Two Keynesian fault lines

The Morality of Capitalism event at AU yesterday was excellent. I'll start with the second panel I went to first. It featured Richard Boyd talking about Smith, Brad Bateman talking about Keynes, and Peter Boettke talking about Hayek. All were excellent. It was especially nice to hear Bateman talk, because he sees Keynes very similarly to the way I do (relatively independently, I should add - I had a lot of my thoughts formulated about Keynes before coming across Bateman a couple years ago). He also said flat out that Buchanan and Wagner were wrong on Keynes. It's something I've always thought seemed very obvious, so it was nice to see him say it so adamantly.

A lot came up, but I'd characterize one of the issues that came up as a discussion of the fault lines that Keynes falls on. There are at least two: the economic and the philosophical.

Philosophically the point of contention is whether he was a liberal in the classical sense. Many of course say "no" but the thesis that Bateman presented yesterday was that he was and that people mistake the objections that he had to capitalism for an opposition to it or for some kind of illiberalism, when actually he was a staunch proponent of capitalism that was sophisticated enough to recognize that not all was well or pleasant with it. Bateman decried this modern tendency to either think of capitalism as all things to all people or as the scourge of civilization. It's really neither. Boettke made a statement at some point about Keynes being a "sort of liberal", if I recall, but he was obviously more skeptical of the claim (although I don't think he ever actually called him illiberal - though obviously some people do).

The other fault line where Bateman and Boettke agreed was that there is a big difference between the economics of Keynes and Keynesian economics - the old Leijonhufvud dichotomy. On a very superficial level I think this is true, but this is where I part company and think the point is overstated. Is the architecture of Keynes's theory different from neoclassical synthesis Keynesianism or New Keynesianism? Well of course it is. If that's all the claim is then that's fine. But usually there's a deeper claim of incompatibility, and this - I think - is overwrought. It's like comparing Newton and Einstein. Of course there is a degree of incommensurability between them. You can't even find a hint of Einstein in Newton just like in a lot of ways you can't even find a hint of New Keynesianism in Keynes. But it seems odd to talk about Einstein as being opposed to Newton. Sometimes paradigm shifts in science actually do overthrow older ideas, but in the case of Newton and Einstein you have superficially an entirely different science but Newton is still well preserved as a special case in this new way of talking about physics. Of course it's interesting to talk about the difference between the way that Newton talked about his ideas and the way Einstein talked about those same ideas, but to me that is just antiquarianism. Fundamentally, those ideas are still there in the new paradigm. As I said, this doesn't always happen in the case of shifts in science, but I do think that is the case with Keynes and modern Keynesians. The Keynes antecedents in Keynesian economics are clear.

But among history of thought types, this is a lonely quadrant. You can think about it this way:

Another way I like to think about it is to ask what Keynes would think if he were alive today. Going back to Newton, if Newton were alive today do you think he would have any qualms about embracing relativity or quantum mechanics? I doubt it. Would Darwin object vigorously to Neo-Darwinism? No. And even more importantly - would they think "Gee I was so wrong back then!" No - none of them would say that. All of them would say "Wow - you guys have learned a lot since I died! Get me up to speed!". Some - Ptolemy for example - would say "Oh well, I guess I've got to start over", but I don't personally think that's the case with Keynes. Another way to put this is that a lot of the advances have been modeling advances (and  yes, they are advances - and we are continuing to make progress) rather than theoretical advances.

I think too often people mistake the model for the theory (this is relevant, for example, to Boettke's point about "institutionally anti-septic" economics - those are institutionally anti-septic models. I would contend that most economists theory isn't institutionally anti-septic at all [and of course many models aren't institutionally anti-septic]).

There's not much Keynes left in our models. There's quite a bit of Keynes left in our theory.