Jonathan shares this quote:
"Let us not forget that The General Theory runs in
broad, aggregative terms and is therefore precluded from dealing, and is
not designed to deal, with sectional unemployment, which is the result
of faulty allocation of resources or of shifts in demand. It is meant to
deal only with general, mass unemployment resulting from a deficiency
in aggregate effective demand (deflation). Its author clearly assumed
that the smaller problems would take care of themselves, if only
aggregate effective demand was kept on an even keel or raised when
necessary, for example when the wage and price level is pushed up."
I think this is the sense in which one can talk about Keynes dealing with aggregates and not disaggregated issues. Not the sort of stuff that Boudreaux has been posting lately or that he has been citing from Horwitz and White. The market process generally balances competing uses of resources well. Keynes was explicit on this point. The market process does not always guarantee a full employment of all resources.
We can of course talk about interesting specific cases, but this is generally my view of things too.
This is more or less what I was trying to imply when I decided to quote Harberler this weekend. The only thing I would add is that everyone seems to be arguing past each other, and this goes both ways. Wrt to Keynes and modern Keynesians (of whatever particular strand) I would say that the Austrian argument is not against effective demand, but it's about the idea that there is a specific pattern to higher effective demand that is sustainable. I'm not saying they're (we're) right; I'm just saying that our story can be construed as an effective demand one, as well (even though, unfortunately, too many Austrians are insubstantially opposed to using "Keynesian" terminology, as if every single detail of another school's body of theory is wrong).
ReplyDeleteEconomists like Krugman simply don't engage it, even if they would still disagree with it.
1. I'm sorry, but the quote sounds like a pinky's up version of my narrative: The purpose of Keynesianism is simply to trick average people into accepting lower real wages and prices without them understanding what hit them. And that the "problem", such as it is, only arises as the result of prior Keynesian-style or fractional reserve banking policies.
ReplyDelete2. My problem with the terms "aggregate demand" and "effective demand" is that they are presumptuous. They baselessly imply that the "economy" is mechanical and that "demand" is a thing (and a unitary thing at that) which can be properly pumped up with wise government action. People who are steeped in Keynesian jargon then cannot begin to comprehend what has really happened: An entire society has been misled and duped into thinking that they were all more wealthy (due to money dilution) than reality ultimately demonstrates that they actually were. The terminology is designed to make incomprehensible to the Keynesian the explanation that reality-based pricing is the solution to the problem .