Reading some W.E.B. DuBois this morning...

...this was good:

"Thus the shadow of hunger, in a world which never needs to be hungry, drives us to war and murder and hate. But why does hunger shadow so vast a mass of men? Manifestly because in the great organizing of men for work a few of the participants come out with more wealth than they can possibly use, while a vast number emerge with less than can decently support life. In earlier economic stages we defended this as the reward of Thrift and Sacrifice, and as the punishment of Ignorance and Crime. To this the answer is sharp: Sacrifice calls for no such reward and Ignorance deserves no such punishment. The chief meaning of our present thinking is that the disproportion between wealth and poverty today cannot be adequately accounted for by the thrift and ignorance of the rich and the poor."

From "Darkwater: Voices from Within the Veil" (1920). Earlier in the text he gives a very good account of the war-time inflation, its relationship to the increase in labor turmoil, and the relationship between the labor turmoil and worsening race relations.

This particular line seemed like it could have come right out of Keynes. It gets even more Keynesian further down in this selection. He talks about interest as the "price paid for waste" (that sounds like a liquidity preference theory of interest to me), and profit as the "price paid for chance".

Some Defunct Economist - 9/24/2010

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist" - JMK

- Matt Yglesias on Malthus's population theory and its use in literature.

- Richard Posner on Keynes and the paradox of thrift.

- Jonathan Catalan on Richard Cantillon and on Marx on Cantillon.

- ThinkMarkets has a good quiz up with a quote about the market process that the hosts ask you to attribute. The answer is given in the comment section so don't scroll down until you're ready!

- I just finished reading a great article by William Grampp called "The Liberal Elements in English Mercantilism", from the Quarterly Journal of Economics (1952). It's very good stuff - here's a piece from the introduction that gives you a sense of what angle he's coming from:

"By reasoning from the actual practices of mercantilist states, economists and historians usually have supposed that the doctrines of the period of mercantilism were a justification of its institutions. It is common in studies of mercantilism for the author to explain, say, the restriction of imports by referring both to the tariff duties of the age and to the concurrent doctrine of a favorable balance of trade, or for him to move freely among expressions of public officials, laws, economic tracts and discourses, and to suppose that because particular controls were exercised, like price fixing, they must have been justified in the economic writing of the time. No one, of course, would write of recent economic policy this way. It would be unthinkable to describe the New Deal by an indiscriminate reference to the works of Keynes and Hansen and to the public papers of Franklin D. Roosevelt and the private memoranda of Harry Hopkins and always to suppose that whatever the state did or wanted to do found its rationalization in economic doctrines. When studies of mercantilism use a method of this kind, they leave an impression with the reader that in many ways is distressingly wrong. He must be led to think that because the mercantilist states did not believe in the market as the mechanism for discharging the economic functions of society, the economists of the age held the same belief and were in favor of the intricate kind of regulation which was practiced."

Rudimentary, insular, in error, pseudo-scientific, overweening egotism, scornful, unbridled ego, felt born to be a ruling elite...

... hatred and contempt for conventional morality and the basic institutions of family life, revisionist, extraordinarily pernicious, malignant, power-driven statist Machiavelli, who embodied some of the most malevolent trends and institutions of the twentieth century. In short, human betterment, civilization’s advancement, and scientific truth and progress are significantly hindered as a result of his work... guess who!

Some Defunct Economist - Hayek and Veblen - 8/19/2010

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist" - JMK

This is more of post to share an acquisition and ask a question, rather than providing any insightful citation or reflection on these two.

- First, I'm continuing to explore this idea of how Hayek and Bastiat would have done econometrics if either ever had such an inclination, and I'm trying to make sure I'm addressing this right. I'm sure I there are volumes and volumes from Hayek on the "aggregation fallacy", but I want to keep this concise so I just want to speak to the representative high-points. I have Reflections on the Pure Theory of Money of Mr. J. M. Keynes (1931), which I take to be pretty important and an early engagement with Keynes, which is nice too. What else addresses the "aggregation fallacy", specifically, in a canonical way. I'm thinking of looking at three or four pieces. I suppose the same goes for Bastiat. I'm looking at "What is Seen and What is Not Seen" in Selected Essays on Political Economy, and "Post Hoc Ergo Propter Hoc" in Economic Sophisms. Is there anything else of his that might inform the question of what Bastiatian econometrics would look like? In other words, that would speak to "if we look at the world for evidence of economic processes, what is important to look at"? If you have any thoughts on either of them, I'd appreciate it!

- Second, we just finished a multi-million dollar proposal that has been consuming many of my mornings, nights, and weekends for the last two weeks, so I celebrated the conclusion of the proposal like any normal person would: with a trip to the used bookstore during my lunch hour to treat myself in celebration of a job well done! I snagged two really good ones - two volumes from the seven volume set of The Writings of Thorstein Veblen, from the Reprints of Economic Classics series. I picked up What Veblen Taught, which was edited by W.C. Mitchell, and Essays on Our Changing Order. Both are a collection of essays and chapters. In What Veblen Taught I'm especially excited to get to "The Cultural Incidence of the Machine Process" and "The Captains of Finance and the Engineers", and "The Savage State of the Industrial Arts". In Essays on Our Changing Order I'm looking forward to reading "The Overproduction Fallacy" and "The Beginnings of Ownership". Veblen is an interesting figure in general that I don't know much about, but would like to. More immediately speaking, I'm interested in him as a window on the economic thought of H.P. Lovecraft and the whole world of non-classical, non-neo-classical, institutionalist economic thought in the U.S. in the late 19th century and early 20th century. A lot of the issues that Lovecraft talks about - technological development, the consumption of the wealthy, overproduction, governance by engineers (i.e. - technocracy), etc. are taken up by Veblen (hopefully in a somewhat more sophisticated way!). These issues and explanations were put forward by a lot of people in pre-WWII America, but with the rise of the "American Keynesians" in the late thirties and forties a lot of this disappeared. Thorstein Veblen is also, as far as I can tell, the only economist that Lovecraft was actually familiar with and cited (he mentions Jevons in one of his stories but doesn't appear to be influenced by him at all). How much Veblen was actually read by Lovecraft is obviously dubious. But Veblen was in the air in the teens and twenties and Lovecraft certainly picked up on it.

The Journal of Economic Issues is a prominent institutional economics journal that often has material on Veblen.

Finally, a note on used bookstores for people interested in history of economic thought that should have been obvious to me: don't just look in the section that they've labeled "economics". I wandered over to their "politics" section today and I was amazed at how many classic economics texts they had there: Nassau Senior, Gottfried Haberler (I actually may go back tomorrow for him), and a couple others. Used bookstores do their best, but they can't be experts in everything - look beyond economics!

Some Defunct Economist - Friedman and Turgot - 8/14/2010

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist" - JMK

- I'm reading some of Friedman's "A Program for Monetary Stability" for the paper, and I thought this was a really fantastic conclusion:

"These [Friedman's economic policy recommendations] would be no mean accomplishments. But they would not provide a panacea for economic problems. Money is important, but only, in John Stuard Mill's words, "as a contrivance for sparing time and labour." There are other sources of uncertainty and instability. No doubt they will continue to produce recurrent fluctuations in economic activity and from time to time will give rise to more serious problems of economic adjustment. Monetary policy is but one segment of total governmental policy let alone of the far wider range of private and public economic arrangements that affect the course of events. And even if we could improve governmental policy in other areas as much as our limited knowledge and understanding would permit, some uncertainty and instability would remain. After all, uncertainty and instability are unavoidable concomitants of progress and change. They are on face of a coin of which the other is freedom."

- Jeff Tucker has a great quote from Turgot on writing (Is it just me or is Jeff Tucker pretty awesome? I've been linking him a lot lately! If only he weren't so damned dogmatic a libertarian! Nobody's perfect I suppose.):

"Genius, whose course is at first slow, unmarked, and buried in the general oblivion into which time precipitates human affairs, emerges from obscurity with them by means of the invention of writing. Priceless invention!—which seemed to give wings to those peoples who first possessed it, enabling them to outdistance other nations. Incomparable invention!—which rescues from the power of death the memory of great men and models of virtue, unites places and times, arrests fugitive thoughts and guarantees them a lasting existence, by means of which the creations, opinions, experiences, and discoveries of all ages are accumulated, to serve as a foundation and foothold for posterity in raising itself ever higher!"

If you ever have the chance to visit Monticello, look carefully at the busts in the front hall. Turgot was one of the political economists that Jefferson felt deserving of gracing his home with. Also, quickly scan the books in his library as you walk through it (I assume they don't change the order very often!) at about eye-level, right as you walk in, you'll see Jefferson's copy of Malthus.

The New School for Social Research's page on Turgot is here.

Some Defunct Economist - John Stuart Mill - 8/2/2010

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist" - JMK

- From Brad DeLong's recent article at Project Syndicate:

"In 1829, John Stuart Mill made the key intellectual leap in figuring out how to fight what he called “general gluts.” Mill saw that excess demand for some particular set of assets in financial markets was mirrored by excess supply of goods and services in product markets, which in turn generated excess supply of workers in labor markets.

The implication of this was clear. If you relieved the excess demand for financial assets, you also cured the excess supply of goods and services (the shortfall of aggregate demand) and the excess supply of labor (mass unemployment).

Now, there are many ways to relieve excess demand for financial assets. When the excess demand is for liquid assets used as means of payment – for “money” – the natural response is to have the central bank buy government bonds for cash, thus increasing the money stock and bringing supply back into balance with demand. We call this "monetary policy."

When the excess demand is for longer-term assets – bonds to serve as vehicles for savings that move purchasing power from the present into the future – the natural response is twofold: induce businesses to borrow more and build more capacity, and encourage the government to borrow and spend, thus bringing the supply of bonds back into balance with demand. We call the first of these “restoring confidence,” and the second “fiscal policy.”

When excess demand is for high-quality assets – places where you can park your wealth and be assured that it will still be there when you come back – the natural response is to have credit-worthy governments guarantee some private assets and buy up others, swapping them out for their own liabilities and thus diminishing the supply of risky assets and increasing the supply of safe assets. We call this “banking policy.”"

What's interesting is that he has an entirely money-demand-centric depiction of fiscal policy here. That's important, but I don't think it's really exhaustive of the case for fiscal policy. Putting it this way, though, makes it sound like a lot of the stuff the MMT school says.

- A couple months ago, Harper's Magazine had this post on John Stuart Mill and independent judgement. The first thing I thought of reading the passage was Emerson. The author of the article then of course went on to connect the sentiments with Emerson, as well as Shopenhauer. It's an interesting piece - it ties in some literary treatment of the sort of lack of judgement that Mill was concerned with, and then it questions the extent to which technological development has dulled our ability to make these essential judgements.

- This is the New School for Social Research's John Stuart Mill page.

- This is a post I wrote a little while back on Mill's "fourth principle" that "demand for commodities is not demand for labor". This point has actually come up in some research I've done recently on the interwar literature on technological unemployment, which I'm going to be incorporating into the Lovecraft piece and in an encyclopedia entry on technological unemployment that it looks likely that I'll get to write.

- Finally, Ayaan Hirsi Ali is quite smitten with John Stuart Mill (and John Locke, and Jon Stewart). She recently told Stephen Colbert that she prefers all three of them to Jesus Christ.

Some Defunct Economist - 7/26/2010

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist" - JMK

- Brad DeLong quotes extensively from David Pilling's article on Keynesianism in Asia, and the justified faith that people have in it there. The article also seems to make the cautionary point that effective stimulus was possible in Asia because of the large cash reserves. I would be careful about taking this too far. It's also plausible that growth and living standards were depressed precisely because of years of that public liquidity preference. Regardless of the wisdom of that hoarding policy, Asia is a good place to look to evaluate Keynesian performance now. Krugman also has comments on Pilling here.

- Crooked Timber has an interesting interpretation of a recent Martin Wolf article, suggesting that Keynesianism is an (inadequate) substitute for social democracy. He ties it into the recent Krugman-Cowen debate over Keynesianism and Germany.

- Firedoglake asks the question "why do conservatives hate Keynes". Part of the answer, the author argues, is that Keynes was not afraid to criticize people who hoard capital. I think this is largely on target. It's amazing how many critiques of Keynes simply revolve around things like the "euthanasia of the rentier" rather than actual analytical critiques. In a way that's unfortunate. But I also wouldn't do away with Keynes's "euthanasia of the rentier" or any of his other rhetorical flares. They keep the reader focused. Economic policy is about the public good, not the special interest, and we can't ever keep our eyes off of that. Fighting for some vague notion of the public good isn't an excuse for bad analysis, though - and Keynes is laudable not simply for his enthusiasm but also because analytically he got so much right. But I think that energy is essential.

I would caution Firedoglake against some of its language and approach here. First, they criticize those who "own and manage capital" - this isn't something that Keynes himself ever harped on. In fact, Keynes made it very clear that those who manage capital deserve substantial compensation for a very challenging job. His concern was the rentier, not the managers. The ones who earned without contributing anything to society. The critique was a social and political one as much as an economic one, but it was generally speaking not directed at managers of capital. I'd also echo Lee Kelly's comment from an earlier post that FDL and others in that crowd really need to clean up their language around savings and investment, and this post is no exception. The post makes the important point that not all savings ends up being invested. But then later in discussing sinking funds, the critique is that the money is "saved rather than spent". Well earlier they said that some but not all savings are invested, so is this sinking fund partially spent? "Savings" in the first instance seems to mean a stock of loanable funds, and in the second instance it seems to be a hoard of some sort. This is why we need to be very clear about the distinction between supplying savings to the loanable funds market and liquidity preference. Treating "savings" in one instance as the excess of income over consumption and in the next instance as a hoard, at the same time that many others talk about savings as supply in the loanable funds market is all very confusing. Better I think just to talk about liquidity preference explicitly the way Keynes did.

Some Defunct Economist - 7/18/2010

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist" - JMK

- In the comment section of this post on Edgar Allan Poe's insights into value theory, an anonymous commenter writes:

"Richard Whately (Anglican Archbishop of Dublin) had argued for marginalist
analysis in a book he published in 1831. Poe may have heard of his views because
Whately also published books on rhetoric and logic. It's from Whately we
get the term "Catallatics"[sic]. "

This is Whately's entry in the New School's history of economic thought website. And on their page on the marginal revolution, they identify Whately's predecessor, Nassau Senior, as another early critic of the Classical position, although his piece on the subject seems to have been published after Whately's. As the commenter says, Whately also argued that political economy should be called "catallactics" - the science of exchanges. This, of course, is something that Mises picked up later.

- In this post I suggested it was worth looking into what Keynes actually said about the relationsihp between output and employment, given the apparent breakdown of Okun's Law. I've had a chance to do something of a review of Chapter 20, on "The Employment Function". He doesn't mention corporate liquidity preference specifically (he does mention it in his chapter on liquidity preference), but he does mention employment as a function of output (and output is obviously going to be diminished by liquidity preference). I don't think this is quite adequate. Think of it this way - liquidity preference as treated by Hicks influences aggregate demand - it influences what people are demanding from firms, and an increase in liquidity preference is going to depress that demand. Insofar as we have a derived demand for labor, this is going to reduce employment. Keynes accounts for this. But part of that aggregate liquidity preference is corporate liquidity preference. But you can also think of businesses as having three factors of production: capital, labor, and liquidity. An increase in liquidity preference isn't just going to influence the demand for labor through it's effect on aggregate demand - it also comes in through the relative valuation of labor, capital, and liquidity by the firm itself. This, as far as I can tell (and I obviously haven't had time to review the whole book) doesn't seem to be accounted for by Keynes. By the way, pg. 286-289 would be an interesting read for anyone who thinks Keynes ignored the relationship between the capital structure and employment.

- Mark Thoma quotes from Michael Kalecki's 1943 piece on "The Political Aspects of Full Employment". That was neat to see - I had actually stumbled across this article myself a couple days ago when I was looking up an old article by Keynes that Garrison had cited.

- Mattheus von Guttenberg quotes George Selgin on "Praxeology and Equilibrium". I'm trying to use this "some defunct economist" page to go over more distant history of economic thought, but since Selgin is responding to guys like Hayek and Lachmann, who have passed, I'll make an exception in this case. This is the portion that Guttenberg quotes:

"To summarize, “general equilibrium” is a moving target. Its location is
determined, not by any objective conditions, but by the confines of people’s
imaginations. In order for the target to be reached, people either must become
perfectly dull or they must become perfectly content. In either case, it must be
true that they have exhausted their abilities to conceive of new means for the
elimination of uneasiness (the general end of all action). So long as people are
neither completely dull nor completely content, they must necessarily act. To
ask whether general equilibrium can ever be achieved is therefore to ponder the
exhaustibility of people’s imaginations. It is to wonder whether innovation and
unexpected change will disappear. This is an area of inquiry that concerns
philosophy of mind and not praxeology, which is concerned with action. All that
can be said with certainty is that people, in acting, employ imagined means to
their fullest extent (action is equilibrating) and that, if their actions are
successful, their imagination and understanding are not based upon illusion and
result in increased well-being (action is socially coordinating)."

Some Defunct Economist - 7/16/2010

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist" - JMK

- I've always been disappointed that there aren't a lot of videos or recordings of Keynes online. I had never come across one before, but recently I did here. It's very short. Keynes begins speaking at 00:31. The rest of the video is some nice music and pictures. I can't tell what it's from, but he's talking about Britain as the center of a new currency system, so I imagine it is early to mid-forties. Pretty neat. If anyone else knows of any videos or recordings of Keynes please let me know!

- And speaking of videos, SlowTV has four lectures on Keynes from 2009 from prominent Keynes scholars that aren't named "Skidelsky" or "Krugman", which is kind of nice. I've only listened to the first one so far by Don Markwell - it's very good. He starts by discussing how hard it is to pin down Keynes - the many variants of "Keynesianism" that there are out there. He relates a story of Keynes coming back from a conference in America and remarking "I was the only non-Keynesian there". This is reminiscent, of course, of Marx's declaration that he was not a Marxist. I think that kind of reaction is part wittiness and part frustration that theories tend to develop a life of their own that may be somewhat different than what you intended. Markwell goes on to talk about Keynes's views on international relations, which is also the subject of Markwell's book.

- Joan Bakewell has a very short paean to Keynes in The Guardian entitled simply "My Hero John Maynard Keynes". What I like about her piece is that she tries to round out what Murray Rothbard once described as "Keynes, The Man". She emphasizes his personality, his interest in the arts, etc., and concludes with Hayek's observation that Keynes was "the only really great man I ever knew".

- In the same vein of more rounded appreciations of "Keynes, The Man", the Austrian blog "Natural Order" favorably reviews two important Keynesian insights: "five minutes is a very long time", and "I wish I had drunk more champagne". It seems to me that anyone who, on his deathbed, can only complain that he did not drink enough champagne has lead quite a good life.

- Getting back to Don Markwell's interest in Keynes and international relations, Russ Roberts is put off by Keynes's essay "National Self-Sufficiency". I confess it's been about two years since I've read the essay, so my memory may be hazy - but I frame how I think it should be understood in the comment section here.

- Finally, two articles that don't exactly mention Keynes but are quite relevant to his project. First, the Washington Post reports that "Companies pile up cash but remain hesitant to add jobs". They might have well gone with the title "There's an awful lot of liquidity preference out there". And in The Nation, German philosopher Jürgen Habermas discusses Germany and the Euro-crisis, and grapples with the very Keynesian question of the inter-relationship of fiscal policy and exchange rates. Which raises an interesting question - what would Keynes have thought of the European monetary union? I honestly don't know. Krugman was skeptical of it, and feels vindicated by Greece, but that's not necessarily the end of the discussion. I honestly don't know enough about open economy macro and the international monetary system to say decisively either way.

Some Defunct Economist - 7/14/2010

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist" - JMK

I've been thinking of ways to force myself to limit my blogging activity without stopping blogging, and one of the things that has helped in the past is my link farm - my "assault of thoughts" posts. Given the amount of Keynes material I cycle through here, I thought a link farm dedicated to Keynes would mix it up and allow me to shorten my commentary on any given thing I see that interests me. So I was looking through primarily blog, but also news references to Keynes and realized that there are a lot of bloggers unsympathetic to Keynes out there (and a lot of libertarian blogs on the internet). Here's what I think is going on. Explaining the libertarians is easy - but I think Keynesians themselves (who aren't that uncommon, obviously), rarely advocate Keynes by name the way I often advocate and reference him. I'm not sure if that's due to my interest in intellectual history, history in general, the interwar period specifically, or what. Anyway - so there are big Keynesian bloggers that never talk about Keynes - it's just a system they adhere to (which is fine), and a lot of other liberal bloggers who could like Keynes but never spent much time thinking carefully about the economy. So, since a lot of these links may be critical (I'll try to search positive ones out to balance), I figured the title "some defunct economist" was eminently appropriate. The nice thing is I can also dedicate issues of "some defunct economist" to other economists, since it is sufficiently vague.

****

- Megan McArdle asks the question "is Keynes still right?" and considers the possibility that even if Keynes was right, he is simply not politically feasible right now in the way he was in 1932. I have a hard time comprehending where she's coming from. For all guys like Krugman (and me) bitch about the paucity of the fiscal stimulus, it's a hell of a lot better than what happened in the thirties. Monetary policy is also following Keynes closer than it was in the thirties. It doesn't seem to be enough, but I'd trade 2009 for 1932 any day (the verdict is still out on 2010... it's not looking good). Political feasibility is always an important thing to talk about, but (1.) it doesn't change the economic realities, and (2.) I'm not even sure I'd conclude the same thing that McArdle does about Keynes in this case.

.

- Robert Skidelsky, well known Keynes biographer who occasionally forgets the name of Keynes's magnum opus, outlines how Keynes would react to Britain's budget. Out of curiosity - have any readers ever read Skidelsky's biography? Recently I've toyed with the idea of reading it. It's very long, and would take a considerable investment of my time while teaching me very little additional economics - so if it's not that great anyway it would be nice to know before starting.

.

- Jerry O'Driscoll, in a rare internet appearance that doesn't make steam blow out of my ears, talks about an Amity Shlaes article on Keynes's views on market confidence and his critique of Roosevelt's attempt to take utilities companies out to the woodshed. This really shouldn't be surprising to people. The guy who put so much stock in animal spirits and liquidity fetishes is obviously going to put a lot of importance on investor confidence. I think we need to be careful, though - keeping investors confident is different from giving investors precisely what they want. I'd read O'Driscoll here more for the historical reference than necessarily for modern commentary on Geithner. That would require a little more exposition than he provides.

.

- Russ Roberts ponders Keynesian stimulus. What jumps off the page at you is that he's really not talking about Keynesian stimulus, strictly speaking, even though he thinks he is. The key quote from Roberts is: "If the government persists in printing money at a faster rate than people want to hold it, some businesses may expand and hire workers but eventually, the impact of higher rates of money creation is also neutral–you get inflation but no extra stuff." The analysis goes on from there, suggesting that you're going to get inflation without any impact on real output. It's not a very cutting critique of Keynesian stimulus since as far as I can tell Keynes agrees that this is what's going to happen. The whole point of fiscal and monetary stimulus is that you do it when there is excess demand for money (also known as a "general glut"). In other words, when Roberts starts off by assuming that more money is being printed than people want to hold he is assuming that we're in non-depressionary conditions where Keynes wouldn't advocate a lot of this sort of stuff. This is why I say over and over that liquidity preference is largely the key to getting what's different about Keynesianism. Roberts also raises the confidence question - I'll only add that he's simply asserting that large deficits in a recession hurt confidence. That assumes that investors and businessmen agree with Roberts that deficits are bad and not Keynes that deficits are good at this time. I'd assert that austerity is bad for confidence. Since we're both just making assertions at this point, it doesn't really get us that far.

.

- I'll also take this opportunity to link to my recent post on Keynes's preface to the German edition of The General Theory, which argues that it's not as salacious as you might have been told it is.