Keynes, Capital, and some History of Economic Thought

Brad DeLong has a couple history of thought posts up that are worth looking at. In the first he suggests that there are at least seven theories of depression out there: monetarism, Wicksellianism, Minskyism, Austrianism, vulgar Keynesianism, Hicksianism, and Post-Keynesianism. DeLong concludes "If you aren't an economist--hell, if you are an economist--the relationship between all seven of these theories is obscure and confusing". I have a few thoughts on these. First, his description of Austrianism is fair enough as far as it goes, but it obviously needs to include the credit market. Malinvestments aren't simply accidents, of course - they come from credit expansion (of course, with different explanation of what sort of credit expansions produce malinvestments). Second, the absence of real business cycle theories from the list is telling, and probably appropriate. Third, I find the "vulgar Keynesianism" definition a little odd. I guess I'd call that "very oversimplified Keynesianism", but there's nothing particularly vulgar about it. When people talk about "vulgar Keynesianism" I think of "if you increase G then Y has to increase". Fourth, with the exception of Minskyism this completely excludes anything that can be thought of as a "cycle" theory. So we can add in inventory cycles, accelerator-oscillator models, credit cycles, etc. - because all of these can contribute to depressions as well. I personally think all of these are pretty decent explanations of certain economic processes - some more relevant than others depending on the specific downturn that we're interested in. Obviously I think what DeLong calls "Hicksianism" (which I often pass off as Keynesianism) is the most significant in our current downturn.

Which brings me to DeLong's next post, in which he argues that Hicks isn't really explaining Keynes - he's channeling Kahn, Wicksell and Fisher. To a certain extent, he's probably right. Hicks was working on Value and Capital while Keynes was working on the General Theory, so you certainly can't argue that he got his economics from Keynes (and to be clear, no one does argue that). But Hicks himself suggested the IS-LM model was an attempt to use his (Hicks's) framework to elucidate Keynes. I had always taken him at his word on that. I first read the General Theory at a time when my recollection of IS-LM type analysis was very rusty, so while reading it I wasn't really thinking in terms of "does this really align with Hicks". Since then, Lawrence Klein has helped me understand how Keynes works together with IS-LM much better and he made a quite convincing case that Hicks (and Modigliani and Hansen) all really were formalizing Keynes. Anyway, DeLong argues a somewhat contrary position and now I feel like I have to revisit the General Theory in more detail and as a slightly older, slightly wiser reader.

Bill C, of Twenty Cent Paradigms, has a colorful anecdote from Keynes.

Finally, I was rereading Keynes's chapter titled Sundry Observations on the Nature of Capital, where he talks about the roundaboutness of production and the capital structure. He provides the standard Garrison-Hayek explanation that as the interest rate lowers, the capital structure becomes lengthened or more "roundabout". I noticed something interesting in Keynes's discussion, though - he not only refered to the structure of capital, but the structure of demand. For example, he wrote:

"Given the optimum amount of roundaboutness, we shall, of course, select the
most efficient roundabout process which we can find up to the required
aggregate. But the optimum amount itself should be such as to provide at
the appropriate dates for that part of consumers' demand which it is to be
desired."

Apparently, the time-structure of demand was an important part of Bohm-Bawerk's capital theory too. It seems to me that you don't see that as much in modern Austrianism. Is that true? It seems essential to me, because it's the time structure of demand that determines the return to capital.