Archive for the 'Keynes' Category

Hayek and Keynes Debating in Wonderland

December 11, 2010

by Thomas McQuade

Here’s what Alice might have recited to the Caterpillar, had Charles Dodgson been a 20th century economist of sorts:

You are old, Maynard Keynes, and your theory’s askew,
It’s easy for one to see through it –
Yet everyone thinks that you’ve said something new.
Just how did you manage to do it?

In my youth, said the sage, I dabbled in stock,
For serious profits contesting,
And it wasn’t too long but I saw what a crock
Was the classical take on investing. Read the rest of this entry »

Brad DeLong Should Read More

October 10, 2010

by Mario Rizzo  

In March of this year Brad DeLong wrote a post called “More from the History of Economic Thought: John Stuart Mill Contra Say’s Law, 1844”  

It contained a long quotation from John Stuart Mill from his essay “Of the Influence of Consumption on Production,” in Some Unsettled Questions of Political Economy (1844, but written in 1829/30). The quotation purports to show that even John Stuart Mill did not believe “Say’s Law.” However, DeLong leaves out the three final paragraphs of the article. (I append them at the conclusion of this post. The italics are mine.)  

These paragraphs make clear that to say “there cannot be excessive production of commodities in general” is not to say that depressions are impossible. Mill makes clear that this is a wrong interpretation of Say’s Law: “[I]t in no way contradicts those obvious facts.” Furthermore, Mill says that the deniers of general overproduction have never claimed otherwise.  

The only meaning of a general “excess” of commodities that makes sense is a fall of their value relative to money.  In other words, people might want to hold more money as a proportion of their income. Say’s Law does not exclude this.  

What is does exclude is the possibility that production of wealth might not create the potential to demand it. In other words, we need not worry about deficient demand when commodities are produced in the proportions desired by consumers.   Read the rest of this entry »

The Second Austrian Moment

September 18, 2010

by Mario Rizzo  

This is an important time for Austrians. During the Great Depression and for many years thereafter, J.M. Keynes and his followers dominated macroeconomic theory (some say they created it) as well as the conventional wisdom about the historical lessons of the Depression and the New Deal.  

We are now witnessing many important developments that will affect economics and public perceptions for a long time to come. Read the rest of this entry »

Keynes on Confidence

July 13, 2010

by Jerry O’Driscoll  

Amity Shlaes has written an enlightening op ed on “FDR, Obama and ‘Confidence’” in today’s Wall Street Journal. She details how FDR destroyed investor confidence in the 1930s by his incessant attacks on business and businessmen, and by his policy inconsistency.

Treasury Secretary Morgenthau at first served as FDRs “yes” man and cheerleader.  But he came to realize how destabilizing FDRs actions were. The Treasury Secretary began resisting his boss’s policies.  She writes that Morgenthau “found an unlikely supporter” in John Maynard Keynes. Keynes wrote a critical letter to FDR about his persecution of utilities. “What’s the object of chasing them around the lot every other week?”

Market confidence returned when FDR concluded he needed to make allies of business once he decided he needed to plan for war. She concludes: “Perhaps Mr. Geithner might like to read up on Morgenthau’s progress.  Treasury secretaries who forget the past condemn us all to repeat it.”

Still Hearing Defunct Economists in the Air: Krugman’s Misplaced Attack on Hayek

July 10, 2010
by Richard Ebeling* 

On July 9th, Nobel economist and New York Times columnist, Paul Krugman, gave his read on the recently unearthed letters between J. M. Keynes and F. A. Hayek in the London Times in October 1932, which have been posted and discussed on ThinkMarkets. (and in the Wall Street Journal).

Krugman insists that Hayek is worse than he thought and that Keynes was better than he imagined. He attacks Hayek for insisting that the best cure for recovering from the Great Depression would be to free up markets both domestically and internationally, and to rein in government spending. This, Hayek said, would create the political and fiscal environment that would foster a positive private sector return to a job generating rebalancing of supply and demand, and a sustainable investment climate.

Not surprisingly, Krugman instead, hails Keynes as the advocate of fiscal stimulus that would “prime the pump” through deficit spending and government sponsored job creation.

He thinks it is all a great tragedy that the same battle has to be fought all over again for sound Keynesian policies, nearly eighty years after the exchange of these letters. But what, instead, is Krugman missing? Read the rest of this entry »

F.A. Hayek and Tyler Cowen

July 8, 2010

Do we have more evidence of the continuing great debate between Hayek and Keynes?

In the now “famous” 1932 letter to The Times of London signed by F.A. Hayek, Lionel Robbins, T. E. Gregory and Arnold Plant, we read: 

The signatories of the letter referred to [by Keynes, Pigou et al.], however, appear to deprecate the purchase of existing securities on the ground that there is no guarantee that the money will find its way into real investment.  We cannot endorse this view.  Under modern conditions the security markets are an indispensable part of the mechanism of investment.  A rise in the value of old securities is an indispensable preliminary to the flotation of new issues.  The existence of a lag between the revival in old securities and revival elsewhere is not questioned.  But we should regard it as little short of a disaster if the public should infer from what has been said that the purchase of existing securities and the placing of deposits in building societies, etc., were at the present time contrary to public interest or that the sale of securities or the withdrawal of such deposits would assist the coming recovery.  It is perilous in the extreme to say anything which may still further weaken the habit of private saving.

And now we read Tyler Cowen at Marginal Revolution who is discussing the alleged problem of too much corporate saving:  Read the rest of this entry »

Hayek versus Keynes in the Wall Street Journal

July 7, 2010

by Mario Rizzo

The discussion of the Hayek-Keynes letters of 1932 in The Times of London continues in 2010 in the Wall Street Journal in today’s issue. The opinion piece is by Jerry O’Driscoll, a frequent blogger at ThinkMarkets.

My previous TM discussion is here.

Update: For the ungated version of the WSJ article, place the title of the article in quotes in Google. The title is: “Keynes vs. Hayek: The Great Debate Continues.”

Keynes versus Hayek: Past is Prologue

June 30, 2010

KEYNES HAYEK 1932 Cambridge vs.LSE

by Mario Rizzo  

My friend economist Richard Ebeling has discovered two extremely important letters. (Click the link above.)

In 1932 before John Maynard Keynes’s General Theory was written, these letters appeared in The Times of London regarding the appropriate economic policies for Britain to follow during the slump.  

There are a number of things that catch the eye. Read the rest of this entry »

“In the Long Run We Are All Dead” What Does It Mean?

June 28, 2010

by Mario Rizzo 

Paul Krugman continues to invoke Keynes’s famous statement. I wish Krugman and others would give some serious thought about what it is supposed to mean and the errors it involves.   

In the first place, Keynes was complaining about the “classical” economics, that is, the ideas of the economists before him who believed that the market, if unhampered after a recession, could reduce or eliminate the unemployment associated with the business cycle.  

Of course, this puts many economists – with different ideas – in the same category and treats the issue of cyclical unemployment in a grossly simplified way. But this, in general, is how Keynes treated those who disagreed with him. Keynes, the polemicist, was without inhibition. 

Some basic methodology is in order. When economists talk about “the long run” they do not mean calendar time. Yes, that’s right. Read the rest of this entry »

The Fed’s Coming Indiscretion?

March 16, 2010

by Mario Rizzo  

There seems to be broad agreement among economists that the current recovery from the recession will be characterized by a slowly falling unemployment rate. This makes a good deal of sense since the problem that created the recession was a misdirection of resources into a number of sectors including housing construction and the financial industry.  

Reallocation of resources takes time. The government is not helping matters in trying to prevent adjustments by various (but not very successful) efforts to slow or reverse the rate of fall in housing prices. It is also difficult for market participants to determine the effect of possible new policies like Obamacare or any further jobs-stimulus legislation.   Read the rest of this entry »


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