Tuesday, February 12, 2013

Here's a head-scratcher from Sumner on Keynes

He writes:
"You don’t need to be an economic historian. Wicksell, Marshall, Pigou, Cassel, Hawtrey, Fisher, etc, all had business cycle explanations that involved what we would call “demand shocks,” even if they didn’t all use that term. Fisher invented the Phillips Curve in 1923. Keynes was inaccurately describing the standard business cycle model of the 1920s, and it’s hard to see how it wasn’t intentional, at least at some level. He personally knew some of these people. Maybe that’s why he didn’t quote them directly."
That's odd. I seem to recall Keynes citing Wicksell, Marshall, Pigou, Cassel, Hawtrey, and Fisher - the exact crew that Sumner picks out here - quite favorably as antecedents to his ideas. Pigou comes in for criticism in the beginning too, of course - we all know that.

To take Sumner's phrase, "it's hard to see how it wasn't intentional, at least at some level". How can you cite the people that Keynes explicitly related to his own ideas and then accuse him of exactly the opposite?


  1. Clearly, you do need to be an economic historian.

  2. Can you cite these favorable references ?

    One certainly gets the impression from reading TGT that everyone before him (apart from Malthus and a few minor figures) accepted Say's law and what was new about his (Keynes) theory was that he saw that changes in levels or investment (or savings) could lead to low-employment equilibriums.

    1. I don't have the book on me. Marshall is cited all over the place. He called Hawtrey his "grandfather in errancy" - not sure if that was in the book or not. Fisher's ideas are noted in the discussion of MEC. Just grab the book and look in the index.

      The sweeping discussion of "Classical Economics" framed what he had to say. His take on specific prior economists is deeper in the text than that.

  3. I'm teaching The General Theory this semester. Quite frankly, there basically no mention of anyone's business cycle work. The GT is very focused on interest rates and employment and Keynes spends a lot of time criticizing those author's specific claims about specific things to do with interest rates, capital employment and labor employment in the course of building his own business cycle theory.

    So perhaps his error is an error of omission, but to the extent Keynes is "misrepresenting" previous business cycle research it is through misrepresenting particular specific components but not the classical business cycle in general.

    1. This is a good point, if we are specifically limiting discussion to their business cycle theories.

      I have always had a problem thinking about Keynes as working on a business cycle theory, though - and this might be why he doesn't get into that literature (which was very robust at the time, of course). He thought he was providing a theory of the level of output and employment. He just wasn't looking for forces driving fluctuations.

      So that is a good point.

      But did he ignore these guys? Of course not. They come up all over the book.

      As with Adam Smith, I sometimes think people read the first two or three chapters and then form their views of the author because they don't want to work through the rest (I haven't read all of Smith myself - but I've worked my way through major pieces well past the pin factory, which I think is where many people put it down).

  4. I also think its important to point out what a throwaway comment that is by Sumner. Exactly what was the "classical business cycle theory" or the business cycle theory of the 1920s? The only concrete example given is Fisher prediscovery of the Philips curve, but what exactly does the Philips curve have to do with business cycle theory?

    Anyway, yeah, having to read The GT closely enough to teach it has made me acutely aware of how few people who talk about it actually seem to have read it in any depth.

    1. I ought to go back and reread. I pick it up all the time, but pushing from cover to cover gives you a better sense of the whole. Too much else to do, though. I feel like I'd have to have a project requiring it to justify that.

    2. I'm not sure its worth the effort. Like, I'm glad I have a project requiring me to do it, but I don't see much value it enduring it more than once. It is a pretty unpleasant book to read and its not clear how much it illuminates. Though, I'm really into his definition of involuntary employment.

  5. Offtopic: I have a question for you gentlemen. Is 'Treatise on Money' good for understanding Keynes? I am a bit curious to its contents (read he developed a theory of saving/investment disequilibrium in it, but later moved on with his theory), but it is almost impossible to get a hold on in Russia and it was never scanned, apparently...

  6. Argh. Sorry to be pedantic folks, but the correct term is "historian of economics", *NOT* "economic historian". I have made this mistake myself before, but the history of economics deals with the historical background of economic theory and practice, whilst economic history deals with historical instances of economic phenomena and episodes from the past.

    That stated, I have to say this...

    First off, Daniel Kuehn is correct - in The General Theory of Employment, Interest and Money, J.M. Keynes *does* cite Gustav Cassel, Irving Fisher, Ralph Hawtrey, Alfred Marshall, and Arthur Cecil Pigou.

    Second off, Scott Sumner isn't quite correct on Irving Fisher's article. If my memory serves me correctly, A.W.H. Phillips's own formulation and Irving Fisher's formulation isn't quite the same, and I believe both Fisher and Phillips had different aims in mind. (I may need to recheck my facts here though, but I do remember reading somewhere that Fisher's formulation and intended purpose was different from A.W.H. Phillips's.)

    Third off...I would disagree with Andrew Bossie's assessment. While I can see where Andrew Bossie is coming from, he is neglecting one important thing: Arthur Cecil Pigou's 1933 book, The Theory of Unemployment. Keynes chose to confront Pigou on Pigou's terms and won - just see Book V of Keynes's magnum opus, particularly Chapter 19 and the appendix to Chapter 19. Keynes *does* deal with the issue of the business cycle through mathematical formulations in his magnum opus. In fact, Keynes deliberately picked Pigou's 1933 book *BECAUSE* it was the most detailed and potent formulation of the classical theory of employment - Keynes essentially says this in a footnote on Page 7 of The General Theory, which then points to the Appendix to Chapter 19. For comparison and contrast, acquire a copy of Pigou's 1933 work. Then I believe you need to read Chapters 8 to 10 of The Theory of Unemployment. If you have a solid grasp of Calculus I and Calculus II, you should be able to see why Pigou's theory is a special case of Keynes's general theory.


    Finally, Roman P., as for the Treatise on Money...yes, reading the TM would help you get a better understanding of the evolution of the economics of Keynes. It's also an underrated work, IMO. Nevertheless, I'd advise you not only to get a copy of the TM, but a copy of Pigou's 1933 book to understand the GT properly.



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