King’s Nicholas Kaldor: Chapters 1–3

I currently reading John King’s book Nicholas Kaldor (Basingstoke and New York, 2009), and note below some interesting points about Kaldor’s early life and career from Chapters 1 to 3.

Nicholas (Miklos) Kaldor (1908–1986) had been born in Budapest on 12 May, 1908. His father was a lawyer, and he attended the Model Gymnasium in Budapest until he enrolled in economics at the Humboldt University in Berlin in 1925 (King 2009: 4). Kaldor left for England in 1927 and began study at the London School of Economics (LSE).

He was first taught by the American Marshallian Allyn A. Young, and then Lionel Robbins (King 2009: 5).

One of Allyn A. Young’s major achievements in economics was original work on increasing returns to scale, an issue which would concern Kaldor throughout his career (King 2009: 5).

After Young’s death, Kaldor was influenced by Lionel Robbins who was more in the tradition of Walrasian and Austrian economics, than Marshallian theory.

When Hayek arrived at the LSE in 1931, Kaldor fell briefly under his spell, but abandoned this flirtation with Austrian economics by the mid-1930s (King 2009: 17).

In 1935–1936, Kaldor held a Rockefeller Scholarship and travelled widely in the United States.

Already in 1937, Kaldor was criticising Austrian capital theory (King 2009: 18–19), and another of his early articles was on welfare economics, ordinal utility and the compensation principle (King 2009: 23– 27).

King judges Kaldor’s “Speculation and Economic Stability” (Kaldor 1939a) to be one of the most important of his early articles (King 2009: 27–28). The paper analyses the nature of speculation, expectations and the effect of speculation on economic activity.

During WWII, the LSE was relocated to Cambridge, and there Kaldor had a productive friendship with Piero Sraffa, Joan Robinson and Keynes (King 2009: 36).

In “Principles of Emergency Finance” (Kaldor 1939b), Kaldor anticipated Keynes’s arguments in How to Pay for the War.

After the war, Kaldor resigned from the LSE and worked briefly for the United Nations in Geneva from 1947 to 1949, but returned to Cambridge in 1949 to take up a fellowship in King’s College, where he would spend most of his career (King 2009: 57).

BIBLIOGRAPHY
Kaldor, N. 1939a. “Speculation and Economic Stability,” Review of Economic Studies 7: 1–27.

Kaldor, N. 1939b. “Principles of Emergency Finance,” The Banker 51: 149–156.

King, J. E. 2009. Nicholas Kaldor. Palgrave Macmillan, Basingstoke and New York.

King on Post Keynesian Approaches to Microfoundations

John E. King has a new book called The Microfoundations Delusion: Metaphor and Dogma in the History of Macroeconomics (Cheltenham, 2012). J. E. King is also the author of the indispensable A History of post-Keynesian Economics since 1936 (Cheltenham, 2002), one of those books that continue to reward you every time you read it (or even a chapter of it).

His new book should be of some interest, and does not disappoint. I have read only a few chapters as yet, and there is no doubt that the book is required reading: it raises fundamental issues in economics, economic methodology, philosophy of science, social sciences and epistemology.

Its fundamental subjects are: are conventional views on microfoundations justified, and what is the Post Keynesian approach to microfoundations?

King sees four basic viewpoints amongst Post Keynesians on microfoundations:

(1) explicit supporters of microfoundations who think Post Keynesian microfoundations are superior to neoclassical ones (e.g., Paul Davidson, Malcolm Sawyer, Erich Streissler), usually a system of Marshall-Keynes microfoundations or, alternatively, Kaleckian microfoundations;

(2) explicit critics of microfoundations (Joan Robinson);

(3) those who are confused, inconsistent or unclear (e.g., Geoff Harcourt, Sidney Weintraub, John Cornwall, Victoria Chick, and Jesper Jespersen);

(4) those who just ignore the whole issue. (King 2012: 149–150).

One of the most important insights King makes is this: the idea of reducing macroeconomics to neoclassical microeconomics is an instance of the strong reductionist fallacy.

Strong reductionism has already failed, not only in biology, but also (more importantly) in the social sciences (King 2012: 226). There are fundamental emergent properties in macroeconomic systems that make their reduction to microeconomics impossible (King 2012: 226).

For example, a lower-order set of parts in a biological system may interact in ways that cannot be inferred by reductionist analysis (King 2012: 51). The principle of “downward causation” consists in the manner by which a “whole” (a system broadly defined) may affect, constrain or influence its parts.

In economics, we see macroeconomic phenomena that are irreducibly social in nature.

Nor does the strong version of methodological individualism work (King 2012: 60; see also Hodgson 2007). For interactions between individuals may cause “emergent properties” or (that is to say) novel properties not displayed by, or deducible from, the individuals in isolation.

The idea that the economy is more than the sum of its parts can be traced back to (interestingly enough) the 19th century advocate of infant industry protectionism Friedrich List (King 2012: 66).

As an aside, King points out that Richard Dawkins’s “genetic determinism can very easily degenerate into the worst type of Social Darwinism.” A whole section in King provides criticisms of Dawkins’s (alleged) genetic determinism (King 2012: 48ff.), but I think it might be unfair to Dawkins himself for reasons explained by Steven Pinker (2003: 112–114).

King gives two reasons for the continuing attraction of the neoclassical microfoundations delusion: physics envy and politics in the age of neoliberalism (King 2012: 229). Reductionist ontological thinking in economics is nothing less than the attempt to reduce macroeconomics to the aggregate of micro behaviour, and the assumption of individual rationality implies a socially rational outcome (King 2012: 229, quoting Denis 2009: 14). In other words, this method produces the delusion that laissez faire results in the best economic outcomes.

Finally, I just want to note how Steve Keen has argued in much the same terms as King in also pointing out how (1) macroeconomic processes are emergent properties not necessarily reducible to microeconomics, and (2) how neoclassical economics commits the fallacy of strong reductionism: although reductionism does work to a great extent, it also has fundamental limitations.

One can hear Keen talk of these issues in the video below at 15.24 onwards. See also Keen 2011: 205–209.





BIBLIOGRAPHY

Hodgson, G. M. 2007. “Meanings of Methodological Individualism,” Journal of Economic Methodology 14.2: 57–68.

Keen, S. 2011. Debunking Economics: The Naked Emperor of the Social Sciences (rev edn.). Zed Books, New York and London.

King, J. E. 2012. The Microfoundations Delusion: Metaphor and Dogma in the History of Macroeconomics. Edward Elgar, Cheltenham.

Pinker, Steven 2003. The Blank Slate: The Modern Denial of Human Nature. Penguin Books, London.