Why did Marx single out Mill for criticism but never answer him?

A Question asked on Marx and Mill.

What were the theoretical issues when Marx and Marxian economists criticized John Stuart Mill as vulgarizer of classical system?

What is the real content of vulgarization, when they claim that J.S. Mill vulgarized Ricardo’s teachings? In what sense is he blamed to have opened the way to neoclassical economics?
Béla Balassa once wrote in his paper “Karl Marx and John Stuart Mill” (Weltwirtschaftliches Archiv, Bd. 83, (1959), pp. 147-165):
  •  Marx’s treatment of John Stuart Mill is one of the great puzzles of history of economic thought. Reading Marx (and his followers) one gets the impression that Mill was an insignificant figure whose writings exemplify the “decline” of Ricardian economics. Whenever Marx mentions Mill’s name (which does not happen very frequently) he v\never forgets to add some derogatory comment. (p.147)
In another paper (John Stuart Mill and the Law of Markets, The Quarterly Journal of Economics Vol. 73, No. 2 (May, 1959), pp. 263-274) he wrote:
  • For present-day economists [Mill] represents a “half-way house” between Ricardo and Marshall; for Marxists he is the apologist personified, sharing the responsibility with many others for the “decline” of Ricardian economics.(p.263)
I wonder why John Stuart Mill was so unduly ill-treated by Marx and Marxian economists.

Then answer is, of course, that Marx had no answers to what Mill wrote, neither economically nor ethically. But is Marx’s animosity to Mill the reason virtually no economist will read Mill today?

My missing reply to Roy Grieve

Getting an anti-Keynesian article published is very difficult. The following is an interesting parable of our times. There are lots of additional details left out here, but this captures the essence of the story. This short note will be published in the forthcoming issue of the History of Economics Review along with the article by Roy Grieve which I had been asked to reply to.

A Note on My Missing Reply to Roy Grieve
Steve Kates

It is quite a shame the article I had written in reply to Roy Grieve’s will not be published along with his. When his paper was submitted in 2018, I was asked by the editor to write a reply which I quite happily did. Thereafter, I heard nothing for two years until I was told what I had written was not suitable, would not be published, and was offered a truncated version of my paper that I could include instead.

The problem with my paper I was told was that I did not address the core issue Roy had raised which was the wages fund. Since Roy was replying to a paper I had written, the probability that I might have a better idea of what the issues are ought to be seen as extremely high. The editor nevertheless continues to believe the central issue is the wages fund. Since the paper Roy was replying to is titled, ‘Mill’s Fourth Fundamental Proposition on Capital: A Paradox Explained’ (Kates 2015), that ought to be recognized as the issue we were debating. In my reply to the editor, I made it clear the wages fund had nothing to do with Mill’s argument, nor did I wish to contribute further. Mill’s proposition by the way, if true, completely undermines Keynesian economics and modern macro. In Mill’s words, ‘demand for commodities is not demand for labour’ – increases in aggregate demand do not lead to increases in employment.

Roy understood that leaving out my paper diminished the impact that having his paper and my reply together would have had. He therefore wrote to the editor to suggest I add something on the wages fund. And I agreed. I wrote to the editor and said that I was prepared to write an article along these lines:

1. The wages fund has nothing of significance to do with Mill’s Fourth Proposition on Capital.
2. The ‘wages fund’, if understood properly, makes perfect sense.
3. The wages fund, if understood properly, is even an integral part of modern economic theory.
4. Much of the difficulty in understanding the classical view on the wages fund is due to the shifts in terminology since the middle of the nineteenth century.

The final point is the theme of my latest book, Classical Economic Theory and the Modern Economy (Kates 2020a), where all this is discussed more generally. In the end, I have been offered these 600 words. You cannot therefore see within the pages of the journal either my response to Roy or my explanation of the wages fund in modern terms.

Let me therefore add this. I admire Roy’s paper which does something almost never seen. He explains my argument in defending Mill, not only understanding exactly what I had written but also understanding Mill’s argument to near perfection. He nevertheless argues in his paper Mill’s Fourth Proposition depended on the wages fund, so that when Mill abandoned the wages fund in 1869, he had pulled the rug out from under his own Fourth Proposition. If you read my reply to Roy, you will see that I do not agree.

You can read my original reply to Roy at SSRN (Kates 2020b). My explanation of why the wages fund is even to this day embodied within modern economic theory will have to remain a mystery.

Steve Kates
steve.kates@gmail.com
Submitted 11 June 2020

References

Kates, S. 2015. ‘Mill’s Fourth Fundamental Proposition on Capital: A Paradox Explained.’ Journal of the History of Economic Thought 37 (1): 39–56.

Kates, S. 2020a. Classical Economic Theory and the Modern Economy. Cheltenham, UK: Edward Elgar.

Kates, S. 2020b. ‘The Single Most Important Issue in Economics Today: A Reply to Roy Grieve on Mill’s Fourth Proposition on Capital’. SSRN.

Have I ever mentioned before that the level of unemployment is unrelated to the level of aggregate demand?

In the news today.

RECOVERY SUMMER! Record jobs gain of 4.8 million in June smashes expectations; unemployment rate falls to 11.1%. Democrats, media hardest hit.

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By the way, my latest book has just been released: Classical Economic Theory and the Modern Economy. The two references on the back cover:

‘In Classical Economic Theory and the Modern Economy, Kates seeks to correct this dangerous intellectual detour economists took due to Keynes and finally get modern economists to practice economics beyond the shadow of Keynes. It is a Herculean task, but armed with J.B. Say and especially J.S. Mill, Steven Kates makes as strong an effort for resurrection of classical economy theory as can be marshaled. This will be a must read for all students of economics, and a compelling contribution to the history of economic doctrine.’
– Peter Boettke, George Mason University, US

‘This book delivers hard blows to the tenets of modern economics, retells its history and evolution, and pokes holes at our misperceptions of classical economic theory. The result is as much a burial of the macroeconomics of Keynes as it is a resuscitation of the classical economics of J.S. Mill.’
– Per Bylund, Oklahoma State University, US

For a change, we have two people commenting on a book who actually seem to have read it and know what it says.

Reifying a classification

In my previous post on how useless Keynesian economics is I wrote:

A Keynesian believes that economies are driven from the demand side and that recessions are due to a deficiency of demand. The cure for recessions are therefore increased public spending to increase the level of demand, raise the level of activity and return an economy to full employment. You know, from the equation Y=C+I+G etc, where more G leads to more Y and therefore more jobs. Introduced into economic theory in 1936, there has never been a single occasion when a Keynesian “stimulus” has led to a recovery. Not one, not ever.

The first comment was by 2dogs who wrote:

The problem with this is that it is a logic fallacy known as “reifying a classification”.

Y=C+I+G is merely a classification system, not some empirical result. One can create classifications to divide up the total transactions any number of different ways. The totals resulting are completely arbitrary; none of the classifications so created have a real existence in and of themselves. Suggesting that increasing the size of one classification will increase the overall total is mindless paper shuffling. I could just as easily create a different classification system that demonstrated the need to increase in the amount of money paid to me.

This, let me tell you, was a revelation. I have never heard of this particular form of fallacy nor has anyone ever before brought it to my attention. I often compare, and discuss in my text, the difference between the identity

Y ≡ C + I + G

which is the formula for calculating the National Accounts since it is essentially an accounting measure which is just true by definition, and this:

Y = C + I + G

which is the fundamental equation of modern macro, which says that an increase of any of the elements on the right side, such as an increase in government spending of any kind represented by G will lead to an automatic increase in output, represented by the letter Y. In fact, according to theory, Y will increase even more than whatever G is increased by because of supposed multiplier effects. The difference was highlighted by Duncan in a comment on the original article I cited.

Keynesian economics says that if you borrow $1m to dig a hole and $1m to fill it in you have ‘created’ $2m of ‘production’ and jobs.

In reality you have subtracted $2m from your wealth.

That is exactly right but requires a return to pre-Keynesian kinds of thinking. Why that is not obvious beyond argument I cannot work out. Nevertheless, the argument has now progressed so that even loss-making operations, or even activities that are wholly wasteful, can contribute to growth by adding to the number of jobs. Is it not obvious how stupid this is? No it’s not, and here’s part of the proof: With economic recovery far from assured, the PM’s nerve may be fraying by the ever unreliable Ross Gittens:

The plain truth is that the only way out of deep recessions is for governments to spend their way out….

Recessions always involve the private sector – businesses and households – contracting and the public sector expanding to take up the slack and get things moving again. In our particular circumstances, six years of weak wage growth and record household housing debt means consumers have little scope to start spending big.

This is economically illogical but such arguments are now almost universally held. And he even notices that we have already had six years of weak wages growth following the so-called stimulus packages that followed the GFC. It would never occur to him, nor to the millions of trained economists around the world, that real wages have fallen not in spite of the stimulus spending but because of them.

Would the real anti-Keynesian economist please stand up

Classical Economic Theory and the Modern Economy

Here there are two anti-Keynesians in Australia and we both disagree with each other. The headline in the paper was kind of all right – It’s Keynes’s fault – again we go into debt to ‘stimulate’ the economy – but so incoherent was this as an anti-Keynesian rant that it has left me completely nonplussed (defined as: “so surprised and confused that one is unsure how to react”).

A Keynesian believes that economies are driven from the demand side and that recessions are due to a deficiency of demand. The cure for recessions are therefore increased public spending to increase the level of demand, raise the level of activity and return an economy to full employment. You know, from the equation Y=C+I+G etc, where more G leads to more Y and therefore more jobs. Introduced into economic theory in 1936, there has never been a single occasion when a Keynesian “stimulus” has led to a recovery. Not one, not ever.

I should also add that Keynes, in writing his General Theory, made a point about his rejecting this concept called “Say’s Law”. Mere detail to others who enter these discussions. And while I sort of agree with the conclusion, I am completely foxed by how it was arrived at:

Cutting government spending should take precedence over raising taxes. Reduced public spending, particularly on industry assistance and overlap in spending at federal-state levels, should be central to the recovery program.

This should be accompanied by tax reform (including to internationally uncompetitive company tax rates), business deregulation and industrial relations reform. Without this, our economy will remain in limp convalescence for decades.

That raising taxes is even an option is beyond me, but as for cutting public spending I am all in. But unless you understand the reasoning behind the pre-Keynesian position and Say’s Law, you won’t understand what needs to be done, and especially why it needs to be done. Everyone seems to be in for “infrastructure spending” but if we haven’t learned from the NBN, there is no hope for any of us.

Which reminds me that my latest book – Classical Economic Theory and the Modern Economy – is being released just this month.

Economic theory reached its zenith of analytical power and depth of understanding in the middle of the nineteenth century among John Stuart Mill and his contemporaries. This book explains what took place in the ensuing Marginal Revolution and Keynesian Revolution that left economists less able to understand how economies operate. It explores the false mythology that has obscured the arguments of classical economists, providing a pathway into the theory they developed.

I read other economists today and laugh since what else is there to do? Real wages have been falling across the world – other than in the US and then only until recently – since the stimulus programs that followed the GFC. If you want to know why, you could always buy the book, or at least get your library to order it in.

T.R. Malthus’s Principles of Political Economy first edition was published in 1820

This is the 200th anniversary of the publication of the first edition of Thomas Robert Malthus’s Principles of Political Economy in 1820.

The funny thing is that I was thinking about the publication of Malthus’s first edition of his Principles only because I was thinking about how hard it is to maintain friendships with other economists who differ with our own views, which from that led me onto thinking about the greatest friendship in the history of economics, the friendship between David Ricardo and Robert Malthus, and how Ricardo had written to Malthus, just before he died, that even had they agreed on everything instead of disagreeing on everything – which was more or less the truth of it – he could not have liked Malthus any more than he did. It really is how economic discourse should be undertaken. And from that it occurred to me that the publication of Malthus’s text led onto the General Glut debate, the formulation of what we now call Say’s Law, which then instigated the Keynesian Revolution and thereon to modern macroeconomic theory. There can hardly be an anniversary in the entire history of economics more significant than that.

The second edition from The Liberty Press can be found online here.

The Outline

Malthus may have been the single most influential economist who has ever lived – Karl Marx included. In his own time there was his Essay on Population which was a crucial element in the structure of economic theory as well as a good deal of social policy in his own time and for long after. Far more important, however, was his Principles of Political Economy, published exactly two hundred years ago this year in 1820, which touched off a debate over the possibility of a “general glut” – demand deficiency – that has had two sets of consequences. In his own time and until 1936, the mainstream of the economics community were united in denying the possibility of a general glut, that is in denying the possibility of over-production as a cause of recession and high unemployment. But then, of even more significance, John Maynard Keynes, following his coming across the general glut debate in his reading of Malthus’s correspondence with Ricardo at the trough of the Great Depression in 1932, was set on the road to write The General Theory in which the possibility of a general glut – a deficiency in the level of aggregate demand – was developed so that an under-employment equilibrium was seen as not only possible but common.  Virtually the whole of mainstream economic theory has as a result accepted Malthus’s conclusion down through to the present day.

Malthus published his economics text Principles of Political Economy exactly two hundred years ago in 1820, but what made its publication so notable was that Malthus was already world-famous because he had previously published his Essay on Population in 1798 (a book which has never since then been out of print). Malthus’s Principles was not therefore just another text on economic theory but was authored by the most famous “public intellectual” of his time.

In so far as economic theory was concerned, it was a generally standard account for its time, except that he argued that the recessions that had followed the Napoleonic Wars which had ended in 1815 were due to a general glut, or in modern terms, to a deficiency of demand. The notion of a general glut needed to be distinguished from a particular glut. That an individual product could be produced in quantities so large that not all production could be sold was recognised as obviously true. A general glut, however, suggested that not just individual products, but an excess of output in general of everything could be produced.

The reason that a general glut might occur was due to over-saving. Production was being channelled into proportionately too large a flow of capital goods rather than into consumer demand. The additional capital was creating a flow of output beyond the willingness of the population to consume everything that had been produced, leading to a general glut and a high level of unemployment.

His solution was that the landed aristocracy be encouraged to spend more and invest less.

This proposition led to what has since been called “the general glut debate” which, according to Thomas Sowell, continued through until 1848, only finally coming to an end with the publication in that year of John Stuart Mill’s own Principles of Political Economy.

The core question of the general glut debate was whether it was even conceivable in a world of scarcity that the productive powers of an economy could overwhelm the willingness of a community to buy everything that had been produced. It was conceded by all that too much of any individual product might be produced, and that if there was a large disorganisation in the specific goods and serviced being produced an economy might end up in a downturn where many might lose their jobs.

Virtually every economist at the time entered into this debate.

But the economic consensus was that an economy could not produce more than an economy.

McCulloch/Torrens

They may be wrong but at least they’re consistent

Labor industrial relations spokesman Tony Burke said it was “now well established that penalty rate cuts have not created new jobs”. “Continuing with this flawed strategy is the last thing we need right now; we don’t need more cuts, we need people spending to lift Australia out of recession,” he said.

That’s from The Oz. The amount of economic damage these Keynesian clowns have caused is astounding. And as social diseases go, this seems to be the most difficult to eradicate. Toxic stupidity. And I will say it again and invite anyone to show any instance where this has turned out to be wrong: No Keynesian stimulus has ever led to a fall in unemployment and an increase in economic growth.

I mention it only because the nonsensical belief that spending leads to higher levels of production – when it is higher levels of production which lead to higher spending – is just routine anti-capitalist, anti-free market rhetoric without a scrap of evidence to support it.

Might add this while I’m here since Dangerous Dan Andrews is amongst the worst of them. In this case its its this: Coronavirus: Black Lives Matter protest kills off commonsense.

Victorian Premier Daniel Andrews (left) and Black Lives Matter protesters gather in Melbourne on Saturday. Pictures: File

The Black Lives Matter marches in Melbourne and everywhere else signalled the death of commonsense in Australia.

No social distancing, an infectious demographic and deep-seated carelessness have combined to produce the obvious.

Actually, it’s about the only good thing Andrews has done since it will bring the lockdown to an earlier end than might otherwise have happened.

Classical economics and the unemployment rate in the United States

As anyone who understands classical economic theory would understand – which might include around half a dozen people across the world today – “demand for commodities is not demand for labour”. That is John Stuart Mill’s Fourth Fundamental Proposition on Capital. The number of jobs in an economy is unrelated to the level of aggregate demand. This, I need hardly tell you, is in direct contradiction of the whole of modern macroeconomic theory. Which brings us to the latest jobs report in the United States. U.S. Economy Adds Record 2.5 Million Jobs in May, Unemployment Rate Falls to 13.3%.

The U.S. Bureau of Labor Statistics (BLS) reported the U.S. economy added 2.5 million jobs, the largest gain ever recorded and the unemployment rate fell to 13.3 in May.

Well economic good news of such a colossal dimension cannot be allowed to stand on its own so this is what the media reported on instead: Fake News: Media Rush to Decry Trump Quote on George Floyd During Jobs Report Presser – Except He Didn’t Say It

President Trump held a press conference/signing ceremony today at the Rose Garden where he talked about the good news revealed by the BLS’s report before signing a bill that will “give recipients of government small business loans during the coronavirus more flexibility in how they spend the money.”

During the speech he gave before signing the bill, Trump also talked about a number of issues including racial equality in the context of the death of George Floyd last Monday, which happened after Minneapolis police officer Derek Chauvin had his knee on Floyd’s neck for nearly 9 minutes.

CBS News is one of the few news outlets that actually reported Trump’s comments accurately while providing some context:

But black unemployment rose slightly from 16.7% in April to 16.8% in May, in a month the president declared a “tribute to equality” as the nation protests racial discrimination and police brutality. Mr. Trump also seemed to declare success after a week of protests that swept the nation.

“Equal justice under the law must mean that every American receives equal treatment in every encounter with law enforcement, regardless of race, color, gender or creed, they have to receive fair treatment from law enforcement,” the president said. “They have to receive it. We all saw what happened last week. We can’t let that happen. Hopefully, George is looking down right now and saying this is a great thing that’s happening for our country. This is a great day for him, it’s a great day for everybody. This is a great day for everybody. This is a great, great day in terms of equality.”

See for yourself.

Wouldn’t have mentioned it except this media lie was the first thing said to me by my wife this morning.

For added pleasure, you might also wish to read this as well: Paul Krugman Caught in Hilarious Self-Own After Furiously Spinning Conspiracy Theories About Good Jobs Report.

Hayes on Keynes worksheet

This is a review of another book on Keynesian economics just published. It is found on the SHOE list. The review is below, and below it are some idiocies that really are modern beliefs about Keynes that are fore square wrong however common they may be. The bits in bold are my own highlights.

M. G. Hayes, John Maynard Keynes. Cambridge, UK: Polity Press, 2020. xv + 195 pp. $25 (paperback), ISBN: 978-1-5095-2825-7.

Reviewed for EH.Net by A. Reeves Johnson, Department of Economics, Maryville College.

 

Mark Gerard Hayes, formerly of Robinson College, Cambridge, was a post-Keynesian economist who committed his academic life to the study of John Maynard Keynes. In his preface to John Maynard Keynes, Hayes reminisces that his over forty-year study of Keynes eclipses the time Keynes spent in his own scholastic pursuits.

Having invested an effective lifetime to become one of the trusted expositors of Keynes’s economics, it’s hard to imagine someone better suited than Hayes to distilling the economics of Keynes to less than 170 pages (graphs and tables included, no less). Even so, as an analytical biography written for undergraduates with or without formal training in economics, Keynes is an ambitious project. Its primary object is not solely to introduce readers to Keynes, but, specifically, to reiterate Keynes’s critique of classical economics in accessible language. But, Hayes is a veritable authority on Keynes, and his many years of devotion to the subject materialize in a refusal to take shortcuts. It should come as no surprise, then, that the exposition is rigorous, and, for many undergraduates, unsparing.

I note here that reviewing this work through the lens of an academic and an instructor on Keynes offers too little scope. The value of Keynes is understood by its ability to inform its intended audience. Therefore, to fairly assess this book, I offer the following review with its target readership in mind.

Keynes sets out with a brief statement of purpose and summary of the book’s trajectory in the opening chapter. Hayes then delves into classical thought in the form of a corn model in Chapter 2. The core argument is familiar, although its representation may not be. Marginal products determine the respective rates of utilization and of remuneration of labor and capital as profit-maximizing farmers organize production under conditions of diminishing returns. Hayes then delves into classical thought in the form of a corn model , echoing the dubious “continuity thesis” implicit in The General Theory. In any case, this chapter will be tough going for students unacquainted with mainstream economics, but provides a necessary transition to Keynes’s mature thinking.

Chapter 3 naturally turns to The General Theory and offers a concise and careful exposition of the principle of effective demand. Keynes’s non-standard concept of demand as income expected from production is first defined in order to underscore two fundamental features absent in the classical model: the role of future expectations shaping present behavior and the monetary nature of economic activity.

Hayes’s unique approach to the principle of effective demand is well-suited for undergraduates due to his manner of making concrete what Keynes left as abstract. Two instances stand out. For one, Hayes takes Keynes literally by designating the short term as one day. This firmly places the argument in historical time, while also promoting greater conceptual clarity than conventional definitions of the short term admit.

What’s most instructive about Hayes’s approach, though, is his tripartite classification of business into employers, investors and dealers. Keynes’s aggregate demand-supply framework is a constant source of confusion due, in no small part, to its anti-Marshallian rendering of supply and demand in which business appears on both sides of the aggregate market. But Hayes’s expository device disentangles aggregate supply from aggregate demand by mapping employers onto the supply curve, and dealers and investors onto the demand curve. Further, dealers play the critical role in finding, or not, the point of effective demand. In a skillful delineation of the multiplier, dealers adjust their daily inventories by selling spot to meet the increasing consumer demand while buying forward to replenish inventories. Whether the point of effective demand is reached ultimately depends on the fulfillment of dealers’ medium-term expectations, which, as Hayes notes, is unlikely given the uncertainty of consumer demand.

Chapter 4 extends further into The General Theory by fixating on Say’s Law and hence the theory of interest. As in the preceding chapter, Hayes sets out again by fixing ideas. Saving is income not consumed; income is the money value of net output; and, in aggregate, saving takes the form of physical goods. As the rate of interest is the rate on loans of money, an assumption shared by both loanable-funds theorists and Keynes, and saving represents a physical quantity of goods, the rate of interest is a matter of the supply and demand of money.

Hayes addresses liquidity preference after an interlude into Keynes’s investment theory. Because of the interest-centric perspective adhered to, a result of an analytical narrative that puts Say’s Law into the foreground, investment serves as a mere backdrop to discuss liquidity preference. Hayes does briefly address fundamental uncertainty and its relation to investment decisions, but there’s no mention of the marginal efficiency of capital nor its relation to the rate of interest.

Perhaps more troublesome, though, and bearing in mind the intended audience, is that Hayes repeats Keynes’s inconsistent usage of “investor” in The General Theory to mean both buyer of newly produced capital assets and holder of money, debts and shares. This inconsistency engendered confusion among Keynes’s readers; to reproduce it in an introductory text comes off as negligent. It’s all the more unfortunate to find it in a chapter intended to reveal the confusion between money and saving.

Chapters 5 and 6 take as their theme Keynes’s “long struggle to escape from habitual modes of thought and expression,” and especially as this escape concerns monetary theory. Hayes moves swiftly through technical aspects from A Tract on Monetary Reform and A Treatise on Money. Allusions to recent financial events enliven the prose and interrupt the brisk pace of Hayes’s analytical exposition to give the reader an appreciated respite. Still, these chapters, and especially Chapter 5, beset the reader with a kind of textual vertigo. Hayes juxtaposes Keynes’s early work against The General Theory, while enduring ideas (e.g., on the nature of money as debt) are interspersed between the two. These deficiencies don’t detract from Hayes’s extension of the principle of effective demand into the international sphere in Chapter 6, which deserves praise.

The book’s final two chapters assess Keynes’s legacy. Free from the burdens of crafting an analytical narrative, these final chapters establish an organic flow. Chapter 7 begins with a statistical comparison of the “Keynesian Era,” roughly the years 1951-1973, against other historical periods. Despite Hayes’s penchant for statistical inference on the basis of descriptive statistics, his broad-brush comparisons nicely segue to a consideration of how Keynesian was Keynes. Keynes’s policy positions, as borne out by the textual evidence, are then compared to his subsequent followers. Would Keynes be an advocate of Modern Money Theory and support a job guarantee program for developed countries? Almost certainly not. Keynes agrees with post-Keynesians that monetary policy is a rather ineffective instrument to manage the economy, right? No. Keynes’s primary policy proposal was to keep long-term rates low to encourage private and public investment. Linking Keynes’s thoughts on policy to current debates will no doubt interest those navigating today’s landscape.

Chapter 8 continues to dispel popularly-held beliefs on Keynes’s thinking. Hayes deflates the most pervasive myth of Keynes as the figurehead of lavish, even reckless, government spending programs. The unappreciated nuance concerns the ends to which government borrows. While increased borrowing for consumption is likely inevitable during recession, these deficits should be recovered over the course of the upswing. For Keynes, there is no permanent role for government consumption, in contrast to government investment.

The shortcomings I’ve cited relate almost exclusively to the disparity between the book’s elevated content and its targeted readership. Though easily digestible at times, I fear this book is beyond the grasp of undergraduates without training in economics. It will draw interest from dedicated neophytes, advanced students and academics looking for a concise and honest appraisal of Keynes’s work. Indeed, unlike other treatments that reveal more about their authors than the subject (Hyman Minsky’s John Maynard Keynes comes to mind), Hayes’s faithfulness to Keynes’s economics may well irritate some post-Keynesians for its, at times, conservative tone; while intriguing New Keynesians and others to notice that their concerns and positions on critical policy matters share a likeness with Keynes’s.

With his final work, Hayes confronted the onerous task of consolidating an encyclopedia of knowledge. But his passion for the subject cannot be abridged. While Hayes’s Keynes marks an end to a life of dedicated scholarship, in turn, it may mark the beginning for its readers.

 

These are specifics that I have highlighted.

Hayes then delves into classical thought in the form of a corn model. 

Perhaps more troublesome, though, and bearing in mind the intended audience, is that Hayes repeats Keynes’s inconsistent usage of “investor” in The General Theory to mean both buyer of newly produced capital assets and holder of money, debts and shares. This inconsistency engendered confusion among Keynes’s readers; to reproduce it in an introductory text comes off as negligent. It’s all the more unfortunate to find it in a chapter intended to reveal the confusion between money and saving.

Chapter 4 extends further into The General Theory by fixating on Say’s Law and hence the theory of interest.

Saving is income not consumed; income is the money value of net output; and, in aggregate, saving takes the form of physical goods.

Saving represents a physical quantity of goods, the rate of interest is a matter of the supply and demand of money.

Keynes’s primary policy proposal was to keep long-term rates low to encourage private and public investment.

Hayes deflates the most pervasive myth of Keynes as the figurehead of lavish, even reckless, government spending programs.

For Keynes, there is no permanent role for government consumption, in contrast to government investment.

 

The highlighted bits are from the review and below in unbolded type are my own comments.

Hayes then delves into classical thought in the form of a corn model.

Does anyone seriously believe that when Keynes was writing The General Theory that the economists he was dealing with were framing their arguments about anything at all on a corn model of growth and distribution?

 

Chapter 4 extends further into The General Theory by fixating on Say’s Law and hence the theory of interest.

If one is specifically intending never to understand the slightest thing about Say’s Law, focusing on the theory on interest is about as good a way to do it as one might find.

 

Keynes’s non-standard concept of demand as income expected from production is first defined in order to underscore two fundamental features absent in the classical model: the role of future expectations shaping present behavior and the monetary nature of economic activity.

Both of those supposed absences are not absent at all. Of course, if he never goes past Ricardo, then he would not know it. Is it possible to believe that classical economists saw no role for future expectations in shaping present behavior or that economic activity was affected by monetary factors. If you believe that, you are as ignorant as it is possible to be about the history of economic theory.

 

Saving is income not consumed; income is the money value of net output; and, in aggregate, saving takes the form of physical goods. As the rate of interest is the rate on loans of money, an assumption shared by both loanable-funds theorists and Keynes, and saving represents a physical quantity of goods, the rate of interest is a matter of the supply and demand of money.

That “saving represents “a physical quantity of goods” is absolutely correct since it is a definition. It is also the only sound way to conceive of saving since an economy is a process that allocates all of the productive resources in existence within an economy to their highest valued uses. By recognising at the same time that the rate of interest is a matter of the supply and demand for money is precisely the way in which all classical economists looked at the process of saving and investment. This is Wicksell and not Keynes (1936), although it is Keynes (1930).

 

Keynes’s primary policy proposal was to keep long-term rates low to encourage private and public investment.

In saving Keynes’s reputation he has to abandon what Keynes himself wrote. Nothing to do with public spending or short-term deficits. Over the side goes Can Lloyd George Do It? (1930).

 

Hayes deflates the most pervasive myth of Keynes as the figurehead of lavish, even reckless, government spending programs. The unappreciated nuance concerns the ends to which government borrows.

It was Keynes who wrote how fortunate the Egyptians had been in having pyramids to build or for the mediaeval economies to have been blessed with the construction of cathedrals. It was Keynes who suggested burying bank notes and then have them excavated to create jobs. Certainly not permanent spending on waste, but while the recession was on and while it was deep, Keynes certainly advocated all of that.

 

For Keynes, there is no permanent role for government consumption, in contrast to government investment.

There was no role for permanent government investment either. When at full employment, as Keynes wrote, classical principles would prevail.

 

Only supply constitutes demand

Other than straight out socialist plunder, no better way to comprehensively ruin an economy is to think public spending and monetary expansion can raise living standards and promote employment growth. Here’s an article by Richard Salsman published at The Hill in the US that tries to point out just that: Fiscal-monetary ‘stimulus’ is depressive.

Politicians, policy wonks and pundits like to classify as economic “stimulus” the $6 trillion in recent deficit spending and Federal Reserve money creation. But subsidies for the jobless, bailouts of the illiquid and pork for cronies are purely political schemes — and they depress the economy.

What is the case for “stimulus”? Many economists believe public spending and money issuance create wealth or purchasing power. Not so. Our only means of obtaining real goods and services is from wealth creation — production. Under barter no one comes to market expecting to buy stuff without also offering stuff. A monetary economy does not alter this key principle. What we spend must come from income, which itself must come from producing. Say’s Law teaches that only supply constitutes demand; we must produce before we demand, spend or consume. Demand is not a mere desire to spend but desire plus purchasing power.

Believers in “stimulus” also claim that government spending entails a magical “multiplier” effect on aggregate output, unlike most private sector spending. They tout a government’s greater “propensity to consume.” But consuming is the opposite of producing. Welfare states certainly consume and redistribute wealth. They divide it up. But math teaches that nothing – wealth included – can be multiplied by division. The so-called “multipliers” imagined by today’s economists are, in fact, divisors. Many studies have verified the principle.

It should become a pre-req for anyone to become a political leader to have successfully run a business for at least five years. Speaking of which I must also say how much I loved Tafkas’ post today.