"Hicks once wrote that when the history of 20th century economic policy comes to be written, the pivotal debate will be the Hayek v. Keynes debate. When you scratch the surface of the various positions, it ultimately comes back to that. That is why I believe you see the rise of interest in these two positions again, and again. And ultimately, the earlier version of that debate is contained in the letters exchanged between Malthus and Say."My initial response to him was that if that's the debate that stands out it's a very good debate to have, but that (especially when it comes to Hayek vs. Keynes), I really hope we don't feel like we have to choose between them. I certainly don't feel that way. They both do a good job highlighting each other's blindspots and the tradeoffs that each brings to the table. For that reason alone this debate is an important one. But in the end, Keynesian policy without a cognizance of what Hayek said is doomed to failure. Crude Hayekianism without an appreciation of Keynesian insights is doomed to bumping along at a sub-optimal level. I think it's very dangerous to choose between them rather than choose from among them.
Anyway, the Malthus vs. Say point is interesting I think. Say dominated over Malthus for a long time for a very good reason: Malthus could not provide stability conditions for a general glut. Economist have always recognized that shocks can disrupt the economy. Malthus described what a general glut looks like, but he didn't really adequately explain how an economy could produce them naturally. That is where Keynes makes his contribution. I'm wondering, though, has anyone really expanded on Say in the way that Keynes expanded on Malthus? Hayek adds good stuff about knowledge, etc., but that doesn't really speak to the macroeconomic issue of general gluts, which is the heart of the Malthus/Say debate. I can think of two things:
1. The whole real balances debate, and on policy
2. Ricardian equivalence
The first is good, but I think amounts to qualifying Keynes rather than disproving him. And that's good - qualifying and tempering is important. The second one amounts to assuming your own conclusions. It's not a development of Say - it's going back to one of Say's contemporaries and restating the argument with math. Not very impressive, and again - it's more of a qualifier anyway (ie - "to the extent that Ricardian equivalence is true stimulus will not work" - but you can't just assert absolute Ricardian equivalence and call it a day).
I don't know much of Hayek's macro, but a macroeconomics based on the capital structure again doesn't seem to refute Keynes so much as provide another model. A good model, I might add, but not one that has to conflict with Keynes (ie - there's no reason that I know of why even simple IS-LM logic fails if you were to incorporate the capital structure).
Has there been any real development in the counter-argument since Say?
I've been refered to Hazlitt on liquidity preference and was disappointed, nevertheless, perhaps some day I should read Hazlitt cover to cover because I know a lot of people like him.
This is an honest question - I'm largely self-taught on these issues. My only high-level macro course focused OLG models and that sort of thing... not a lot of the 1930s-1970s developments where I think Keynesianism was really being hashed out.
ReplyDeleteI've read Keynes' pertinent chapter against Say in the General Theory, and he honestly does not go an inch further than Malthus. As Mises says, "Keynes rejects it emotionally."
ReplyDeleteHow exactly is it possible to produce more goods than people want, in a general sphere? How is it possible to produce fewer goods than people want, in a general sphere?
Maybe Say's original writings on this would shed some light on the matter.