Friday, March 2, 2012

DeLong on Glasner

Brad has a good post up on an old (in blog-years) post by David Glasner on Hayek, Cassel/Hawtrey, and Keynes. If you recall, at the time I cheered on David's insistence that the Roberts/Papola effort was bringing down the quality of the discussion, but I also defended Keynes a little, which is something that Brad does in this new post. Allow me to jump in again on Keynes's side. Glasner previously wrote:

"Instead, it was Keynes who was credited with figuring out how to end the Great Depression, even though there was almost nothing in the General Theory about the gold standard and a 30% deflation as the cause of the Great Depression, despite his having vilified Churchill in 1925 for rejoining the gold standard at the prewar parity when that decision was expected to cause a mere 10% deflation."

I think that just as it's quite wrong to read the General Theory as a policy manual (it doesn't even get into policy in any detail until the conclusion, and even then it stays quite vague), it's also wrong to read it as an explanation of the cause of the depression. We need to read it as an economic treatise, meant to revise his earlier book on money, and we need to remember that that it was published half a decade after the world really started collapsing, but a decade after unemployment started being a real problem in the UK. It's not a policy analysis, and it's not a work of economic history. I think both of these things come out quite clearly when reading the General Theory, but since it's so closely associated with the depression, it's easy to forget sometimes.

The other thing I'd note is that it's simply not true that Keynes was ignoring what was going on at what Glasner calls the Insane Bank of France. Keynes wrote an open letter to the French Minister of Finance in January, 1926, stressing precisely the problem that Glasner highlights here. In 1928 he wrote another piece to Poincare, the French President, praising some progress. Both of these are published in Essays in Persuasion (1931). Of course, a lot of the insanity of the Insane Bank of France happened after 1928, and it would be nice to have correspondence from then. I'm just not sure if Keynes wrote anything else. But he was clearly aware of (and publicly calling attention to) this whole development in France well before the Depression.

Finally, in the widely read essay The Great Slump of 1930, Keynes explicitly points to both France and the United States as the two culprits (on page 144 of Essays in Persuasion) - exactly the conclusion that everyone forgot after Friedman and Schwartz, and the conclusion which Glasner and Doug Irwin and others are now bringing attention back to.

And what policy recommendation does The Great Slump of 1930 emphatically end with? Monetary expansion. You know - that thing that Scott Sumner, Lars Christenson, and others who for some reason want to be the sole claimants to this mantle claim Keynesians don't support.

My suggestion - read the General Theory as an innovative treatise on macroeconomics and output determination. Go elsewhere to read Keynes on what was going on in the economy at the time, and for policy prescriptions, and even for monetary economics.


  1. Daniel, You raise interesting issues. Perhaps I will get a chance to respond more fully on my blog. The gist of my response is that a) I was responding to a certain common perception of what Keynes was all about, not necessarily to what Keynes actually thought; b) even if the General Theory was not about the Great Depression, it was very much a product of that experience; c) Keynes himself emphasized the fundamental change in his thinking that occurred after he published the Treatise on Money in 1931 and led him to write the GT. Part of the change in his thinking was to attach less importance to monetary policy than he had previously.

  2. I await a post! I wasn't bashing your perspective - I liked that post a lot when it first went up. I just want to highlight that Keynes was very much at the heart of these discussions. It wasn't just Cassel and Hawtrey against the world. I don't know C&H very well myself, but I'd wager Keynes also had the ear of the Bank of France more than they did.

    The 1926 and 1928 letters are great reads. One of my favorite lines about politicians is in the beginning of the second one. Contra all the handwringing today over "waffling", Keynes says "one blames politicians not for inconsistency, but for obstinancy. They are the interpreters, not the masters, of our fate. It is their job, in short, to register the fait accompli".

    I had thoughts on why Keynes pushed fiscal policy while I was out on errands... I think I'm going to try to post on that too soon. I eagerly await any follow up on your part!

  3. While you correctly ground the General Theory as an evolution of thought from Keynes's earlier Treatise on Money, the argument has been made that the General Theory is also an immense contribution to decision theory because it derives contributions from his 1921 work, A Treatise on Probability. All one has to do is read Chapters 20 and 21 of the book for Keynes's technical analysis. He also refers to the Treatise on Probability in footnotes in Chapter 12 and I believe in Chapter 17. The second footnote that refers to the Treatise on Probability simply points to the first footnote in Chapter 12.

    See Dr. Michael Emmett Brady's doctoral dissertation, whenever he decides to publish it.

    Alternatively, go on the SSRN or Google Scholar and search "Michael Emmett Brady".

    One conclusion can be derived from Dr. Brady's articles - the insane Bank of France had undermined any weight of evidence supporting the gold standard.


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