Thursday, September 23, 2010

Sebastian on Garrison on Menger and Keynes

Sebastian shares this interview with Roger Garrison where he talks about the relationship between Menger and Keynes that I had discussed earleir. This is the important section:

"Streissler has suggested that Menger anticipated Keynes in emphasising the uniqueness of money among commodities. Would you agree? Would you also not agree that one can comprehend Chapter 17 of the General Theory more easily if one read, as a companion piece, Menger's classic 1892 Economic Journal paper on money?

Menger was concerned with the origins of money and with how money facilitates exchange. Forty-four years later, Keynes was concerned with the perversities of money and with how hoarding money can frustrate exchange. The "story of money" had a happy ending for one and a tragic ending for the other. It is true that both believed money to be unique and that Menger's saleability and Keynes's liquidity can be thought of as synonymous. I think that reading the two stories as companion pieces helps identify just where and how the Keynesian plot turns sour. For Keynes, the alternative to holding money is holding bonds—a view reflecting his belief that the decision about how much to save and the decision about what form the saving will take are made seriatim. The speculative demand for money, then, hinged specifically on speculation about movements in the interest rate. And the interest rate, according to Keynes, is not well anchored in economic reality. This construction led Keynes to psychological explanations of liquidity preference. For Menger, the alternative to holding money is any commodity for which money can be exchanged. Speculative demand—Menger didn't use the term—would have to reflect speculation on the part of the money holder that opportunities for making exchanges might present themselves. Menger, never mentioning the rate of interest even once in the entire article, had no reason to resort to psychological arguments and certainly never suggested anything in the way of a saleability fetish."

I've mentioned before how Garrison mangles Keynes, but not because he misunderstands him - it's pretty clear he does - but because he tries to twist him in the oddest, worst possible light. The initial bolded sentences, for example, are patently absurd (well, the ones about Keynes are). Keynes's whole point was that money facilitated exchange, just like Menger. Keynes didn't think money was perverse as Garrison says - it was precisely because of its facilitation of exchange that liquidity preference or "hoarding" were so problematic! The demand for money increases with economic activity. Keynes's whole concern was that unproductive demands for money (liquidity preference), especially shocks of unproductive demands for money (some liquidity is important, after all) would hamper exchange for precisely this reason.

As I've said before, Garrison is wonderful but don't read Garrison to understand Keynes unless you've already read Keynes. This is a very unfortunate reading of Keynes and the only justification I can think of for it is partisan. I'm not, and I don't think anyone is, saying that Menger is some sort of proto-Keynesian. But he acknowledged a piece of Keynes that had been underemphasized for many decades, and its worth noting. There's no reason to smear anyone over it. I thank Sebastian for the link, but Garrison here strikes me as being as wrong as Sebastian was initially.


  1. I wasn't really making a point with this, it was mainly because I thought you might find it interesting since it formed the basis of an earlier post. My problem was more to do with the idea that Menger was some sort of Keynesian because he raised issues with "effective demand", something that was not invented by, or unique to, Keynes. To me, it would be like titling a blog post "Rothbard: Keynesian?" because he believes in the non-neutrality of money.

    The problem with Garrison, at least in "Time and Money", is that he seems to humour the Keynesian view by trying to take seriously one of the classic Keynesian "get out of jail free cards", the liquidity preference of the interest rate - which is why this part of the text is very unconvincing. Any self-respecting Austrian economist would reject this theory outright.

  2. Ya - just meant to share an interesting link, not necessarily attribute anything.

    I hoped I was pretty clear it's not exactly right to call him a Keynesian - and hence the question mark as well. "Malthusian?" could have worked equally well, but since Menger is so closely associated with the Austrians I thought "Keynesian?" made the most sense as a thought provoker.

    How is that a "get out of a jail free card"? That's the point, Sebastian. That's like saying "oh the capital structure is just a get out of jail free card".

    Garrison's problem isn't that he takes Keynes at his word. It's that he selectively departs from Keynes and then blames Keynes for the consequences! I talk about my concerns with Garrison in more detail in an older post... you should be able to just search for "Garrison" in my past posts and find it.


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