Recently, Don Boudreaux put forward this idea that Keynes was a utopian (this was somewhat before he put forth the idea that he was a dystopian... confusing, I know - but try to keep up). I noted the source of his confusion on this matter - his understanding of the marginal efficiency of capital, which he seems to think is just the cost of capital (if MEC goes to zero and MEC is the cost of capital then we do have post-scarcity on our hands... the problem is, MEC isn't the cost of capital). I responded to Don in this post.
That's all been on F&OST before. What I wanted to bring your attention to was a post by Robert Thorpe on the Cobden Centre blog on the whole exchange. I have not gotten the chance to read it yet - I am guessing Keynes (and I) don't come out well, but the author was perfectly polite when he shared the link, so I hope I'm passing on something enriching.
This issue also came up again with George Selgin on Cafe Hayek in the comment section. The whole exchange starts here with my response to Don, and Selgin jumps in quickly. Selgin is frustrating. He's a smart guy and definitely worth interacting with in the blogosphere. But he's very dismissive and when he slips into his dismissive mood I lose the ability to make heads or tails of his argument. When he's done making the argument, he's done making the argument and you won't get much more out of him. Everything I've said in this series of exchanges is trying to impress upon Don and trying to get Don and Selgin to tell me why they think Keynes is saying capital would be "free". Selgin writes, for example "But he is saying in effect that capital will become a free good, like air or water." Does he say this, George? Where? Later on he talks about an excess supply of capital (and other goods) and an excess demand for liquidity. Sure, George. We all know this. Excess supply doesn't give you free capital, though. That's hardly an answer. So where are you getting that capital is free? I'm still not sure.
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OK - I should have been writing this morning, but now that I've fulfilled my stereotype three times over I suppose I can be more productive for the rest of the day staying home to work on the chapter.
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Wow. I love the part where DG L----- calls Selgin a Keynesian, successfully derailing the entire discussion.
ReplyDeleteLove him or hate him DG is one of the greatest Trolls of all time.
I wrote the article over on the Cobden Centre.
ReplyDeleteI should mention further thing.... It isn't inconsistent to associate Keynes with "utopians" on the one hand and "stagnationists" on the other.
In IS/LM Keynesianism each Y point is an equilibrium. That means the economy may be stuck at a very unfavourable equilibrium which corresponds to relative stagnation. However, if deficit spending occurs (or control of investment spending) then IS/LM Keynesianism predicts no end to the GDP that can be achieved. This was George Selgin's point over at Cafe Hayek.
It can be argued that Keynes never meant to suggest that any real GDP can be achieved, and he never meant to suggest that any level of stagnation may occur. I'm sure Daniel will argue that. But, I think it's unclear exactly how far apart the "no stimulus minimum growth" scenario is from the "optimium stimulus maximum growth" scenario. I can see why commentators think they are as far apart as "stagnation" on the one hand and "nirvana" on the other.
If "stagnationist" just means he thinks the economy can stagnate at times, then of course he's a stagnationist. Who isn't? But let's remember the context in which this arose. Don defined a stagnationist as: "Someone who believes that economic development has gone as far as it can possibly go – that economic growth won’t continue because human wants have largely been satisfied; there’s nothing more to invent, produce, improve, demand. So the economy settles into a ‘steady state’ in which it continues producing as best as possible the full, if limited, array of goods and services that people want."
ReplyDeleteThis is clearly not what Keynes was - with the exception, as I have said, of what he's written in Economic Possibilities for our Grandchildren speculating on demand satiation. But you certainly won't get it in the General Theory.
re: "However, if deficit spending occurs (or control of investment spending) then IS/LM Keynesianism predicts no end to the GDP that can be achieved. "
This is news to me. You mean no end to nominal GDP? Perhaps, but I would imagine the Austrians would agree on that one. There is certainly an end to the real GDP that can be achieved.
"This is clearly not what Keynes was - with the exception, as I have said, of what he's written in Economic Possibilities for our Grandchildren speculating on demand satiation. But you certainly won't get it in the General Theory."
ReplyDeleteWho cares if you don't find it in the latter, but do find it the former? Keynes clearly made a bunch of rather odd predictions about the future of humanity that didn't really pan out.
Gary -
ReplyDeleteThe only one that didn't pan out really was this idea that leisure would be of the low-consumption variety. I'm not sure how "odd" that is even if it did end up being wrong. Compared to most others at the time - who were expecting stagnation or serfdom - I think it's a pretty good read. Compare what Keynes expects to what Schumpeter expects in Capitalism, Socialism, and Democracy. Keynes's predictions aren't perfect but they aren't that bad at all.
Keynes argued that in what, two generations (perhaps it was one), everyone would get out of the money grubbing business and into the sort of things that he apparently liked.
ReplyDeleteSchumpeter's main predictions were that capitalism would give way to corporatism and that a class of intellectuals would arise that was very hostile to capitalism. His prediction has been borne out rather well as the bailouts of the past few years illustrate. Schumpeter was in some ways only observing a trend of his own time; when innovation and entrepreneurship were attacked as socially destructive forces (indeed, the theme of "over-competition" is something that goes back at least to the Gilded Age).
He said within two generations we could drive the MEC down to zero (which would imply no rentier function and purely an entrepreneurial function). I have no idea whether he expected this to happen - he doesn't say. But he said it could happen if we reframed policy toward that goal.
ReplyDeleteSchumpeter expected capitalism to give way to socialism. He didn't like the idea - he made that clear - but he expected it. That absolutely hasn't happened.
The idea that you're going to get rid of the rentier via policy seems silly on its face.
ReplyDeleteSchumpeter argued that you'd see more industrial policy, etc. What he failed at was his predictions regarding unionization - that hasn't happened (then again, much of why he thought it would occur has happened via other means - licensing laws, etc.).
"If 'stagnationist' just means he thinks the economy can stagnate at times, then of course he's a stagnationist. Who isn't?"
ReplyDeleteWe all agree that there can be recessions. I don't agree though that there can be permanent stagnation unless the government provides fiscal stimulus. That is, I think Say's law is correct in the long run.
"Someone who believes that economic development has gone as far as it can possibly go – that economic growth won't continue because human wants have largely been satisfied; there’s nothing more to invent, produce, improve, demand. So the economy settles into a 'steady state' in which it continues producing as best as possible the full, if limited, array of goods and services that people want."
You're right that Don means something different to what I described. I think what Don is describing here is a situation that's both utopian and stagnant at the same time. It's utopian because all resources that can be brought into the production process have been, and it's stagnant because there are no opportunities for change in the future.
"But you certainly won't get it in the General Theory."
What about the passage about the MEC we are discussing? Have you read my article on it?
Suppose I'm an entrepreneur and I have a new plan for arranging capital that I believe will yield more than the interest rate. In that case the MEC for my assets would be none zero, and since the overall MEC is the largest MEC in the economy then how could the overall MEC be zero? Even the difference between the MEC and interest rate can't be zero.
"You mean no end to nominal GDP? Perhaps, but I would imagine the Austrians would agree on that one. There is certainly an end to the real GDP that can be achieved."
I'm glad we agree on that. We could argue about if Keynes or the early Keynesians meant that, but I think that's a subject for another day.
You get a good thrashing in the comments. That's very interesting as you are one of the most polite comments I have ever run across. I don't see how you keep your cool with Libertarians. I guess it's because you do see eye-to-eye with them on the overall effectiveness of the market and deregulation, but even your minor disputes with them seem to get them pretty riled up.
ReplyDeleteOne thing I don't like about Libertarianism is that you have to tow the Libertarian line on pretty much everything. Even when I had more extreme left beliefs I didn't think all my enemies were basically the same.
--successfulbuild