste and disturbance and social injustice, and a general re-arrangement of private fortunes and the ownership of wealth.” (Keynes 1931: 175–177).
http://gutenberg.ca/ebooks/keynes-essaysinpersuasion/keynes-essaysinpersuasion-00-h.html

Furthermore, there is another point that Keynes is making, as Philip Pilkington again also argues here: for Keynes, the fall in asset prices and the rush to physical cash or liquid forms of money is a rise in liquidity preference, which can also induce destabilising effects that are worse than debt deflation.

Further Reading
Philip Pilkington, “Keynes’ Liquidity Preference Trumps Debt Deflation in 1931 and 2008,” Fixing the Economists, February 24, 2014.

BIBLIOGRAPHY
Fisher, Irving. 1933. “The Debt-Deflation Theory of Great Depressions,” Econometrica 1.4: 337–357.

Keynes, J. M. 1931. “The Consequences to the Banks of the Collapse of Money Values,” in J. M. Keynes, Essays in Persuasion. Macmillan, London.

Keynes, J. M. 1972 [1931]. “The Consequences to the Banks of the Collapse of Money Values,” in J. M. Keynes, The Collected Writings of John Maynard Keynes. Volume IX. Essays in Persuasion. Macmillan, London. 150–158.

Keynes on Deflation versus Inflation

Following on from the theme of my last post, there is a relevant discussion of deflation versus inflation from Keynes’ A Tract on Monetary Reform (1923):

“We see, therefore, that rising prices and falling prices each have their characteristic disadvantage. The Inflation which causes the former means Injustice to individuals and to classes,—particularly to investors; and is therefore unfavourable to saving. The Deflation which causes falling prices means Impoverishment to labour and to enterprise by leading entrepreneurs to restrict production, in their endeavour to avoid loss to themselves; and is therefore disastrous to employment. The counterparts are, of course, also true,—namely the Deflation means Injustice to borrowers and that Inflation leads to the over-stimulation of industrial activity. But these results are not so marked as those emphasised above, because borrowers are in a better position to protect themselves from the worst effects of Deflation than lenders are to protect themselves from those of Inflation, and because labour is in a better position to protect itself from overexertion in good times than from underemployment in bad times.

Thus Inflation is unjust and Deflation is inexpedient. Of the two perhaps Deflation is, if we rule out exaggerated inflations such as that of Germany, the worse; because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier. But it is not necessary that we should weigh one evil against the other. It is easier to agree that both are evils to be shunned. The Individualistic Capitalism of today, precisely because it entrusts saving to the individual investor and production to the individual employer, presumes a stable measuring-rod of value, and cannot be efficient—perhaps cannot survive—without one.

For these grave causes we must free ourselves from the deep distrust which exists against allowing the regulation of the standard of value to be the subject of deliberate decision. We can no longer afford to leave it in the category of which the distinguishing characteristics are possessed in different degrees by the weather, the birth-rate, and the Constitution,—matters which are settled by natural causes, or are the resultant of the separate action of many individuals acting independently, or require a Revolution to change them.” (Keynes 1923: 39–40).

BIBLIOGRAPHY
Keynes, John Maynard. 1923. A Tract on Monetary Reform. Macmillan, London.

Keynes on Economic Calculation

At the conclusion of Chapter 19 of The General Theory, Keynes pointed out that rapid and significant wage and price flexibility, and especially downwards nominal wage movements and price deflation, can wreak havoc in a market economy where many contracts are fixed in nominal terms and subjective expectations play a major role:

“It follows, therefore, that if labour were to respond to conditions of gradually diminishing employment by offering its services at a gradually diminishing money-wage, this would not, as a rule, have the effect of reducing real wages and might even have the effect of increasing them, through its adverse influence on the volume of output. The chief result of this policy would be to cause a great instability of prices, so violent perhaps as to make business calculations futile in an economic society functioning after the manner of that in which we live. To suppose that a flexible wage policy is a right and proper adjunct of a system which on the whole is one of laissez-faire, is the opposite of the truth. It is only in a highly authoritarian society, where sudden, substantial, all-round changes could be decreed that a flexible wage policy could function with success.” (Keynes 1964 [1936]: 269).

In other words, a system in which rapid and unexpected deflation occurs will cause serious problems in a market economy and to the plans and calculations of business people.

In fact, one of the main purposes of Keynes’ A Tract on Monetary Reform (1923) was to advocate polices to ensure a relatively stable purchasing power for money, given the violent hyperinflations of post-World War I Europe and the destabilising deflation in the UK induced by the return to the gold standard. (At this time of course, Keynes was a quantity theorist, so his polices were then based on the quantity theory of money.)

These points about Keynes are of interest, because the internet is filled with vulgar Austrians and libertarians who seem to think that only the Austrian school has ever understood the truths that

(1) money prices are necessary to calculate profit and loss, and
(2) that business requires a relatively stable purchasing power for money to make these calculations meaningful,

when of course mainstream neoclassical economists and heterodox economists understand this perfectly well (e.g., see Ingham 2011: 45).

Of course, as Keynes thought, steady and low inflation is compatible with effective business calculation, and better than deflation for many reasons, especially if the business community, as they do now, expect a low inflation environment as the normal state of affairs.

Even Mises’ condition for the attainment of effective economic calculation is only a relatively stable purchasing power for money, though he expressed this in the general terms of the quantity theory,* as the need to prevent great changes in the money stock:

“For the sake of economic calculation all that is needed is to avoid great and abrupt fluctuations in the supply of money. Gold and, up to the middle of the nineteenth century, silver served very well all the purposes of economic calculation. Changes in the relation between the supply of and the demand for the precious metals and the resulting alterations in purchasing power went on so slowly that the entrepreneur’s economic calculation could disregard them without going too far afield. Precision is unattainable in economic calculation quite apart from the shortcomings emanating from not paying due consideration to monetary changes. The planning businessman cannot help employing data concerning the unknown future; he deals with future prices and future costs of production. Accounting and bookkeeping in their endeavors to establish the result of past action are in the same position as far as they rely upon the estimation of fixed equipment, inventories, and receivables. In spite of all these uncertainties economic calculation can achieve its tasks. For these uncertainties do not stem from deficiencies of the system of calculation. They are inherent in the essence of acting that always deals with the uncertain future.” (Mises 1998: 225).

Mises was right on this one point, and Keynes would have agreed. But naturally Keynes and Mises would have disagreed on how best to achieve this aim, and on many other points of economic theory. I have shown here how Mises’ other comments about economic calculation can be subject to a Post Keynesian critique, particularly his unrealistic model, on the basis of flexible wages and prices, of how a modern market economy achieves economic coordination.

But, in conclusion, it is true that violent, rapid and unexpected changes in money’s purchasing power – whether it is high inflation, hyperinflation or severe deflation – are to be avoided, so that monetary calculations of businesses about investment, costs of production and profit and loss can be meaningful: pretty much every economist understands this, and the vulgar internet Austrians have no idea what they are talking about.

Note
* I am well aware that Mises and the Austrians do not wholly subscribe to the quantity theory, but have their own criticisms of it, because of the issue of Cantillon effects and how they make the quantity theory’s assumption of a proportional relationship between money supply and price level problematic. So please don’t bother pointing this out to me!

BIBLIOGRAPHY
Ingham, Geoffrey. 2011. Capitalism. Polity, Cambridge.

Keynes, John Maynard. 1923. A Tract on Monetary Reform. Macmillan, London.

Keynes, J. M. 1964 [1936]. The General Theory of Employment, Interest, and Money. Harvest/HBJ Book, New York and London.

Mises, L. 1998. Human Action: A Treatise on Economics. The Scholar’s Edition. Ludwig von Mises Institute, Auburn, Ala.

Robert Skidelsky discusses Keynes with Paul Mason

An interesting video discussion of Keynes by Robert Skidelsky with Paul Mason, held as part of the Charleston Festival 2014 on 23rd May 2014.

The discussion centres on Keynes’ short essay called “Economic Possibilities for our Grandchildren,” and begins at 38.30 (following a talk by Mason).

Keynes on Marginal Cost and Price

Keynes’ article “Relative Movements of Real Wages and Output” (The Economic Journal 49.193 [1939]: 34–51) was inspired by the criticisms of the General Theory of Employment, Interest, and Money (1936) by Dunlop (1938) and Tarshis (1939) on real and nominal wages. Keynes also considered the work of Kalecki in this article too.

In the General Theory, Keynes had still equated the real wage with the marginal product of labour (King 2002: 12), but his 1939 article is normally taken to be a repudiation of this, even if it was a somewhat guarded concession (Keynes 1939: 50–51).

But this article contains much more than just comments on wages and the marginal product of labour: Keynes also examines price theory and the theory of the firm.

Keynes notes that Kalecki had assumed many real firms face constant marginal real cost curves, and even that in situations where the economy has idle resources and considerable excess capacity marginal costs may be falling (Keynes 1939: 44). Furthermore, Keynes seems to have accepted that in the conditions of the 1930s marginal costs were falling or flat – and that this reinforced the case for expansionary fiscal policy (Keynes 1939: 45).

Nevertheless, Keynes maintained the following:

“Even if one concedes that the course of the short-period marginal cost curve is downwards in its early reaches, Mr. Kahn’s assumption that it eventually turns upwards is, on general common-sense grounds, surely beyond reasonable question; and that this happens, moreover, on a part of the curve which is highly relevant for practical purposes. Certainly it would require more convincing evidence than yet exists to persuade me to give up this presumption.” (Keynes 1939: 44–45).

Subsequent empirical work shows that Keynes was probably too conservative here. While in the long run, he may have been right that some firms may face rising marginal cost, for practical purposes very many firms do not, because of the way in which engineers design plants to have excess capacity. On this, we can point to the empirical evidence of Eiteman and Guthrie (1952) and Blinder (1998).

Eiteman and Guthrie (1952) was a survey in which 334 companies were shown a number of different cost curves, and asked to specify which one best represented the company’s cost curve. A stunning 95% of managers chose cost curves with constant or falling costs, which is contrary to marginalist theory (Keen 2011: 125).

Blinder (1998) conducted much the same type of survey, which involved 200 US firms in a sample that should be representative of the US economy at large. Blinder found that about 40% of firms reported falling variable or marginal cost, and 48.4% reported constant marginal/variable cost (Blinder 1998: 102).

To return to Keynes’ article, he goes on to discuss price and marginal cost.

Keynes notes that the whole concept of marginal cost as the main cause of price determination is grossly exaggerated:

“Indeed, it is rare for anyone but an economist to suppose that price is predominantly governed by marginal cost. Most business men are surprised by the suggestion that it is a close calculation of short-period marginal cost or of marginal revenue which should dominate their price policies. They maintain that such a policy would rapidly land in bankruptcy anyone who practised it. And if it is true that they are producing more often than not on a scale at which marginal cost is falling with an increase in output, they would clearly be right; for it would be only on rare occasions that they would be collecting anything whatever towards their overhead. It is, beyond doubt, the practical assumption of the producer that his price policy ought to be influenced by the fact that he is normally operating subject to decreasing average cost, even if in the short-period his marginal cost is rising. His effort is to maintain prices when output falls and, when output increases, he may raise them by less than the full amount required to offset higher costs including higher wages. He would admit that this, regarded by him as the reasonable, prudent and far-sighted policy, goes by the board when, at the height of the boom, he is overwhelmed by more orders than he can supply; but even so he is filled with foreboding as to the ultimate consequences of his being forced so far from the right and reasonable policy of fixing his prices by reference to his long-period overhead as well as his current costs. Rightly ordered competition consists, in his opinion, in a proper pressure to secure an adjustment of prices to changes in long-period average cost; and the suggestion that he is becoming a dangerous and anti-social monopolist whenever, by open or tacit agreement with his competitors, he endeavours to prevent prices from following short-period marginal cost, however much this may fall away from long-period average cost, strikes him as disastrous.” (Keynes 1939: 46–47).

Keynes’ views here were probably derived from his knowledge of the work of the Oxford Economists’ Research Group (OERG) on prices, the findings of Hall and Hitch (1939), and the work of Gardiner Means (discussed here and here).

Furthermore, on these points, subsequent empirical research on price determination supports Keynes on virtually all his points here.

BIBLIOGRAPHY
Blinder, A. S. et al. (eds.). 1998. Asking about Prices: A New Approach to Understanding Price Stickiness. Russell Sage Foundation, New York.

Dunlop, John T. 1938. “The Movement of Real and Money Wage Rates,” The Economic Journal 48.191: 413–434.

Eiteman, Wilford J. and Glenn E. Guthrie. 1952. “The Shape of the Average Cost Curve,” American Economic Review 42.5: 832–838.

Hall, R. L. and C. J. Hitch. 1939. “Price Theory and Business Behaviour,” Oxford Economic Papers 2: 12–45.

Keen, Steve. 2011. Debunking Economics: The Naked Emperor Dethroned? (rev. and expanded edn.). Zed Books, London and New York.

Keynes, J. M. 1939. “Relative Movements of Real Wages and Output,” The Economic Journal 49.193: 34–51.

King, J. E. 2002. A History of Post Keynesian Economics since 1936. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.

Tarshis, Lorie. 1939. “Changes in Real and Money Wages,” The Economic Journal 49.193: 150–154.

Keynes on Nominal Wage Flexibility

At the conclusion of Chapter 19 of the The General Theory, after showing how nominal wage flexibility is unlikely to be a reliable general solution to involuntary unemployment, Keynes noted how such nominal wage flexibility would also likely lead to further economic problems:

“It follows, therefore, that if labour were to respond to conditions of gradually diminishing employment by offering its services at a gradually diminishing money-wage, this would not, as a rule, have the effect of reducing real wages and might even have the effect of increasing them, through its adverse influence on the volume of output. The chief result of this policy would be to cause a great instability of prices, so violent perhaps as to make business calculations futile in an economic society functioning after the manner of that in which we live. To suppose that a flexible wage policy is a right and proper adjunct of a system which on the whole is one of laissez-faire, is the opposite of the truth. It is only in a highly authoritarian society, where sudden, substantial, all-round changes could be decreed that a flexible wage policy could function with success.” (Keynes 1964 [1936]: 269).

Was there ever a golden age of flexible wages in the modern economic history?

Empirical data on the US seems to show that nominal wage cuts appear common enough in the pre-1914 era (Hanes and James 2003: 1417–1418), but nevertheless other data shows that a strong degree of nominal wage rigidity already developed by the late 19th century, and industrial workers seem to have vehemently opposed money wage cuts even by the 1880s (Hanes 1993). It seems clear that significant social and institutional changes affecting how wages are set have occurred since the 19th century.

Much the same thing can be said about prices. Prices appear to be more flexible in the 19th century, but the reasons for this are probably that (1) mark-up/administered prices were less prevalent than in the modern world, and (2) as argued by John Hicks there may have been important institutional changes in Western economies from the late 19th to the early 20th centuries.

To expand on point (2), Hicks postulated that by the early 20th century the role of wholesale merchants and dealer-wholesalers had declined to a great extent: in the 19th century, such wholesale merchants had enabled a much higher degree of price flexibility, but their decline and the rise of large industrial enterprises (which tended to fix prices on the basis of costs) caused strong downward price rigidities to emerge. The increasing downwards inflexibility of nominal wages will have contributed to this.

So did the 19th century economy function in the way predicted by neoclassical theory? That is, did it have a strong and rapid tendency to full employment brought about by price and wage flexibility clearing markets?

Even with a much higher degree of price and wage flexibility than today, there are many reasons to think that it did not, since there were persistent and severe economic problems in both Europe and America in the 1870s and 1890s, a period of business pessimism and “profit deflation” in the long deflation of 1873 to 1896, recurrent financial crises, and strong evidence that debt deflation was a crippling difficulty for certain classes of people.

Moreover, involuntary unemployment was clearly a serious problem in the 1870s and 1890s, and for various reasons it may well be that the best estimates available today are actually serious underestimates of the 19th century unemployment rate.

All in all, the neoclassical view of how markets function seems highly dubious, even for the 19th century.

Further Reading
19th Century Economic History.

BIBLIOGRAPHY
Hanes, Christopher. 1993. “The Development of Nominal Wage Rigidity in the Late 19th Century,” The American Economic Review 83.4: 732–756.

Hanes, Christopher and John A. James. 2003. “Wage Adjustment under Low Inflation: Evidence from U.S. History,” The American Economic Review 93.4: 1414–1424.

Keynes, J. M. 1964 [1936]. The General Theory of Employment, Interest, and Money. Harvest/HBJ Book, New York and London.

Where Gardiner Means went Wrong

It was in his interpretation of Keynes’ General Theory, and this is clear in Means’ brief article “Which was the True Keynesian Theory of Employment?” (Challenge 19.3 [1976]: 61–63).

When the General Theory of Employment, Interest and Money (1936) was published, Gardiner C. Means – the originator of the administered price thesis – was unclear about what Keynes’ fundamental arguments against the neoclassical system actually were, and whether the theory depended on inflexible wages and prices.

This is illustrated by a fascinating piece of forgotten history told by Means himself: his visit to John Maynard Keynes in July 1939:

“In the summer of 1939, on my way to a holiday in Norway, I made it a point to visit Keynes with the specific purpose of asking him to what extent his explanation of persistent unemployment rested on an assumption of wage-rate or price inflexibility. His answer was a categorical: ‘Not at all.’ I asked the question in several different ways in order to make sure there was no failure of minds to meet and the answer was always the same. I said, ‘Suppose that prices and wage-rates met the classical assumption of perfect flexibility so that, if there were excessive unemployment, the price-wage level would fall frictionlessly. Then with the nominal money stock remaining constant, wouldn’t the rise in the real value of the money stock create added demand which would tend to absorb unemployed workers?’ But still the answer was no. Once interest rates had fallen to their limit there would be no further corrective. We were in complete agreement that, in practice, neither prices nor wage-rates were as flexible as classical theory assumed, but he insisted that his theory of unemployment did not depend at all on this fact.” (Means 1976: 61–62).

Despite these emphatic statements by Keynes, Lee (2000: 403) notes that Means was dissatisfied with Keynes’ replies (see also Ware 1992 for another account of the meeting).

Later, Means (1976) defended the neoclassical synthesis interpretation of the General Theory contrary to the explicit answers Keynes had given to him in 1939, because Means continued to believe in the efficacy of the real balances effect (Means 1976: 63).

Had Means properly read and understood Chapter 19 of the General Theory, he would not have made this error.

What also emerges from this article is that Means himself sent a draft of his famous Senate document “Industrial Prices and their Relative Flexibility” (1935) to Keynes, and Keynes even asked him to publish a version of this in the Economic Journal (of which Keynes was the editor), though Means was unable to do this (Means 1976: 61).

Keynes, then, must have been aware of the empirical evidence on administered prices by the mid-1930s, and he was explicitly aware of them in his work on buffer stocks in 1938 (Keynes 1938: 452–453).

BIBLIOGRAPHY
Keynes, J. M. 1938. “The Policy of Government Storage of Foodstuffs and Raw Materials,” Economic Journal 48.191: 449–460.

Lee, F. 2000. “Gardiner C. Means (1896–1988),” in Philip Arestis and Malcolm Sawyer (eds.), A Biographical Dictionary of Dissenting Economists (2nd edn.), Edward Elgar, Cheltenham, UK and Northampton, MA. 399–405.

Means, Gardiner C. 1935. “Industrial Prices and their Relative Flexibility,” Senate Document no 13. 74th Congress, 1st Session, 17 January.

Means, Gardiner C. 1976. “Which was the True Keynesian Theory of Employment?,” Challenge 19.3 (July/August): 61–63.

Ware, C. 1992. “Academic Resistance to Administered Prices,” in Frederic S. Lee and Warren J. Samuels (eds.), The Heterodox Economics of Gardiner C. Means: A Collection. M.E. Sharpe, Armonk, N.Y. 337–348.

Keynes on Buffer Stocks

In 1938, Keynes published the paper “The Policy of Government Storage of Foodstuffs and Raw Materials” (The Economic Journal 48.191 [1938]: 449–460).

This is an interesting paper that anticipates Kaldor’s plan to stabilise prices and control inflation by means of buffer stocks (Kaldor 1976: 228–229).

Keynes first notes that a fault of modern market economies is the failure of the private sector to make effective use of stocks (Keynes 1938: 450).

A consequence of this is that price fluctuations in the fundamental raw materials commodities can be severe, and Keynes reviewed some price data from the 1930s with respect to rubber, wheat, lead and cotton to prove this (Keynes 1938: 451).

The price fluctuations in raw materials, Keynes noted, induce a concomitant and unnecessary economic and trade instability (Keynes 1938: 451–452).

Keynes pointed out that monopolies and cartels actually promote a kind of price stability that is not necessarily a bad thing (Keynes 1938: 452).

At this point, Keynes shows us quite clearly that he was familiar with the concept of administered prices:

“For we have to-day two contrasted types of marketing policy existing side by side. On the one hand, those enjoying what have been called ‘administered’ prices¹—that is, with prices comparatively stable and fluctuations in demand met by a centralised control of output and by organised arrangements for the withholding of stocks on the part of the producers themselves—and, on the other hand, those with ‘competitive’ prices, where the producers themselves are not in a position to withhold their stocks and the scale of output is governed by price fluctuations. The former arrangement is apt to be objectionable in general, even when it is highly desirable for the particular purpose of meeting fluctuations, because it may be part and parcel of conditions of almost uncontrolled monopoly; whilst the latter arrangement is hardly less objectionable, in that it so greatly increases the risks and losses of enterprise.

The fact that we have two major groups of commodities which respond quite differently to fluctuations in effective demand is of great importance to the general theory of the short period.

[note]
¹ The term ‘administered prices’ is due to Mr. E. G. Means [sic] of the U.S. Dept. of Agriculture.”
(Keynes 1938: 452–453).

So Keynes knew of cost-based pricing and even mentioned Gardiner Means, though he got the initials of his name wrong (if this was not just a typographic error).

Even though Keynes thought administered prices were “objectionable in general” (and perhaps missed the point that such mark-up prices are widely used in quite competitive industries, not just in monopolies or oligopolistic markets), he nevertheless already understood the important insight that subsequent Keynesians were to make: that cost-based prices are beneficial to a market economy and promote price stability, when businesses meet fluctuations in demand through direct changes in the quantity of output produced and the use of stocks, rather than through price adjustment.

Next, Keynes noted that the depression had induced governments around the world to experiment with price stabilisation programs, including the use of buffer stocks (Keynes 1938: 453).

The UK itself had passed an “Essential Commodities Reserves Act” in May 1938, though admittedly for the purpose securing stocks of basic goods in the event of war with Germany (Keynes 1938: 454), and the rest of Keynes’ paper is insightful discussion of how government buffer stocks should be a normal, peacetime policy to secure macroeconomic stability – a policy which was in fact adopted by the United States after WWII and which was part of the price stability that characterised virtually all of the golden age of capitalism (1946–1971).

In the late 1960s and 1970s, this buffer stock policy was dismantled and rendered ineffective by US policy-makers, as Kaldor noted with dismay after the first bout of 1970s stagflation:

“… the duration and stability of the post-war economic boom owed a great deal to the policies of the United States and other governments in absorbing and carrying stocks of grain and other basic commodities both for price stabilisation and for strategic purposes. Many people are also convinced that if the United States had shown greater readiness to carry stocks of grain (instead of trying by all means throughout the 1960s to eliminate its huge surpluses by giving away wheat under PL 480 provisions and by reducing output through acreage restriction) the sharp rise of food prices following upon the large grain purchases by the U.S.S.R. [in 1972–1973], which unhinged the stability of the world price level far more than anything else, could have been avoided.” (Kaldor 1976: 228).

BIBLIOGRAPHY
Kaldor, N. 1976. “Inflation and Recession in the World Economy,” Economic Journal 86 (December): 703–714.

Keynes, J. M. 1938. “The Policy of Government Storage of Foodstuffs and Raw Materials,” Economic Journal 48.191: 449–460.

James Galbraith on the Essence of Keynes’ View of Labour Demand

Actually in a comment on Simon Wren-Lewis’ blog, but it is wonderfully succinct:

“Chapter Two of the General Theory abolished the supply curve of labor, hence the ‘labor market’, and transferred the determination of employment to the domain of effective demand. Businesses hire when they can sell the goods that their employees make, and not otherwise. Any model with a ‘labor market’ is an anti-Keynesian model.”
James Galbraith, 1 May 2014
http://mainlymacro.blogspot.com/2014/05/looking-for-flimflam.html?showComment=1398984424960#c8525283137465438205

Just for context, James Galbraith made this comment as a criticism of New Keynesian economic models.

Marc Lavoie makes the same point:

“Ironically the major aspect of the post-Keynesian view of labour markets is that such markets do not really exist. Whereas one may admit that there is a market for peanuts or for bananas, with well-behaved supply and demand curves, the same hypothesis cannot be made in the case of labour.” (Lavoie 1992: 217).

Update
Lars Syll also quotes Galbraith’s comment in full below, and the comments section is worth reading too:

Lars P. Syll, “James Galbraith on Flim-Flamming ‘New Keynesianism,’” 2 May, 2014.

BIBLIOGRAPHY
Lavoie, Marc. 1992. Foundations of Post-Keynesian Economic Analysis. Edward Elgar Publishing, Aldershot, UK.

Keynes’ “Economic Possibilities for our Grandchildren”

In 1930, Keynes published a short essay called “Economic Possibilities for our Grandchildren” in two parts in the journal The Nation and Athenaeum (see Keynes 1930a and 1930b), which was later reprinted in Essays in Persuasion (London, 1933).

There is a vast amount now written on what is a very short essay: e.g., there is even an edited collection of essays about this work of Keynes (Pecchi and Piga 2008).

Rather than delving extensively into what people have said about it, I prefer to go back to the essay itself and summarise it: let it largely speak for itself.

An online version is here (though one has to scroll down to find it or use the search function in your web browser).

This essay was written in the second year of the Great Depression. Keynes refers in his opening words to the “bad attack of economic pessimism” that had accompanied the depression.

Ever the optimist, however, Keynes did not think that the pessimists of his era were right about the long term prospects for capitalism, and in that sense his essay is directed against both Marxists and some pessimistic conservatives.

It is notable that the Keynes of this essay is a pre-General Theory Keynes: he is still a believer in the natural rate of interest, and he (curiously) seems to think that the unemployment of the depression is mainly structural unemployment caused by over-rapid technological change:

”We are suffering, not from the rheumatics of old age, but from the growing-pains of over-rapid changes, from the painfulness of readjustment between one economic period and another. The increase of technical efficiency has been taking place faster than we can deal with the problem of labour absorption; the improvement in the standard of life has been a little too quick; the banking and monetary system of the world has been preventing the rate of interest from falling as fast as equilibrium requires .”

But Keynes dismisses the pessimists and turns to the long-term future:

“What can we reasonably expect the level of our economic life to be a hundred years hence? What are the economic possibilities for our grandchildren?”

So, let it be borne in mind, Keynes is thinking of 2030: still a way off yet.

First, Keynes notes that the impressive economic growth that the West attained since the industrial revolution was the result of truly revolutionary technological development, accumulation of capital and compound interest.

But, above all, technology had a fundamental role in this:

“From the sixteenth century, with a cumulative crescendo after the eighteenth, the great age of science and technical inventions began, which since the beginning of the nineteenth century has been in full flood – coal, steam, electricity, petrol, steel, rubber, cotton, the chemical industries, automatic machinery and the methods of mass production, wireless, printing, Newton, Darwin, and Einstein, and thousands of other things and men too famous and familiar to catalogue.

What is the result? In spite of an enormous growth in the population of the world, which it has been necessary to equip with houses and machines, the average standard of life in Europe and the United States has been raised, I think, about fourfold. The growth of capital has been on a scale which is far beyond a hundredfold of what any previous age had known. And from now on we need not expect so great an increase of population.

If capital increases, say, 2 per cent per annum, the capital equipment of the world will have increased by a half in twenty years, and seven and a half times in a hundred years. Think of this in terms of material things – houses, transport, and the like. At the same time technical improvements in manufacture and transport have been proceeding at a greater rate in the last ten years than ever before in history. In the United States factory output per head was 40 per cent greater in 1925 than in 1919. In Europe we are held back by temporary obstacles, but even so it is safe to say that technical efficiency is increasing by more than 1 per cent per annum compound. There is evidence that the revolutionary technical changes, which have so far chiefly affected industry, may soon be attacking agriculture. We may be on the eve of improvements in the efficiency of food production as great as those which have already taken place in mining, manufacture, and transport. In quite a few years – in our own lifetimes I mean – we may be able to perform all the operations of agriculture, mining, and manufacture with a quarter of the human effort to which we have been accustomed.”

Unfortunately, after this Keynes takes a wrong turn and I think he was quite mistaken in his attempt to invoke “technological unemployment” as some sweeping explanation for the 1930s depression unemployment:

“For the moment the very rapidity of these changes is hurting us and bringing difficult problems to solve. Those countries are suffering relatively which are not in the vanguard of progress. We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come – namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.”

But then Keynes turns to more reasonable speculation:

“But this is only a temporary phase of maladjustment. All this means in the long run that mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is today. There would be nothing surprising in this even in the light of our present knowledge. It would not be foolish to contemplate the possibility of afar greater progress still.”

In terms of 1990 international Geary-Khamis dollars, real per capita UK GDP in 1930 was $5,441, and in 2001 it stood at $20,127 (data from Maddison 2003): an increase of 269.91% or about 3.6 times 5,441.

I would assume that UK per capita GDP today has already fulfilled the lower end of Keynes’ prediction of it being “between four and eight times as high” in the future.

But here is Keynes’ major prediction:

“Now it is true that the needs of human beings may seem to be insatiable. But they fall into two classes – those needs which are absolute in the sense that we feel them whatever the situation of our fellow human beings may be, and those which are relative in the sense that we feel them only if their satisfaction lifts us above, makes us feel superior to, our fellows. Needs of the second class, those which satisfy the desire for superiority, may indeed be insatiable; for the higher the general level, the higher still are they. But this is not so true of the absolute needs – a point may soon be reached, much sooner perhaps than we are all of us aware of, when these needs are satisfied in the sense that we prefer to devote our further energies to non-economic purposes.

Now for my conclusion, which you will find, I think, to become more and more startling to the imagination the longer you think about it.

I draw the conclusion that, assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not – if we look into the future – the permanent problem of the human race.

Why, you may ask, is this so startling? It is startling because – if, instead of looking into the future, we look into the past – we find that the economic problem, the struggle for subsistence, always has been hitherto the primary, most pressing problem of the human race – not only of the human race, but of the whole of the biological kingdom from the beginnings of life in its most primitive forms.”

So it is clear from this that:

(1) Keynes recognised that our demand for non-basic fashionable articles of consumption is probably insatiable, but

(2) demand for “necessities” given no population explosion is not necessarily insatiable.

Keynes speculated that technological progress and the accumulation of capital could lead to the “economic problem” of humanity – the need for necessities – being solved.

Despite his critics, Keynes was not saying that all human wants would be satisfied.

He limited his prediction to those goods whose need is “absolute in the sense that we feel them whatever the situation of our fellow human beings may be”: more or less what economists call necessities.

In fact, Keynes explicitly defines the “economic problem” as the “struggle for subsistence.”

This was Keynes’ major prediction. Was he right?

I submit Keynes was essentially correct on this point: he is vindicated. We in the developed and advanced capitalist nations have long since solved the problem of the supply of necessities of human existence: necessary food for proper nutrition, clothing, medical care, and even housing.

But why don’t some people even in developed nations have these things? (e.g., medical care).

The problems that Keynes did not foresee were distributional issues, inequality of income, and that some people have the lack of income to purchase the necessities. But in most developed nations welfare and social security have long since largely solved this problem, with most people given the means to pay for necessities. Virtually every developed nation has universal care. Although the United States is an exception on some points here, even there it is a distributional issue: it is not that supply isn’t available, it is that access to it via a universal system (as in virtually every other developed nation) is not provided.

But, turning back to Keynes’s essay, after his statements about the “economic problem,” it is true that Keynes starts to make speculative predictions that are more questionable.

Keynes seems to envisage that, with the universal provision of necessities, leisure time would vastly increase and working hours vastly decrease.

He forgot that demand for non-basic goods – fashionable articles of consumption and services – would also take up a vast amount of production and labour.

Keynes also speculated that a society largely freed from work would result in radical social changes:

“There are changes in other spheres too which we must expect to come. When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession—as distinguished from the love of money as a means to the enjoyments and realities of life—will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease. All kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital, we shall then be free, at last, to discard.”

Finally, one can note that Keynes’ musings here apply to the year 2030, so when we reach that year we will be in a better position to judge his speculations about how technology will have reduced the need for human labour to a minimum, and what social effects such a development will have.

Will Keynes be vindicated? One could argue that the third industrial revolution predicted by some people – a new age of economic growth and production with revolutionary use of 3-D printing, nanotechnology, automation, artificial intelligence and robotics – might cause the changes Keynes imagined. For example, when even production of fashionable consumer goods and even many services is automated, then the world will perhaps start to experience large reduction in working hours.

But distributional issues and bad economic policy can easily get in the way too.

It is an open question whether Keynes’ “Economic Possibilities for our Grandchildren” has real insight about the long-term future.

BIBLIOGRAPHY
Keynes, John Maynard. 1930a. “Economic Possibilities for our Grandchildren II,” The Nation and Athenaeum 48.3 (October 18): 96–98.

Keynes, John Maynard. 1930b. “Economic Possibilities for our Grandchildren II,” The Nation and Athenaeum 48.2 (October 11, 1930): 36–37.

Keynes, John Maynard. 1933. Essays in Persuasion. Macmillan, London.

Maddison, Angus. 2003. The World Economy: Historical Statistics. OECD Publishing, Paris.

Pecchi, Lorenzo and Gustavo Piga. 2008. Revisiting Keynes: Economic Possibilities for our Grandchildren. MIT Press, Cambridge, MA.

No Constants in Human Behaviour?

Consider this passage from Mises:

“Here we are faced with one of the main differences between physics and chemistry on the one hand and the sciences of human action on the other. In the realm of physical and chemical events there exist (or, at least, it is generally assumed that there exist) constant relations between magnitudes, and man is capable of discovering these constants with a reasonable degree of precision by means of laboratory experiments. No such constant relations exist in the field of human action outside of physical and chemical technology and therapeutics. For some time economists believed that they had discovered such a constant relation in the effects of changes in the quantity of money upon commodity prices. It was asserted that a rise or fall in the quantity of money in circulation must result in proportional changes of commodity prices. Modern economics has clearly and irrefutably exposed the fallaciousness of this statement. Those economists who want to substitute ‘quantitative economics’ for what they call ‘qualitative economics’ are utterly mistaken. There are, in the field of economics, no constant relations, and consequently no measurement is possible.

If a statistician determines that a rise of 10 per cent in the supply of potatoes in Atlantis at a definite time was followed by a fall of 8 per cent in the price, he does not establish anything about what happened or may happen with a change in the supply of potatoes in another country or at another time. He has not ‘measured’ the ‘elasticity of demand’ of potatoes. He has established a unique and individual historical fact. No intelligent man can doubt that the behavior of men with regard to potatoes, and every other commodity is variable. Different individuals value the same things in a different way, and valuations change with the same individuals with changing conditions.

Outside of the field of economic history nobody ever ventured to maintain that constant relations prevail in human history. ….

The impracticability of measurement is not due to the lack of technical methods for the establishment of measure. It is due to the absence of constant relations. If it were only caused by technical insufficiency, at least an approximate estimation would be possible in some cases. But the main fact is that there are no constant relations. Economics is not, as ignorant positivists repeat again and again, backward because it is not ‘quantitative.’ It is not quantitative and does not measure because there are no constants. Statistical figures referring to economic events are historical data.” (Mises 2008: 55–56).

The meaning of this passage can cause confusion, since in fact Austrian economics precisely assumes a number of constants in human behaviour:

(1) the constant that all conscious human action by non-mentally ill human beings has a purpose in view;

(2) the constant operation of the downward-sloping function governing human behaviour that relates quantity demanded of a good to its price (the law of demand);

(3) the constant phenomenon in which the utility gained by consumers derived from consuming each additional unit of the same good purchased will diminish (the law of diminishing marginal utility);

(4) the constant phenomenon that work carries disutility and leisure utility, so that leisure is preferred to work (disutility of labour axiom).

(5) the constant tendency on the hypothetical free market without government or trade union intervention for prices to move towards their market-clearing levels.

Now these “laws” – assuming the basic phenomena are in place like production, pricing and purchasing in money terms by consumers – are supposed to be true for all times and places in human history, even though that necessary truth is all dependent on an untenable Kantian epistemology with its synthetic a priori knowledge.

In fact, there is a deep epistemological problem with all these “laws”: the human action axiom is nothing but a synthetic a posteriori statement. Subsequent “laws” are deduced in a manner that reduces them to mere analytic a priori statements and such statements entail no necessary truths about the real world of human economic life. If they describe general “principles,” those regularities are contingent; they are known empirically; and exceptions do or can in theory exist.

To return to the main point, it follows, then, that Mises certainly must think there are regularities or “constant relations” in a qualitative sense in human behaviour and history, even if there are no strict and universal quantitative ones akin to the speed of light constant in physics.

And we see that this is what Mises thought as interpreted by later Austrians:

“In fact, one lesson above all should be kept in mind when considering the claims of the various groups of mathematical economists: in human action there are no quantitative constants. As a necessary corollary, all praxeological-economic laws are qualitative, not quantitative.” (Rothbard 2009: 845).

“7. PRAXEOLOGICAL PREDICTION
Praxeology can make certain predictions about the future, but they are necessarily qualitative. For example, it can tell us that (other things equal) a fall in the demand for apples will lead to a lower price of apples. But praxeology alone can never tell us that (say) a particular change will yield a 9 percent drop in apple prices. Such quantitative forecasts are possible with the aid of understanding, but then of course they are no longer certain.” (Murphy and Gabriel 2008: 47–48).

“Whereas in physics, causal relations can only be assumed hypothetically and later approximately verified by referring to precise observable regularities, in praxeology we know the causal force at work. This causal force is human action, motivated, purposeful behavior, directed at certain ends. The universal aspects of this behavior can be logically analyzed. We are not dealing with ‘functional,’ quantitative relations among variables, but with human reason and will causing certain action, which is not ‘determinable’ or reducible to outside forces. Furthermore, since the data of human action are always changing, there are no precise, quantitative relationships in human history. In physics, the quantitative relationships, or laws, are constant; they are considered to be valid for any point in human history, past, present, or future. In the field of human action, there are no such quantitative constants. There are no constant relationships valid for different periods in human history. The only ‘natural laws’ (if we may use such an old-fashioned but perfectly legitimate label for such constant regularities) in human action are qualitative rather than quantitative. They are, for example, precisely the laws educed in praxeology and economics-the fact of action, the use of means to achieve ends, time preference, diminishing marginal utility, etc.” (Rothbard 2009: 324).

It follows that the Austrians shun econometrics and what they call quantitative economics (referring to the neoclassical mainstream with its heavy use of mathematical models and econometrics).

But John Maynard Keynes already anticipated this criticism of econometrics: in Keynes’s famous debate with Jan Tinbergen he said very similar things (which can be read in Keynes 1939; Tinbergen 1940; Keynes 1940).

In a letter to Roy Harrod of 10 July 1938, Keynes said this:

“My point against Tinbergen is a different one. In chemistry and physics and other natural sciences the object of experiment is to fill in the actual values of the various quantities and factors appearing in an equation or a formula; and the work when done is once and for all. In economics that is not the case, and to convert a model into a quantitative formula is to destroy its usefulness as an instrument of thought. Tinbergen endeavours to work out the variable quantities in a particular case, or perhaps in the average of several particular cases, and he then suggests that the quantitative formula so obtained has general validity. Yet in fact, by filling in figures, which one can be quite sure will not apply next time, so far from increasing the value of his instrument, he has destroyed it. All the statisticians tend that way. Colin, for example, has recently persuaded himself that the propensity to consume in terms of money is constant at all phases of the credit cycle. He works out a figure for it and proposes to predict by using the result, regardless of the fact that his own investigations clearly show that it is not constant, in addition to the strong a priori reasons for regarding it as most unlikely that it can be so.

The point needs emphasising because the art of thinking in terms of models is a difficult – largely because it is an unaccustomed – practice. The pseudo-analogy with the physical sciences leads directly counter to the habit of mind which is most important for an economist proper to acquire.

I also want to emphasise strongly the point about economics being a moral science. I mentioned before that it deals with introspection and with values. I might have added that it deals with motives, expectations, psychological uncertainties. One has to be constantly on guard against treating the material as constant and homogeneous in the same way that the material of the other sciences, in spite of its complexity, is constant and homogeneous. It is as though the fall of the apple to the ground depended on the apple’s motives, on whether it is worth while falling to the ground, and whether the ground wanted the apple to fall, and on mistaken calculations on the part of the apple as to how far it was from the centre of the earth.
Keynes, J. M. 1938. Letter: J. M. Keynes to Harrod, 10 July
http://economia.unipv.it/harrod/edition/editionstuff/rfh.34a.htm

And in another letter to Roy Harrod:

“It seems to me that economics is a branch of logic, a way of thinking; and that you do not repel sufficiently firmly attempts à la Schultz to turn it into a pseudo-natural-science. One can make some quite worthwhile progress merely by using your axioms and maxims. But one cannot get very far except by devising new and improved models. This requires, as you say, ‘a vigilant observation of the actual working of our system’. Progress in economics consists almost entirely in a progressive improvement in the choice of models. The grave fault of the later classical school, exemplified by Pigou, has been to overwork a too simple or out of date model, and in not seeing that progress lay in improving the model; whilst Marshall often confused his models, for the devising of which he had great genius, by wanting to be realistic and by being unnecessarily ashamed of lean and abstract outlines.

But it is of the essence of a model that one does not fill in real values for the variable functions. To do so would make it useless as a model. For as soon as this is done, the model loses its generality and its value as a mode of thought. That is why Clapham with his empty boxes was barking up the wrong tree and why Schultz’s results, if he ever gets any, are not very interesting (for we know beforehand that they will not be applicable to future cases). The object of statistical study is not so much to fill in missing variables with a view to prediction, as to test the relevance and validity of the model.

Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world. It is compelled to be this, because, unlike the typical natural science, the material to which it is applied is, in too many respects, not homogeneous through time.”
Keynes, J. M. 1938. Letter: 787. J. M. Keynes to Harrod , 4 July 1938
http://economia.unipv.it/harrod/edition/editionstuff/rfh.346.htm

Keynes’s method is clear: thought experiments by deductive logic only take you so far and must be checked against experience: “a vigilant observation of the actual working of our system.”

Even on the most generous interpretation of Keynes’s opinion of econometrics (O’Donnell 1997: 110–112), while Keynes was not necessarily hostile to the use of mathematics in economics nor to historically specific estimates of variables like the multiplier, he was heavily critical of the idea that certain empirically estimated magnitudes in econometric equations and models were assumed to be constants in the way constants in the natural science were: that is, such magnitudes were not permanently “constant” or “homogeneous through time” like natural scientific constants.

For Keynes, econometrics cannot yield prediction of future economic quantitative variables with objective probability scores in non-ergodic stochastic systems, as, for example, the price of any specific stock on a stock market at some given future date, or what the London Interbank Offered Rate (or Libor) will be in January 2021.

But at that same time it seems that Keynes would not deny that there are observable qualitative regularities, consistencies or trends in human behaviour or economic life, although they are not necessarily stable in the long term.

One must not confuse (1) Keynes’ rejection of fundamental quantitative economic constants (like the speed of light) in economics with (2) the existence of observable qualitative regularities (which do exist).

For example, you cannot make precise quantitative predictions about exactly when a recession will happen and what magnitudes the other relevant variables (such as real output loss and unemployment, etc.) will have with objective probability scores, but a general qualitative inductive inference (with an epistemic, not objective, probability) that it is probable that a recession will follow a boom, on the basis of past experience and the evidence that no radical changes in the current economic system seem likely in the immediate future, is not unreasonable at all.

Further Reading
Lars P Syll, “Keynes’s Critique of Econometrics,” 4 July, 2012
https://larspsyll.wordpress.com/2012/07/04/keyness-critique-of-econometrics/

Philip Pilkington, “Proud to Be a Nihilist: Bill Mitchell on Econometrics and Numerical Prediction,” Fixing the Economists, February 12, 2014
https://fixingtheeconomists.wordpress.com/2014/02/12/proud-to-be-a-nihilist-bill-mitchell-on-econometrics-and-numerical-prediction/

BIBLIOGRAPHY
Keynes, J. M. 1938. Letter: 791. J. M. Keynes to Harrod, 10 July 1938
http://economia.unipv.it/harrod/edition/editionstuff/rfh.34a.htm

Keynes, J. M. 1938. Letter: 787. J. M. Keynes to Harrod , 4 July 1938
http://economia.unipv.it/harrod/edition/editionstuff/rfh.346.htm

Keynes, J. M. 1939. “Official Papers. The League of Nations. Professor Tinbergen’s Method,” The Economic Journal 49.195: 558–577.

Keynes, J. M. 1940. “On a Method of Statistical Business-Cycle Research. A Comment,” The Economic Journal 50.197: 154–156.

Mises, L. 2008. Human Action: A Treatise on Economics. The Scholar’s Edition. Mises Institute, Auburn, Ala.

Murphy, Robert P. and Amadeus Gabriel. 2008. Study Guide to Human Action. A Treatise on Economics: Scholar’s Edition. Ludwig von Mises Institute, Auburn, Ala.

O’Donnell, R. 1997. “Keynes and Formalism,” in G. C. Harcourt and P. A. Riach (eds.), A “Second Edition” of The General Theory. Volume 2. Routledge, London. 94–119.

Patinkin, D. 1976. “Keynes and Econometrics: On the Interaction between the Macroeconomic Revolutions of the Inter-War Period,” Econometrica 44: 1091–1123.

Pressman, Steven. 2007. “What can post Keynesian Economics teach us about Poverty?,” in Richard P.F. Holt and Steven Pressman (eds.), Empirical Post Keynesian Economics: Looking at the Real World. M.E. Sharpe, Armonk, NY. 21–43.

Rothbard, M. N. 2009. Man, Economy, and State, The Scholar’s Edition (2nd edn.). Ludwig von Mises Institute, Auburn, Ala.

Tinbergen, J. 1940. “On a Method of Statistical Business-Cycle Research. A Reply,” The Economic Journal 50.197: 141–154.