Keynes as Public Works Skeptic — Part II

February 3, 2009

by Mario Rizzo 

My post below, “Keynes as Public Works Skeptic” elicited much comment. Some of these comments accused me of quoting Keynes out of context and of generally getting it all wrong. To set things straight requires much more than blog posting.  I expect to be publishing an article with the American Enterprise Institute (AEI) shortly. I shall link to it.

In the meantime, I’d like to recommend to interested readers a working paper by Esteban Perez Caldentey, “Chicago, Keynes and Fiscal Policy,” Part 4 and following. I link to the entire paper here. I also recommend the books by Bradley Bateman, Keynes’s Uncertain Revolution (Michigan, 1996), especially Chapter 6 and Allan H. Meltzer, Keynes’s Monetary Theory: A Different Interpretation (Cambridge, 1988), especially pp. 182- 192.

At the very least, fair-minded readers will agree, I think, that the Keynes of the late 1930s and 1940s is far from the the Keynes of the 1920s and early 1930s insofar as his views of discretionary, temporary countercyclical fiscal policy had changed — I would say “soured.”. For the mature Keynes, the issue was permanently stabilizing investment, regardless of the cycle, through public direction of investment. 

 

One Response to “Keynes as Public Works Skeptic — Part II”

  1. Andrew Says:

    “Some of these comments accused me of quoting Keynes out of context”

    … as for these people it was a quote from their hero they just didn’t want to hear, particularly since the post was also an excellent return of serve to Paul Krugman.

    Out of context? Which context is that? What they meant was – out of *their* context.

    I’ll grab the Meltzer book from the library and post a comment when i’ve read it – assuming that is, the right context.

    “For the mature Keynes, the issue was permanently stabilizing investment, regardless of the cycle, through public direction of investment.”

    This is fundamental to the stimulus debate. For six decades Keynesian macro theory has implied that we can get around the socialization of investment issue by simply running bond financed deficits. But what about the “fundamental psychological law” – the MPC, and the stability of consumption?

    I think Keynesians would like to believe that we can “fudge it” and just do deficits, but can we? I thought the consumption function was a central tenet of Keynesianism and one of Keynes’ great achievements?


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