November 21, 2016

Keynes’s message for contemporaries

Comment on Asad Zaman on ‘Reading Keynes’

Blog-Reference

You say: “I am planning a sequence of posts on re-reading Keynes, where I will try to go through the General Theory. ... Secondarily, i hope to be able to summarize Keynes’ insights to make them relevant and useful to a contemporary audience. Thirdly, there are many experts, especially Paul Davidson, on this blog, who will be able to prevent me from making serious mistakes in interpretation.”

Interpretation of Keynes cannot be the goal because we had already a grand debate about ‘what Keynes really meant’ some time ago. The result was inconclusive to say the least. There are two reasons for this:
(i) “But Keynes, too, sometimes gave the impression of not having fully grasped the logic of his own system.” (Laidler, 1999, p. 281)
(ii) “For Keynes as for Post Keynesians the guiding motto is ‘it is better to be roughly right than precisely wrong!’” (Davidson, 1984, p. 574)

Because roughly right is equivalent to roughly wrong, everybody can interpret into Keynes what he likes. And this is what actually happened. The simple fact of the matter is that Keynes and the Post Keynesians got macro wrong.#1 Keynesianism is a halfway house. And from this follows that the only worthwhile goal is to finalize the Keynesian Revolution.#2

The one message of Keynes that is still valid is this: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (1973, p. 16)

Keynes pointed the way but did not follow it himself. No re-interpretation can alter the fact that Keynes's macrofoundations are provable false.#3

Egmont Kakarot-Handtke


References
Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. London, Basingstoke: Macmillan.
Laidler, D. (1999). Fabricating the Keynesian Revolution. Cambridge: Cambridge University Press.

#1 See ‘How Keynes got macro wrong and Allais got it right’ and ‘Post Keynesianism, science, and universal idiocy’ and ‘Why Post Keynesianism Is Not Yet a Science
#2 See ‘Finalizing the Keynesian Revolution
#3 See ‘From false micro to true macro: the new economic paradigm