On Jacob Marschak’s 1936 Erroneous Understanding of Keynes’s General Theory Comments on Mathematical Economics

Abstract

Jacob Marschak badly misinterpreted Keynes’s critique of the Marshallian partial equilibrium approach to mathematical economics, as exemplified by A C Pigou, in the General Theory in 1936 when he helped set up the September, 1936 Econometrica seminar dealing with the General Theory, where Meade, Hicks, and Harrod presented their papers on the meaning of the General Theory. Harrod’s and Hick’s papers were later published in the first two issues of Econometrica in 1937 in volume 5. Marschak interpreted Keynes’s criticisms of Pigou’s Marshallian approach as a direct, general attack on all mathematical economics, instead of it being a specific attack on a particular type of mathematical economics that attempted to apply the ceteris paribus qualification, sound when made at the microeconomic level, at the macroeconomic level. Keynes wrote the General Theory to show that the Marshallian approach could not take into account the complications, feedback effects, and interdependencies at the macro level. What was required was a general, multiple equilibrium approach using sets of simultaneous, mathematical equations that incorporated uncertain expectations. The mathematical system had to be similar to the type of systems of simultaneous equations Keynes had worked with in the A Treatise on Probability to define upper and lower probabilities. Keynes provided a set of three simultaneous equations that he brought together in chapter 21 in section IV of the General Theory on pp. 298-299 that, when combined with his D-Z model of expected aggregate demand-expected aggregate supply, goes a long way toward allowing an economist to deal with the turbulence, intricacies and interdependences at the macroeconomic level. Marschak grasped none of Keynes’s system of mathematical equations.