From Austrian theory of capital to dissent: Nicholas Kaldor, Friedrich A. Hayek and the way to disequilibrium

We study about the intellectual heirs of Sugimoto and Tsuru, Yoshikazu Miyazaki and Mitsuharu Itoh, and their studied of Keynes’ The General Theory of Employment, Interest and Money and contemporary capitalism—such as Miyazaki and Itoh, Commentary: Keynes, The General Theory (Nihon Hyōronsha, 1964), Itoh, Keynes: The Birth of New Economics (Iwanami-shoten, 1962), and Miyazaki, The Historical Development of Modern Economics (Yuhikaku, 1967a). Miyazaki and Itoh developed their original understanding of J. M. Keynes, focusing on the three-class theory and the stock-flow analysis. They also examined the founders of post-Keynesian economics such as Michał Kalecki, Joan Robinson, and Nicolas Kaldor as well as modern institutional economists such as John Kenneth Galbraith and Gunnar Myrdal. Furthermore, we investigate their analysis of postwar capitalism from the viewpoint of theoretical analysis and economic thought; their policy ideas also emphasize the role of big corporations, civil society, the welfare state, and multinational corporations (Miyazaki, Contemporary Capitalism, Iwanami-shoten, 1967b; Itoh, Considering the Contemporary Economy, Iwanami-shoten, 1973). These Japanese institutionalist post-Keynesian economists developed their theoretical and empirical research based on the institutional analysis of postwar capitalism and the Japanese economy, and proposed economics policies based on civil society.

This paper puts John Maynard Keynes’ The General Theory of Employment, Interest and Money into its historical context, both in terms of economic history and in terms of the history of economics. It discusses the post-World War I period as background to the General Theory, looks at the influence of other economists of the period on the evolution of Keynes’ thought and considers the parallels between the post-World War period and the post-Napoleonic War period, when Ricardo and Malthus were debating issues very similar to the ones with which Keynes was wrestling.

On animal spirits and economic decisions: Value-at-Risk and Value-within-Reach as measures of risk and return

The business cycle theory of Hayek and the macroeconomic models of John Maynard Keynes were the two major rivals in the 1930s. From the 1940s to the late 1970s, however, the framework developed by Keynes in The General Theory of Employment, Interest, and Money dominated economic policy and pedagogy, despite logical and theoretical problems with the model. Much of the success of the Keynesian approach within the profession was due to the follow-up developments by Sir John Hicks (1967b) and Paul Samuelson (1948). These economists developed simple graphical presentations (the IS-LM model and the Keynesian Cross) that made it easy for economists to grasp the implications of the theory, to extend and develop the theory, and to use the theory for historical analysis and policy applications. Most important, the simplifications provided a pedagogy for teaching the Keynesian model to new students of economics. Hayek’s business cycle model—which was partially responsible for his winning the Nobel Prize in economics in 1974—was temporarily abandoned, not because it was wrong, but partly because, as Hicks (1967c, p. 204) has argued, while the writings of Hayek and Mises on business cycle theory were in English, they were not English economics, and partly because the model was too complex. The current neglect or downplaying of Austrian insights by mainstream economists can be attributed to similar factors, most recently expressed by Yeager (1997) and Wagner (1999). The inability to effectively communicate Austrian insights is compounded by the fact that publication of papers with Austrian or capital-based macroeconomic themes have, in general,

Donald Edward Moggridge (1943–2021)

As mentioned in Chapter I, Kalecki set up for the first time the essential of his formulation of the principle of effective demand already in 1933 in his booklet Essay on the Business Cycle Theory, which was followed by several other publications, where he further developed his theory. The first objective of this chapter is to present the main steps in the development of Kalecki’s theory of profits, output and employment; whose final version we presented in the previous chapter. The second objective will be to show the originality of Kalecki’s formulation of the principle of effective demand. In this context we will discuss whether or not he anticipated some of the main ideas that Keynes put forward in The General Theory of Employment, Interest and Money, as well as some differences between the two authors. Our last objective will be to contrast Kalecki’s theory with the neoclassical synthesis into which J.R. Hicks embedded Keynes’s theory shortly after the publication of The General Theory.

In an important recent article,' Modigliani has renewed his analysis of the relationship between the real and monetary parts of the Keynesian system. One of Modigliani's major points in his latest article is that his famous 1944 model 2 embodied an error, for, in his opinion, it incorrectly specified the forms of the real aggregate consumption and investment demand functions.3 While we find much to agree with in this new model, we do not agree with him as to the fundamental source of error in the 1944 model. Consequently, we are in disagreement with some important aspects of the latest formulation and, as a result, with some of his more important conclusions. basic flaw in Modigliani's 1944 model is not the fact that the aggregate real spending functions were not homogeneous of degree zero with respect to prices.4 A quite different source of error was involved, and this error has been partly perpetuated in the 1963 model. While Modigliani's 1944 system contains a direct relationship between the price level and the money-wage rate,5 this relationship is omitted entirely from the monetary subset of equations. It is this relationship, however, which provides an essential link between the monetary and real sectors. In 1944, Modigliani claimed that the four equations which defined . . the system of monetary equilibrium were completely independent of the other equations in the system and formed a determinate subset.6 Consequently, Modigliani concluded that Since the money income is determined exclusively by the monetary part of the system, the price level depends only on the amount of and therefore a change in the money-wage rate could affect the price level only if it resulted in a change in the level of output.7 This surprising result is not only in conflict with Keynes' analysis of the effects of money wage changes,8 but it is also incompatible with Modigliani's own conclusion in a later section of that same 1944 paper. Towards the end of his 1944 article, Modigliani argued that a reduction in the moneywage rate will . . depress the interest rate, the money income, and money wages without affecting the real variables of the system, employment, output, real wage rate. 9 But how then can a change in the money-wage rate affect the rate of interest? If the money-wage rate change does not affect real output, then, by Modigliani's earlier assertion, it cannot affect the price level. If both the price level and the level of real output are unaffected, there should be no change in the transactions demand for cash balances and consequently no change in the rate of interest! Of course, a change in the moneywage rate does affect prices and output and, therefore, the rate of interest. Accordingly, Modigliani's belief that the monetary subset is independent of the money-wage rate must be in error. In his latest formulation, Modigliani explicitly introduces the price level variable into his demand for money equation in order to demonstrate that, given nominal money balances, changes in the money-wage rate will shift the entire money market function relating the rate of interest and the level of output.10 This implies that contrary to the 1944 model, at any given level of output, a decrease in the money-wage rate involves a reduction in prices and money incomes and therefore a decrease in the demand for transactions balances. Modigliani can now demonstrate that the moneywage rate has an impact on the demand for money equation, but, in his system, a change in the money* authors are associate professor of economics at the University of Pennsylvania and Lilly Faculty Fellow, University of Chicago, respectively. 'F. Modigliani, The Monetary Mechanism and Its Interaction With Real Phenomena, Review of Economics and Statistics, xxxxv (Feb., 1963), 79-101. 2 F. Modigliani, Liquidity Preference and the Theory of Interest and Econometrica, xiI (Jan., 1944), 4588; reprinted in Readings in Monetary Theory (New York: Blakiston, 1951), 186-239. All references are to the Readings in Monetary Theory reprint. 'F. Modigliani, The Monetary Mechanism and Its Interaction With Real Phenomena, 82. 'In fact, we shall argue that the real aggregate consumption function is incorrectly specified in the 1963 model. 'F. Modigliani, Liquidity Preference and the Theory of Interest and 188, equation 7. Ibid., 190. 7Ibid., 210. 'J. M. Keynes, General Theory of Employment, Interest, and Money, (New York: Harcourt Brace, 1936), Chap. 19. 'F. Modigliani, Liquidity Preference and the Theory of Interest and 220. 0F. Modigliani, The Monetary Mechanism and Its Interaction with Real Phenomena, 89-90.

Currently, most scientists note that the problems of economic development of Ukraine should be solved after the end of the war, which is the main reason for the lack of a legislatively approved strategy for the economic development of Ukraine. Most economists suggest that the directions of development of the state's economy should be built, usually on the basis of classical economic science, without taking into account the historical experience of other states that have gone from a deep crisis to economic recovery according to the provisions of the theory of J. Keynes. One of the reasons for this attitude towards Keynesianism is the difficulty of perceiving J. Keynes's main book, «The General Theory of Employment, Interest and Money». The article, using two chapters of this book as an example, examines the main features of the author's presentation that hinder the comprehension of the ideas of the outstanding economist. The article sets two goals: the first is to study the correctness of some of J. Keynes's conclusions from the standpoint of modern economic science, and the second is to demonstrate the features of Keynes' presentation of his scientific thought. The first goal is relevant, since it is necessary to find reliable sources of financing for the recovery and development of the economy. The second goal is relevant too, since the work of J. Keynes is written in a complex way and requires explanation. Scientists interested in delving into the content of this book should take into account that the work on the book took place over a long period of time and reflected not only the evolution of world economic relations, but also the author's own views on them. In the process of studying the provisions of the book, one has to recognize mutually exclusive statements about the equality and inequality of investments and savings. Despite the existing shortcomings in the presentation of the content of the book «The General Theory of Employment, Interest and Money», it has enormous scientific significance for creating a comprehensive strategy for the economic development of Ukraine. Disclosure of these features of the book will facilitate its perception, which should attract economists, scientists and politicians who are interested in and working on creating a comprehensive strategy for the economic development of Ukraine to study and use it in practice.

The culmination of John Maynard Keynes's thought and lifework was The General Theory of Employment, Interest and Money. Here, placing it in the context of his era, David Felix examines the evolution of Keynes's theorizing. He boldly claims that The General Theory lacks logical and factual support as pure theory, but is an achievement of great statesmanship in political economy. Felix argues that Keynes's ideas have misled successive generations of students and practitioners. He suggests that a more discriminating view of his thought can reconcile Keynesian views with neoclassical theory and replace the false synthesis that dominates contemporary text-books with a truer one. Biography of an Idea devotes four chapters to an analysis of The General Theory and an examination of the economic logic of Keynes. The author disentangles the work's fundamentally simple theses from its difficult technical pre-sentation. He shows how Keynes shaped his economic model as he did as an effort to win public support for sensible policies that clashed with generally accepted beliefs of the time. Biography of an Idea is bound to be controversial due to the many cohorts of economists who have been trained in macroeconomics according to Keynes. It will be of interest and ac-cessible to intellectually curious laymen and students, and important to economists, historians, and political scientists.

In the wake of the financial crisis of 2007-8 academic as well as non-academic interest in the economic thought of John Maynard Keynes was revived. The notion of a 'liquidity trap', interpreted as a zero bound of the (short-term) nominal rate of interest, is seen as one of Keynes's important and lasting contributions to economic theory and to the understanding of the potential problems of monetary policy.2 This view of the alleged connection between Keynes, the 'liquidity trap' and the zero bound of the rate of interest is especially prominent in the macroeconomic textbook of Olivier J. Blanchard (2009).3 Unfortunately, the account given there of a supposed connection between Keynes's analysis in his General Theory of Employment, Interest and Money and the zero bound of the rate of interest proves to be unsustainable. In what follows, it will be shown that Keynes did not invent the term 'liquidity trap', that he discussed an effective floor to the (long-term) rate of interest at a positive level and that the zero bound of the (short-term) rate of interest was well known to British economists before the publication of Keynes's General Theory of Employment, Interest and Money.

John Maynard Keynes is the foremost economist of the twentieth century, and his General Theory of Employment, Interest, and Money is unquestionably the century's most important economics book. Keynes's work has undergone significant reevaluation in recent years, and Keynesian views which have been so widely defended for so long are now perceived as at odds with Keynes's own thinking. Recent scholarship and research has demonstrated considerable rivalry and controversy concerning the proper interpretation of Keynes's works, such that recourse to the original text is all the more important. In this book, Fred R. Glahe brings to this pivotal work the techniques of textual criticism developed in disciplines such as literature and theology. This concordance will provide an invaluable reference tool for scholars in search of Keynes, aiding them to recover his key terms in their original context. It will list alphabetically all of the key words used in The General Theory, the number of times each appears, and the page and paragraph number of each citation.

A sage once said that the definition of a “classic” is a book that everyone cites but no one reads. Since it was published in 1936, John Maynard Keynes’s book The General Theory of Employment, Interest and Money is a classic in the sense that economics professors at some of the most prestigious universities, particularly in the United States, have not read Keynes’s book. In fact, ever since World War II, in highly regarded universities’ economics departments, students are told that The General Theory of Employment, Interest and Money is so obscure and confusing that they need not (and should not) read it. For example, a founder of the so-called New Keynesian theory, Harvard Professor N. Greg Mankiw (1992, p. 561) has written that The General Theory is an obscure book … [it] is an outdated book. … We are in a much better position than Keynes was to figure out how the economy works. … Few macro economists take such a dim view of classical economics [as Keynes did] … Classical economics is right in the long run. Moreover, economists today are more interested in the long-run equilibrium. … [There is] widespread acceptance of classical economics.

Michal Kalecki came to Cambridge as Keynes was completing his General Theory of Employment, Interest and Money. Joan Robinson noted that “without any contact either way, Michal Kalecki had found the same solution. … The interesting thing is that two thinkers, from completely different political and intellectual starting points, should come to the same conclusion” (Turner, 1989, p. 63). The question I would like to explore in this chapter is whether these two geniuses, Kalecki and Keynes, not only independently discovered the principle of effective demand but also came to the identical explanation of why there was no automatic market mechanism to assure full employment whenever a decline in investment spending occurred in an entrepreneurial economy. This is not merely an exercise in the history of economic thought. I believe that understanding the differences in Kalecki’s and Keynes’s underlying analysis of the principle of effective demand is essential to comprehending how recent events, such as the East Asian currency crisis and the Russian debt default, affect unemployment in the global economy. In the final pages of this chapter, I shall suggest how Keynes’s analysis points to a solution for today’s recurrent currency crises and high global unemployment rates.

In The General Theory of Employment, Interest and Money and in his 1937 Quarterly Journal of Economics article ‘The general theory of employment’, Keynes provides an alternative analysis of the links between past, present and future in investment decision-making to the complicated mathematical analyses of orthodox investment theory.1 The essential difference between Keynes’ analysis of investment and orthodox investment models lies not so much in the factors which are claimed as determinants of investment decisions but in different understandings of the nature of rational investor behaviour. The importance of a different understanding of rationality emerges because of the crucial role played by expectations in determining investment decisions: expectational assumptions are inevitably dependent upon an underlying conception of what rationality entails.

How the macroeconomic theories of Keynes influenced the development of Government Economic Policy after the Great Depression of the 1930’s: Using Australia as the example. Keynes’ economic work, The General Theory of Employment, Interest and Money, was first published in 1936. The General Theory was written as a response to the human tragedy caused by Great Depression. Keynes’ General Theory was written with a view to challenging the economic orthodoxy of the times and not written with a view to practical application. The prevailing economic orthodoxy was the classical theory of economics in the Ricardian tradition. Keynes’ theory became, for a time, the new orthodoxy and profoundly affected economic policy especially in the post-World War 2 period, in the Western World. Keynes prescribed a number of measures that governments should undertake to provide economic stability that could not be left to the unfettered operation of the market. For example, he explicitly proposed that taxes could be used to redistribute wealth and thus increase the propensity to consume and that taxes could be used as a form of forced corporate savings, to reduce national debt, and so, reduce the propensity to consume. In other words, taxation policy, in a package of policy measures, could be used to stimulate or slow down an economy as required. Prior to Keynes, taxation policy was more about raising funds for essential government expenditures. Keynes also propounded that interest rates in an economy be kept low so that investment in productive assets, as opposed to non-productive investment, be encouraged. This paper starts by examining Keynes’ General Theory of Employment and will then illustrate how Keynesian economic theory influenced Australian government economic policy development from 1930, the pre-Keynesian era, to 1949 the height of the Keynesian era.