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Scientism and progressivism definitely fit with Neo-Keynesianism, but I'm less sure that they fit with New Keynesianism. You can call it scientistic for the same reasons that neoclassical economics is scientistic, but it isn't really worse than the rest of the mainstream from a methodological standpoint. And I don't think Greg Mankiw or John Taylor would agree with you that New Keynesian economics is by nature progressivist.

I think the "comeback" story is true insofar as there has been a reappearance of Neo-Keynesian concepts like aggregate demand that should really be dead. When Christina Romer rants that we need more aggregate demand, I would say that's a return of the extreme scientism from the 1950s.

I'm having trouble imagining any scientism that applies to Keynesian economics from 1980-2006 that doesn't also apply to mainstream economists generally.

I don't mean to change the subject, or detract from the point of the post. I just want to make an observation. You write,

"Mark Blaug points out in his Economic Theory in Retrospect, that never before in the history of economic thought have we seen such a sudden and complete conversion to a new paradigm."

What about Adam Smith and The Wealth of Nations? There were "classical economists" (I'm not sure if it's fair to call them such, but I couldn't think of another all-encompassing term, other than "laissez faire" or "non-mercantilist" [neither of which seem to fit completely]) before Smith (e.g. Richard Cantillon), but so were there "Keynesians" prior to Keynes (e.g. L. Albert Hahn, before his conversion). I've also read that Keynes was heavily influenced in Cambridge, as opposed to the other way around (although, I suppose that he did greatly influence his Cambridge peers).

Regarding the post's topic, I think there is a wide variety of reasons why Keynesianism continues to flourish in present day. I don't think the progressivism link, however, makes a lot of sense when asking ourselves why did the Keynesian framework outcompete Hayekian intertemporal capital theory in the 1930s. Also, I don't think the change from "free market" to "Keynesian" (although, not all Keynesians believe the two are mutually exclusive) was at all sudden. I think there was a progressive shift away from Mengerian economics through the work of Marshall and Fisher, amongst others, during the first two decades of the 1900s.

I have also been led to believe that Hayek's economics were foreign, and that the majority of the profession in England had switched analytical framework by the time Hayek began his 1931 lecture series. He criticizes, for example, the over-reliance of Fisher's mechanistic equation of exchange in Prices & Production, and Mises made similar criticisms much earlier. I think there is evidence of similar progress in the United States, as it was in 1917 that Benjamin Anderson wrote his own critique of the mechanistic equation of exchange in The Value of Money.

In the midst of the Great Depression, I think that Keynes' The General Theory simply made a lot of sense. It operated within an already established framework, and it was relatively simple. Furthermore, Keynes was pretty ambiguous in his writing, and we can see the effects with all the offshoots which nearly immediately rose into being — Hicks, Robinson, Kaldor, Modigliani, et cetera.

It seems to me, though, that most non-Austrian theories are not very unified. Reading Human Action, you see that Mises' theories are all in some way linked and interrelated (this is another point Hayek brings up in Prices and Production, as well) — this link is the price mechanism); Keynesian theory, to me, doesn't seem to have the same unity (even if I am beginning to see a lot of truth in certain Keynesian theories [but, the way I process them is different, in that I try to apply it to the Austrian framework]).

In any case, I am a novice at all of this. I just thought I'd share my thoughts.

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I think you're on the right track, Pete. It fits perfectly with rationalist constructivism to treat society as a sort of big steam engine of which the rationalist can control the steam valve, fuel flow, etc.

Another Austrian "attack" on Keynesian economic theory devoid of any actual empirical content. I thought economists were supposed to care about experience, and actual phenomena, rather than epistemological babbling.

tim, I think you will find that Keynes of the General Theory has been shredded intellectually, though of course Keynes was prepared to change direction, even to favour the dreaded classicals at some stage after the war. Samuelson can be regarded as a good indicator of the prevailing wind during the 1930s when he used the language of Wordsworth to express his joy at being able to embrace Keynes, the welfare state and mathematical economics all at once (and to be young as well!). It is a pity that the Soviet economy failed to perform to his expectations, but still, anyone can make mistakes.

Whatever the cause, you can adopt an epidemiological approach to the rise and persistennce of Keynesianism, so you have an outbreak during the 1930s (an epidemic if you like), then it is systematically spread by teaching it to generations of students, so it becomes endemic in the profession, and beyond the profession when it is taught in school and enters the folk culture. After it is endemic in the profession you can see that it will take many decades to “wash out” (funeral by funeral) even when you start teaching something different! Good luck!

Keynes dominated the high shool economics texts of Australia in 1990 (according to a survey) and casual obervation suggests that little has changed since then. It is surprising that libertarians and classical liberals do not complain more about school texts and school courses generally.

"Another Austrian "attack" on Keynesian economic theory devoid of any actual empirical content."

Wow, Tim, the question on the table was, "Why did Keynesianism spread so fast?" The answer being considered is that scientism and rationalism were the dominant intellectual currents at the time The General Theory came out.

Tim, that is an empirical proposition, that could be confirmed or falsified by historical research. And it does not even represent an "attack" on Keynesianism: Keynes's theories could both be:
1) correct; and
2) have caught on so rapidly due to intellectual trends.

So stop whinging.

It may be useful to distinguish between fiscal adminstration and monetary administration. The former suffers much more from the public choice aspects highlighted by Buchanan. Here, the Keynesian departure from the balanced-budget rule neatly fits the habit of policymakers to invest other peoples money in their re-election. Any Rand's description of "witch doctors" (Keynesian economists)and "Atillas" come to mind. Monetary policy, due to its partial independence, is rather constrained by the dominant views in economics, no matter if Keynesian, monetarist or whatever.

BTW, Schumpeter argued that all theory in Keynes's GT that is correct wasn't new, and new aspect weren't correct. I think he was right. Just think of the old Chicago School (Knight and Co)and their attitude to fiscal spending during the GD. In this respect, the Keynesian revolution seems to be a shift in the weight of the argument rather then a shift to a new paradigm. Further, job opportunities created by progressive policy (and war economies) are crucial as well.

I think it's largely an argument of convenience that you'll have a very tough time proving, although perhaps I'm misunderstanding the argument.

If the argument is "why did politicians embrace Keynesianism" then that may be easier (although I would severely qualify this - they have embraced a crude Keynesianism, not Keynesianism).

But if the argument is "why did Keynesianism emerge as an intellectual movement?" I think your case is harder to make. It's one thing to say that progressive politicians found a theory that was convenient to them. It's another thing entirely to say that that had anything to do with why economists found it convincing.

The same critiques could be leveled against the Austrian school. Politicians embraced the LSE perspective in the 1930s to fight off the Keynesians and interventionists. It "fit" with their non-interventionist predilections. And we see a resurgence of the Austrian school in 2008 for precisely the same reason - it's an ideologically convenient bat for certain political groups to pick up and bludgeon their opponents with.

That's a fairly convincing story, I think, but do you think it says anything at all about why the Austrian school was such a prominent member of the debate in intellectual circles in the 1930s, or why academics are paying more attention to it now? I don't think the political convenience of the Austrian school explains that, and I don't think the political convenience of Keynesianism explains its hearing among intellectuals either.

I also think this idea that Keynesianism is all that new or revolutionary is a little weak. We all know now that proto-Keynesians abound. Nobody can pretend this isn't true anymore. Almost all of Keynes's insights were anticipated in one form or another.

This is especially true in the United States, which I think explains his easy acceptance here. For a while now I've been wanting to write something on "Jeffersonian Political Economy and American Keynesianism" that makes this sort of argument. American economics has always been full of concerns about overproductionism, from the very beginning - and Jefferson himself talked about these ideas a lot. Now, overproductionism is fallacious to be sure - but it has a kernel of truth to it that I think made the United States fertile ground for more solid (for lack of a better term) "underconsumptionist" theories. We were ripe for Keynesianism because we were replete with proto-Keynesians and "monetary cranks" that got things wrong but where wrong for the right reasons.

I think overall you're looking in the wrong places. Keynesianism caught on because it was a convincing argument and it stands the test of time (modified along the way, of course). You might be able to explain why the politicos got on the bandwagon, at least in paying lip service to Keynesianism, but I'm not sure this explains much more than that.

RE: "Also, I don't think the change from "free market" to "Keynesian" (although, not all Keynesians believe the two are mutually exclusive) was at all sudden."

Jonathan Catalan's parenthetical point here is also a very, very good one and something that leaped off the page at me when I first read Peter's post. Considering Keynesianism as an opposition to the market economy veers into expecting Keynesians to defend what you think they should think, and not what they actually think.

I find these type of posts too general. I thought the one on employment of mathematical economists was too general to.

If we want to have a debate, with Daniel for example, then we need to be more specific.

Without a little more focus we all end up reading the remarks posted how we want to read them. Then the discussion that ensues is more about how differently we interpret them rather than of the substance of the problem.

My reading of history is that the change in the field of economics was sudden. Keynes took fringe elements that had been around a while and put them center stage. The older economists rejected Keynes; it was the younger ones who embraced him uncritically and later dominated the field.

The main point of Keynesian economics was to trash free markets and promote socialism. That required demonstrating that free markets are inherently unstable. The monetary theory of business cycles posed a threat to socialism because it demonstrated that the problem resided with credit expansion, not the market, and Mises wrote that was why Keynes and so many other economists rejected it.

The young economists of the 30's could not help being influenced by the popular love affair with communism in the US in the 1930's and the adoration of the USSR. All they lacked was a "scientific" explanation of why the USSR was the future. Keynes provided that for them.


Despite all this criticism here I'm sometimes not really sure how different your view is. I read your post of "Keynesianism and Consumptionism" today and to me it seemed like a more complicated version of the short-run demand-and-supply of money model.

How is you view significantly different from Selgin's for example?

Current -

I don't know enough about Selgin to say, but I generally find myself sympathizing with anyone coming from a monetary disequilibrium perspective (Horwitz is one I often find myself nodding my head to 75% of what he says too).

Again, I'm really an amateur so I can't place myself decisively. But I often have the impression that a lot of people who will embrace monetary disequilibrium but won't embrace Keynesianism are addressing a symptom and not the disease. In times like this especially, I think they also discount the severe problems associated with liquidity traps specifically. Also I think a lot in terms of externalities that drive really crucial underinvestments - so I see a wide open field of "public goods" (I hate that term - I prefer "externalities") that the government can invest in aside from any macroeconomic disequilibrium issues, which I think is another reason why I am effectively speaking a Keynesian rather than just a "new monetarist".

Like I say, though - I'm a newbie. That's just where I locate myself in the fray.

Current - on Selgin and Horwitz -

I have to profess a high degree of ignorance on free banking. I am with them on monetary disequilibrium, but I'm not entirely clear on how free banking solves that problem.


Let's forget about "externalities" for a minute and concentrate more on macro.

I agree with Horwitz about the vast majority of macro questions. Like him, I don't believe in the Keynesian liquidity trap, but liquidity issues are still important.

This is another problem with the question "what are we debating about". In your "Keynesianism and Consumptionism" post you begin by supposing that there is a short-run rise in the demand-for-money by businesses, and that this short-run rise is accepted. That's like saying that velocity falls. Then, if the quantity of money in circulation is inelastic then prices must rise. You're not really very far from the FRFB Austrian position at that point. The real questions about Keynesianism come when the argument progresses further.

Right - I've never considered myself all that in conflict with Austrians. You'll find me defending Keynesianism more than you'll find me attacking Austrianism.

In fact I sometimes frustrate Steve by bandying about too much Keynesian-Austrian koom-bah-yaism :)

The argument I always see in the literature is the math argument -- vulgar Keynesian economics in various incarnations provided a wealth of formalist publication opportunities, and it was simply fantastic for teaching on the blackboard in math form to engineering students in the Post-War years. And the math was easy for TA's to grade ...

Samuelson, e.g., was at MIT ...

False. A number of leading Hayekian macroeconomists were Labour party leftists, with positions high in the part and in the government.

They embraced Hayekian macro because they believed it was true.

Daniel wrote,

"Politicians embraced the LSE perspective in the 1930s to fight off the Keynesians and interventionists."

Name a single politician who embraced the LSE perspective who was not Lionel Robbins or a Labor Party leftist ..

Daniel writes,

"Politicians embraced the LSE perspective in the 1930s to fight off the Keynesians and interventionists."


It is true, however, that Lionel Robbins was interested in Hayek as an intellectual counterweight against Cambridge and Keynes (which is why Robbins invited him to the LSE).

Daniel, I tried to separate two questions here which I think are truly separate:
1) Why did Keynesianism catch on so fast? and
2) Is it correct?

A "yes" answer to 2) is not a sufficient answer to 1).

Consider, for instance, a) marginalism and b) heliocentrism.

a) There were many precursors of marginalist thought kicking around for centuries, and yet in 1850 we still have JS Mill "authoritatively" rejecting them, and even after 1871, it took decades for marginalism to come to wide acceptance.

b) My history of science lecturer said that half a century after the publication of De Revolutionibus, he could only discover 4 Copernicans in the world -- and two of them were named Galileo and Kepler. And the reason here was NOT Church opposition -- the Church did not really enter this debate until the 1600s.

Or consider quantum mechanics, plate tectonics, big-bang theory, Darwinian evolution, etc. -- paradigm shifts often take decades.

So why did this one happen so fast?

Greg -
I never claimed there weren't leftist Hayekians. Winston Churchill was claimed to be a fan of Hayek - I don't know if that is true or not. Thatcher certainly claimed him.

Perhaps these are "crude Hayekians". I would fully expect that. In almost every instance of a politician getting a hold of an economic theory for electoral purposes they are presenting a crude version of that theory.

Gene -
You're absolutely right that a "yes" to number 2. isn't a sufficient answer to number 1. I hope I didn't give the impression I think it is. I absolutely don't.

As I said, I think it happened fast in part because a lot of proto-Keynesian ground-work had been laid in the United States that was often off-base, but it put people in a position to accept Keynes.

You also have to distinguish between politicians, the general public, and economists. I'm entirely willing to believe Peter is right when it comes to the reasons why the general public and politicians (and perhaps a few more ideological economists) embraced Keynesianism. I think proving that is a different task from proving why he was accepted among economists.

At the root of it, I think (1.) the acceptance is not so stark as people make it out to be - these or similar ideas were floating around for a long time, particularly in the U.S., and (2.) of course there's the Great Depression which was well explained by Keynesianism. You don't have that kind of huge event focusing people on marginalism or heliocentrism they way you have it focusing them on macroeconomic questions.

In other words, what was "stark" was the collection of a whole bunch of old and different theoretical strands under the name "Keynes". Why did that happen? I don't know - personal charisma? I couldn't say.

Some of the top Labour Party politicians in the 1930s-1960s were Hayek trained LSE economists ...

"In almost every instance of a politician getting a hold of an economic theory for electoral purposes they are presenting a crude version of that theory."

Churchill evidently read a bit of Hayek -- I have no evidence to establish just what (Churchill owned a copy of _The Road to Serfdom_ sent to him by Hayek) but certainly Churchill was not a serious student of Hayek's economics.

"Winston Churchill was claimed to be a fan of Hayek"

The claim that Churchill was influenced in his "free market" arguments was made by the compiler of a collection of quotes by Churchill. The editor does not cite his source or evidence, however.

Greg - no I'm refering to a contemporary. Atlee I believe.

re: "certainly Churchill was not a serious student of Hayek's economics"

Certainly, but what is your point? I never claimed that conservative politicians preached or practiced a version of Hayek that would pass a GMU comp exam. The initial claim by Peter was that a lot of politicians took up the Keynesian mantle for political convenience. My point was yes, this is almost certainly true - but the same can be said of Hayek (then and now) and any number of other economic theorists who are appropriated out of political convenience. That's not a very solid measure of a true adoption of Keynesian or Hayekian or any other ideas.

A quick question, you say...
"the Great Depression which was well explained by Keynesianism."


That's a "quick" question? I've commented here too much already. I'm refraining with the understanding that it shouldn't be hard at all for you to find others answer that question more ably than I can.

Fair enough.

My point is that even many Keynesians don't make strong assertions about why economic crises occur. The Keynesian argument about the great depression doesn't really attempt to explain how it began, it's more about how it came to get worse. Also, in the early the real interest rate and the nominal interest rate were not zero.

The parts where Keynesians agree with Austrian FRFBers and quasi-monetarists are clear, prices taking time to adjust so a great deal of harm caused by price deflation. The parts where Keynesians strike out on their own are much less clear.

RE: "Also, in the early the real interest rate and the nominal interest rate were not zero."

Right... I don't like when people lean too heavily on the liquidity trap. The liquidity trap, for me, is an "oh shit, and we thought things couldn't get worse and now they just did" idea. It's not the underlying Keynesian argument.

One quick note about Daniel's point about proto-Keynesians.

In the US, I think this has some real legs as an explanation. One need only point to Foster and Catchings' popularizations of many "proto-Keynesian" ideas in their series of books in the 1920s. That old proto-Keynesian Herbert Hoover was a fan as were many others, which is why Hayek went to lengths to respond to their work in the 30s.

So yes, one explanation for why Keynesian ideas swept the US is that the ground was fertile thanks to F&C and others in the 1920s.

I think also the gold standard may have been thought as something old-fashioned old-world and associated with us perfidious English. If the gold standard was a person it would have a moustache like Sam Elliott's and a tie.

Daniel -- leftist Labour politicians in a very serious way were Hayekians in macro, I know of no "conservatives" who were swrious Hayekians in macro.

Atlee was talking about the "Gestapo" stuff in Churchill, which had little or nothing to do with Hayek's economics -- Atlee mostly just wanted to smear Churchill with the albatross of a German pronounced professors name.

Steve's comment is true and important.

If Keynes hadn't written The Economic Consequences of the Peace, would the General Theory have had the impact it did? The first book, written in 1919 because of what Keynes saw happening in Paris and the Treaty of Versailles, contained predictions that largely were correct. So the economists of the time were prepared to listen when Keynes "spoke."

Because ultimately what matters is what the top 5 schools push, and what they push is /mostly/ determined by what government officials want to hear and who they want to hire.

I think we should not forget the degree to which the "planning mentality" had caught on in Great Britain, the United States, and a variety of other countries during and following the First World War.

In the U.S. there was the strong movement for "stabilization" of the business cycle and "rationalization" of business to limit "wasteful" competition. (Herbert Hoover during the Coolidge Administration was a leading advocate and popularizer of these ideas, as was Wesley Mitchell with his "scientific" studies of the phases of the business cycles).

We should not forget, either, the extent to which intellectuals inside and outside academia were much taken with the "experiments" with "planned economies" in both Soviet Russia and Fascist Italy, starting in the 1920s. (Paul Einzig, one of the leading "financial" economist/journalists of the 1920s and the 1930s, published a praising book on "The Economic Foundations of Fascism" in 1932, after spending a few months in Italy. He turned against fascism only after Hitler's rise to power in Germany in 1933 -- Einzig was Jewish and became alienated from fascism due to Nazi anti-Semitism. By the way, Arthur Marget wrote a damning review of Einzig's book shortly after it appeared in the "Journal of Political Economy.")

In 1937 Alan Sweezy contributed a short article on 'The Economist in the Socialist Economy' for a festschrift in honor of Frank Taussig. He argued that there, in the midst of the Great Depression, any economist had to feel a deep sense of frustration. The economies of entire nations were out of joint, with massive unemployment and vast amounts of idle resources while the wants of the multitudes were unmet. Every economist knew that the problem was that economic relationships between supplies and demands were out of balance, that prices and costs were not in harmony. The economist knew this and he also knew what "correct" relationships could set everything right again.

The economist possessed the theoretical knowledge to tell what the relationships should be to bring the economy back to equilibrium; and with the appropriate statistical data he could feed the numbers into the mathematical equations to find just the right solutions. But under a private enterprise economy, the economist possessed no authority to collect the data or implement the changes to restore full employment. Under socialism, the economist would have just such authority:

"It thus appears that from a narrow professional point of view the economist can expect to gain heavily from the victory of socialism. He can look forward both to expanded opportunities for developing his science and to an entirely new influence in the formulation of economic policies . . .

"With our present knowledge and analytical equipment, economists and production managers can formulate price-output policies which would be more in the social interest than those adopted by enterprises in the capitalist world. . . [With] the establishment of socialism . . . the economics profession is likely to acquire unprecedented usefulness and prestige."

Can we not, also, say that this mentality captures the attractiveness of the Keynesian vision. Without the necessity of having to "wait" for socialism, with its nationalization of the means of production and establishment of a fully authorized central planning agency, economists -- with the "wisdom" and "understanding" of those newly discovered macroeconomic relationships and models -- could now do all those wondrous that Alan Sweezy dreamed of; could have that influence, power, and prestige of "setting the world right" and having their hands permanently on the controls to assure continuous full employment and full utilization of "society's" productive capacity.

To have a "flavor" of the Keynesian version of that mentality, see the concluding chapter of Lawrence R. Klein's 1947 book, "The Keynesian Revolution." The new macro-economist will be the economics master-of-the-world, free from constitutional limitations on spending, taxing and borrowing, as Keynesian policy will require the overthrow of U.S. Constitutional powers over fiscal policy possessed by the Congress, and given, instead, to the economics "experts" who understand and can manage the macro-aggregates.

I think this explains a lot about the rapid attraction and acceptance of Keynes' ideas and conceptions in "The General Theory."

Richard Ebeling

Richard -
As a historical fact what you say has the ring of truth, but I've always struggled with how to square this with Keynes's criticism - not at one point very late but throughout his career - of socialism. I'm not sure how to square it, but that's a very real problem.

I've read the 1966 version of Klein's book - I'm not sure if that differs substantially from 1947 - but I always remember him sharply distinguishing Keynes from the socialist and Marxian argument, and suggesting that Keynes has some tools that socialists (Klein of course was one) could use, but not attributing anything like that to Keynesianism itself. I could be misremembering the treatment, of course. And even if I'm not misremembering that clearly doesn't contradict anything you've said (I just want to emphasize the point that the adoption of Keynesianism does not necessitate amity towards socialism).

Despite the socialism, I found Klein's book to be by far the most helpful for me in understanding Keynes of anything I've read.

"You don't have that kind of huge event focusing people on marginalism or heliocentrism they way you have it focusing them on macroeconomic questions."

Hey, what are you talking about? As I recall, every day in the 1870s, people were making decisions on the margin, and I've heard reports that the sun was often out during the late 1500s.

I think that previous poster was TRYING to make a joke. Weak.

Nahallac - Gene the previous poster was trying to make a joke or me the previous poster? I hope Gene was trying, but the lack of expression over the internet makes it hard for me to tell.

re: "Hey, what are you talking about? As I recall, every day in the 1870s, people were making decisions on the margin, and I've heard reports that the sun was often out during the late 1500s."

In case it was not a joke: Ummm... right... but there was no focusing event in either of those cases. It happened every day just as you said. Nobody was particularly surprised by anything that would lead them to search out an explanation. The Great Depression was surprising in a way that the sun being out wasn't.

"Many economists said Hayek’s theory was sounder than Keynes’s early work. But the Austrian couldn’t hold his supporters. Keynes’s gifts as a “persuader” were supreme, according to Robert Skidelsky..."

from http://www.theglobeandmail.com/report-on-business/economy/friedrich-august-von-hayeks-time-has-come/article1857752/

Daniel, you might try reading Nahallac's name backwards to answer your question. :-)

(I considered putting in a smiley face when I wrote the first post, but then I thought I'd get "clever" instead -- so look where that got us!)


Far too cryptic for my feeble brain apparently. Very nice.

I concur - well done Gene.

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