But this really ought to be a reflection on Friedman, not Keynes, so you don't need to worry about the details on those right now anyway. Here's Brad DeLong:
"Friedman Completed Keynes
The most famous and influential American economist of the past century died in November. Milton Friedman was not the most famous and influential economist in the world -- that honor belongs to John Maynard Keynes. But Milton Friedman ran a close second.
From one perspective, Milton Friedman was the star pupil of, successor to, and completer of Keynes’s work. Keynes, in his General Theory of Employment, Interest and Money ,
set out the framework that nearly all macroeconomists use today. That
framework is based on spending and demand, the determinants of the
components of spending, the liquidity-preference theory of short-run
interest rates, and the requirement that government make strategic but
powerful interventions in the economy to keep it on an even keel and
avoid extremes of depression and manic excess. As Friedman said, “We are
all Keynesians now.”
But
Keynes’s theory was incomplete: his was a theory of employment,
interest, and money. It was not a theory of prices. To Keynes’s
framework, Friedman added a theory of prices and inflation, based on the
idea of the natural rate of unemployment and the limits of government
policy in stabilizing the economy around its long-run growth trend –
limits beyond which intervention would trigger uncontrollable and
destructive inflation.
Moreover,
Friedman corrected Keynes’s framework in one very important respect.
The experience of the Great Depression led Keynes and his more orthodox
successors to greatly underestimate the role and influence of monetary
policy. Friedman, in a 30-year campaign starting with his and Anna J.
Schwartz’s A Monetary History of the United States , restored the balance. As Friedman also said, “and none of us are Keynesian.”
From
another perspective, Friedman was the arch-opponent and enemy of Keynes
and his successors. Friedman and Keynes both agreed that successful
macroeconomic management was necessary - that the private economy on its
own might well be subject to unbearable instability and that
strategic, powerful, but limited economic intervention by the government
was necessary to maintain stability. But, while for Keynes, the key was
to keep the sum of government spending and private investment stable,
for Friedman the key was to keep the money supply -- the amount of
purchasing power in readily spendable form in the hands of businesses
and households-- stable.
A
relatively minor, technical difference in means, you might say. A
difference of opinion that rested on different judgments about how the
world works, which could (and ultimately was) resolved by empirical
research, you might say. And you would be half right. For this
difference in means, tactics, and empirical judgments rested on top of
deep gulf in Keynes’s and Friedman’s moral philosophy.
Keynes
saw himself as the enemy of laissez-faire and an advocate of public
management. Clever government officials of goodwill, he thought, could
design economic institutions that would be superior to the market -- or
could at least tweak the market with taxes, subsidies, and regulations
to produce superior outcomes. It was simply not the case, Keynes argued,
that the private incentives of those active in the marketplace were
aligned with the public good. Technocracy was Keynes’s faith: skilled
experts designing and fine-tuning institutions out of the goodness of
their hearts to make possible general prosperity -- as Keynes, indeed,
did at Bretton Woods where the World Bank and IMF were created.
Friedman
disagreed vociferously. In his view, it usually was the case that
private market interests were aligned with the public good: episodes of
important and significant market failure were the exception, rather than
the rule, and laissez-faire was a good first approximation. Moreover,
Friedman believed that even when private interests were not aligned with public interests, that government could not be relied on to fix the problem.
Government
failures, Friedman argued, were greater and more terrible than market
failures. Governments were corrupt. Governments were inept. The kinds of
people who staffed governments were the kinds of people who liked
ordering others around.
At
the same time, Friedman believed that even when the market equilibrium
was not the utilitarian social-welfare optimum, and even when government
could be used to improve matters from a utilitarian point of view,
there was still an additional value in letting human freedom have the
widest berth possible. There was, Friedman believed, something
intrinsically bad about government commanding and ordering people about
-- even if the government did know what it was doing.
I
do not know whether Keynes or Friedman was more right in their deep
orientation. But I do think that the tension between their two views has
been a very valuable driving force for human progress over the past
hundred years."
Regarding Keynes and technocracy...I think you might want to go to Volume XXVII of the CWJMK, which Dr. Michael Emmett Brady cites as support for the notion that J.M. Keynes rejected Neo-Keynesian-style demand management.
ReplyDeleteAlso, on another note folks, here's an article by Sylvie Rivot in Italy's History of Economic Ideas: "Where to draw the line between laissez-faire and planning? Keynes and Friedman on public and semi-public institutions".
Deletehttp://www.libraweb.net/articoli.php?chiave=201106102&rivista=61
Why don't you explain the details of the paper you have yet to write here? Then you will have written it!
ReplyDelete:)
DeleteOn a second reading, it's not quite as disagreeable as I had taken it to be. I think there's a very real extent to which Keynes doubted what clever policymakers could do, and he made many references to the fact that goodwill and cleverness would not do - that implementing macro policy would very much be a matter of trial and error and would likely vary considerably between societies. While I can see the appeal of "technocracy", I don't think he was that optimistic.
A lot of institutions he had a hand in, like Bretton Woods, were institutional or constitutional orders specifically designed to contain the the failures of clever policymakers with goodwill.
He also discusses at length in The End of Laissez Faire exactly what he has in mind when he speaks of the socialization of investment. A lot of what he talks about is a natural socialization in large joint-stock companies. Like Berle and Means, Keynes put great stock in these developments - there are a lot of ties between the separation of ownership and control and the euthanasia of the rentier. Keynes pointed out (I believe here, or perhaps it was somewhere else) that the locus of control over the economy should be somewhere between the individual and the State.
Like I said - I like the paragraph better on a second reading. But I do think, if I were to sketch out Keynes's political economy, it would emphasize some different themes.