‘The Provocative Joan Robinson’ Was Completely Ignorant of Keynes ’S Chapter 21 Is-Lm Model on Pp. 298–299 of the General Theory Even Though She Supposedly Read the Final 1935 Draft of the General Theory: The Exchanges of September to November, 1936 Between Keynes and Robinson Show Her Complete Ignorance

Abstract

On pages 214-220 of their 2009 book, “The Provocative Joan Robinson: The Making of a Cambridge Economist”, Nahid Aslanbeigui and Guy Oakes, in a section titled”, Promoting The General Theory: Essays in the Theory of Employment”, attempt to cover up the nature of the exchanges between Keynes and Joan Robinson over Keynes’s Liquidity Preference Theory of the rate of interest in the time period between September and November,1936. Keynes had demonstrated to Harrod on pp. 526-564 of Volume 14 of the Collected Writings of John Maynard Keynes, in the July – September ,1935 time period, that his liquidity preference theory of the rate of interest had to be analyzed in (Y,r) space using his IS equation and his LM equation on page 199 of chapter 15 of the General Theory.Harrod completely capitulated on this crucial point in his letter of August 30th,1935, admitting that Keynes has succeeded in making a radical reconstruction” of the classical and neoclassical theories of the rate of interest. In his letter of September 13th, 1935, Keynes told Harrod that he had finally come to understand Keynes’s theory. Unfortunately, from this point on, Harrod sought to sabotage Keynes’s theory of the rate of interest by allying himself with the pseudo -Keynesians, Joan Robinson, Austin Robinson, and Richard Kahn. This was first brought out in 1977 by Terrence Hutchison, who, unfortunately, completely overlooked and underestimated the great depth and breadth of the Pseudo Keynesian attempt to sabotage the General Theory. Pages 214-220 of the Aslanbeigui-Oakes 2009 book is an attempt by the authors to support the Pseudo Keynesian canards, that started to appear as early as 1948, about the IS-LM model being the work of the “Bastard Keynesians” (Hicks,Hansen,Samuelson),who really knew nothing about the General Theory at all.Pace the Pseudo Keynesians, the IS-LM model was originated and worked out by Keynes, as is obvious to anyone reading the nearly forty pages of correspondence between Keynes and Harrod in the July-September period of 1935. However,Keynes’s IS-LM model of chapter 21 is built on the D-Z model of chapter 20. Hicks’s 1937 version of IS-LM is simply Keynes’s IS-LM model in the GT, but without any D-Z model to support it.Keynes’s critique of Pigou’s 1933 The Theory of Unemployment in the appendix to chapter 19 of the GT simply points out that Pigou has no IS-LM model, no D-Z model, and no multiplier. It is truly bizarre that macro-economists unanimously conclude that Keynes used Pigou as strawman. It wasn’t until 1941 that Pigou even understood what the IS-LM model even was. Aslanbeigui -Oakes present a patchwork of very tiny bits and pieces of partial quotes taken from the correspondence in CWJMK, Volume 14, pp. 134-148, which is then cobbled together in a framework which portrays Joan Robinson as having held her own in a theoretical dispute with Keynes. Nowhere will a reader understand that the dispute is over the nature of the construction of the liquidity preference equation itself. Keynes’s liquidity preference function is the LM function from p. 199 of the GT, M=L(Y,r). Joan Robinson’s liquidity preference function comes from the preliminary introduction in chapter 13, where M=L(r).Keynes’s LM function ,M=L(Y,r), has two extreme ranges, which approximates a nearly completely elastic, horizontal range of nearly absolute liquidity preference and a nearly completely inelastic vertical range as discussed by Keynes on pp. 207-208 of the GT. Keynes’s M=L(r), or M=L(r2) according to Robertson and Hawtrey, is a rectangular hyperbola that has NO such ranges as discussed by Keynes on page 201 of the GT. At no time did Robinson express any concerns to Keynes when reading the final draft copy of the General Theory in 1935 about any difficulties/conflicts/ambiguities concerning the initial, introductory presentation of Keynes’s beginning analysis of liquidity preference, as specified by Keynes on pages 165- 168, and Keynes’s final, advanced presentation of liquidity preference on pp. 199-209, where Keynes makes it very clear in the beginning discussion of Part IV of chapter 15 on p. 208 and in footnote two on p. 209 that it is in chapter 21 that Keynes is going to put everything together. Keynes finally realized at the end of his correspondence with Robinson that she was completely confused and was using the M=L(r) function, where it is impossible to formulate an IS-LM model, while he was using M=L(Y,r). It is at this point where Keynes tells Robinson that her work is nonsense” and that it represents a complete rejection of his liquidity preference theory of the rate of interest. Nowhere on pp. 214-220 of Aslanbeigui & Oakes (2009) is there any hint of Keynes’s complete rejection of Robinson’s interpretation of the theory of liquidity preference. The reader is lead to believe that However, Robinson’s abstract formalism seemed to transgress even these permissive limits. Because it detached economics from economic reality, making any attempt to develop policy a theoretically arbitrary undertaking, the Robinsonian analytical economics of her Essays was opposed to Keynes’s conception of economic theory and its aims. Nevertheless, Keynes’s objections remained marginal, and Robinson was able to “become a Keynesian,” believing in her fidelity to his intentions and promoting The General Theory to the economics profession with remarkable success.