Sunday, September 4, 2011

Why didn't the Keynesian revolution happen earlier?

We don't have the economic thought class Monday, but there's a lot of reading so I'm getting started - moving into the mercantilists and other pre-Smithians - and it's amazing how much they knew at that time.

Quesnay has the multiplier. Malthus has effective demand. The mercantilists knew the importance of scarce money (the American mercantilist Benjamin Franklin even explicitly connected that to the interest rate). Cantillon knew about investment under uncertainty.

All the pieces were there to have a Keynesian revolution in the late 18th and early 19th century, but we didn't. Why?

Of course these questions are always tough to answer. Serendipity and fate is as good an explanation as any for these sort of events. Why did Newton come along when he did? There's no real answer other than "just because".

The short intellectual history answer might be "David Ricardo".

The longer historical answer might be "because the 19th century was a period of high marginal efficiency of capital" (in other words, the interest rate didn't need to be all that low to justify investments given extraordinary technical advances).

Keynes himself offers both of these answers.

It's a futile thing to muse on in a lot of ways, but still good to think about.


  1. Don't know if it's worth the bother.

    Malthus is not pre-Smithian.

    I assume you read Franklin on paper money. That pamphlet is basically a paraphrase of the pro-paper arguments put forth in Massachusetts in the 1720s. Go to the sources, it's an interesting debate.

    Josiah Child had a theory of interest based on forbearance. Unfortunately, Child took us a step back on theories of value by championing the LTV.

    If your interested in a sophisticated theory of interest read Charles Davenant.

    Rice Vaughn (why is he never taught?) had a theory of the origin of money from distrust. HE originally wrote in the 1630s, but was published posthumously during the recoinage debates. Virtually all of the recoinage debates are worth reading.

    So, have you discovered a definition for "mercantilism"? I don't mean Keynes' or Heckscher's lumping. Since my field uses the term in scare quotes as we continue to complicate the period and its thought, I wonder if we've yet to reach a broader academic audience.

    When one is lumping Mun, Misselden, Petty, Child, Davenant, North, Locke, et al. into a single category, it would seem to lose all cohesion.

    As to interest rates, I'm curious if you're familiar with the historic rates of interest. I don't think Keynes was. What do you think was the rate on secured loans in the seventeenth, eighteenth, and nineteenth centuries?

  2. Ugh, apologies, the coffee was slow in kicking in or something.

    Sir William Petty wrote about forbearance and interest, not Child. Child tied interest rates to the output of land. For a seventeenth-century version of Franklin's argument see the anonymous response to Child entitled "Interest of Money Mistaken" (1668).

  3. The only one I've read for class so far is Mun and a little Cantillon. He just got me thinking of all the other pieces of the puzzle that are strewn about the 18th century.

  4. No more blog posts about Aristotle?

    Anyway, tell us when you get to the "Price Revolution" debate.

  5. Also, are you guys going to talk about things like the debasement of the currency during the 3rd century crisis or Diocletian's "reforms?"

  6. No we're past Aristotle. I have some remaining thoughts on his discussion of proper and improper market activity and the way he related it to the interest rate - but I'm still thinking that through.

  7. Actually Daniel, the Newton and the apple hitting him on the head story is nothing more than a good myth. Newton merely observed the apple tree from the distance, and Voltaire just popularised it in part to put down Leibniz's work.


  8. I knew the apple on the head was a myth - I did not know that Voltaire had a hand in spreading it! Interesting!

  9. 'The short intellectual history answer might be "David Ricardo".'

    Weren't Say, Jevons, Walras, and the Austrians equally guilty?

    Where does Quesnay outline the multiplier? Does his argument implicitly carry over into Smith's writings anywhere?


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