Thursday, May 17, 2012

Catalan on Pigou on Keynes on Hayek on Keynes


I must confess, I've never quite understood why Keynes bringing Prices and Production into his reply to Hayek was a dirty tactic. Atypical, sure. But what is wrong with it exactly? I have no idea.

Hayek said he wasn't quite sure what to make of certain parts of the Treatise on Money. Keynes pointed out he couldn't make heads or tails of the Treatise because Hayek was making assumptions about the interest rate specifically in his review that he had used in Prices in Production. Keynes detailed what he thought was wrong with these assumptions (and what was different from his own assumptions), which of course was tantamount to describing what he thought was wrong with Prices and Production. He could have danced around the issue, but that was the clearest way of differentiating how Hayek was trying to read the Treatise from how Keynes was trying to write the Treatise.

So someone tell me - what's wrong with that? Clearly the editors didn't see a problem with it. And this wasn't published in Keynes's journal, after all - it was published in an LSE journal.


  1. Um no, that's not everything Keynes did. Keynes did not just say what you say he said. He shifted the argument to Hayek's book, calling it a muddle and, essentially, completely wrong. Even their contemporaries saw this as an unfair tactic to undermine Hayek's authority; it was basically tantamount to saying, "You can't comment, because your own book is worthless." It had nothing to do with Keynes' own book or Hayek's review.

    1. re: "It had nothing to do with Keynes' own book or Hayek's review."

      This is wrong. Mentioning it had everything to do with Keynes's own book and Hayek's reivew.

      Yes, his contemporaries saw it how you did too. Again, I've never quite understood the reaction. Perhaps just because it was an unusual move.

  2. I can't comment on Keynes' reply, since I haven't read it in a while (if ever?), but I don't understand why Jonathan calls Sraffa's tactics "dirty." Hayek said the central bank has to set the money rate of interest equal to the natural rate, and Sraffa pointed out that there is no such thing. I think Jonathan agrees there is no such thing, but then acts like it's no big deal. I find this troubling. In any event, Sraffa can be forgiven for thinking a thing should exist, in order for Hayek's strategy to make sense.

    1. I can somewhat sympathize with the "no big deal" point in that I think there is any easy answer (unfortunately its not an answer Hayek likes). So there are lots of natural rates - then to the extent that the money rate of interest deviates from any given natural rate, there's going to be an adjustment (a cynic might say a "distortion") in the production of that particular good.

      But if that's what this reduces to, then why even call those different rates "rates of interest". They're not "interest" at all really. Call them marginal efficiencies of different types of capital which are compared to the money rate of interest and be done with it.

      Then all that's left to argue about is whether the money rate of interest is a function of time preference or liquidity preference. The winner there is liquidity preference IMO (although I'm pretty open to talking about both). Time preference can tell me how much people want to save but it can't really tell me how much people want to lend. Given what people want to save, it's liquidity preference that tells me what they want to part with and for how long.


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