Keynes, Post-Keynesianism and Political Economy: Essays in honour of Geoff Harcourt, Volume three, Edited by Claudio Sardoni and Peter Kriesler, London and New York: Routledge, 1999, xxi + 537 pages, combined author and subject index included.
This book constitutes the third and last volume of a series of essays honoring the eminent Cambridge University Post-Keynesian (or Post Keynesian) economist who hails from Australia, Geoff Harcourt. While the first two were both edited by Philip Arestis, Gabriel Palma, and Malcolm Sawyer, this volume is edited by Claudio Sardoni and Peter Kriesler, both former students of Harcourt’s. Reviews of the first two volumes appear in this issue.
The volume under review here has a longer first section (17 papers) dealing with history of political economy and methodology and a shorter second one (11 papers) emphasizing applied economic theory with a strong policy orientation. Although at first glance the book appears to be rather all over the place with a hodge podge of papers and subjects, there is a thread of chronological order running through it, with the first section covering Adam Smith through Joan Robinson, with about eight essays focusing on Keynes, while the second section deals with more contemporary matters, with greater emphasis on Harcourt’s own views. Quite a few of the authors were students of Harcourt’s and many more were at Cambridge at some time or other, with most originally from Britain, Italy, or Australia, with Brazil being a distant fourth. As might be expected in such a large and varied work the papers offer a wide array of viewpoints and vary considerably in originality and quality, although none stray too far from Harcourt’s broadly Cantabridgian Post-Keynesian perspective (I shall generally stick with the British spelling of this much debated label here, as it is in the book). Given its historical perspective and subject this book ultimately bares comparison with the recent history of Post-Keynesian economics written by J.E. King (2002).
After an introduction by the volume’s editors, the opening essay by Michael V. White on “Manufacturing the Smithian paradox of value” challenges established views on the famous diamonds-water paradox. White argues convincingly that it was Jevons and the neoclassical school that considered Smith’s discussion to be paradoxical whereas Smith and others of his followers had explanations for it. In particular, “rarity” could be associated with the time and effort involved in obtaining an item such as a diamond, and hence the apparent paradox could be solved by way of reference to the labor theory of value without any invocation of marginal versus total utility at all.
John F. Berdell’s “The Ricardo-Malthus debate: effective demand, technical change and the limits to growth” considers formal models that distinguish these effects in Ricardian versus Malthusian systems. Berdell especially criticizes the tendency to see Malthus as a Keynesian by noting that Malthus failed to distinguish savings from investment.
Mauro Boianovsky’s “Cassel on cyclical growth” provides surprising insights from some of Cassel’s work not translated into English, showing that he combined a Harrod-Domar approach with Austrian elements and may have been the first to identify the acceleration principle (Cassel, 1904).
Rita McWilliams Tulberg in “Alfred Marshall and evangelicalism” argues that a broad social influence on late nineteenth century English political economy, and certainly on Marshall particularly, was the moralizing approach of dissenting Protestant movements. “Religion” became very important even as “theology” declined in importance, with the old saw that the British working class of that time was more influenced by Methodism than by Marxism percolating through this essay.
Another very revealing piece is Jayati Ghosh’s “Dissenting economists: the late nineteenth century Indian tradition.” Several Indian economists of this period are presented as using proto-Keynesian ideas to analyze the deindustrialization and financial dependence of India in relation to Britain, with many of these figures playing important roles in the beginnings of the Indian independence movement.
The first of the group of papers dealing with Keynes is Pierre Étienne Grégoire’s “Liquidity preference: its origins,” which he sees as deriving from work by Montesquieu, John Rae, and especially Henry Thornton of the banking school of monetary theory.
In his lively “Dentists, dreamers and defunct economists: some reflections on English political economy between the wars,” Richard Kozul-Wright reflects on Keynes’s involvement in the Economic Advisory Committee to the first Labour government in 1929 under Ramsay MacDonald. From this perspective he argues that the most serious intellectual rival of Keynes was not Hayek or Pigou, as often believed, but Lionel Robbins (1934). It was his membership on this committee that provided Robbins with the insider stance to directly challenge Keynes with a coherent conservative viewpoint that was both neoclassical and semi-Austrian in character, arguing for reduced government spending, a return to the gold standard, free trade, and efforts to reduce costs.
The next essay is among the most provocative in the book. In “Keynes’s socialism: conception, strategy and espousal,” Rod O’Donnell directly contradicts a claim by Kozul-Wright that Keynes was not a socialist. He recognizes that his view is idiosyncratic and at odds with those in the major Keynes biographies by Moggridge (1992) and Skidelsky (1992). O’Donnell’s interpretation draws on unpublished and little known archival materials regarding Keynes’s political speeches and activities, especially regarding his own self-identification with “liberal socialism.” In such venues as the Labour Forum of the Society for Socialist Inquiry and Propaganda in 1931 he articulated these positions. O’Donnell admits that many socialists would not accept Keynes’s liberal socialism as really being socialism. Keynes did not accept Marxism, class conflict, revolution, a massive redistribution of income, or public ownership of most of the means of production. Nevertheless O’Donnell argues for an open-minded view by modern socialists that would accept this Keynesian perspective in the aftermath of the fall of the “old socialism” of the Soviet Union, and which O’Donnell sees as founded on the ethical concerns of G.E. Moore, a “true socialism of the future.”
The next two essays focus on Keynes’s theory of expectations. David Dequech’s “On some arguments for the rationality of conventional behaviour under uncertainty: concepts, applicability and criticism” discusses Keynes’s emphasis on the role of conventions in the face of uncertainty. Michelle Baddeley’s “Keynes on rationality, expectations and investment” trifurcates rationality, irrationality, and non-rationality, with conventions governing the last of these. Baddeley identifies this strand of argument with current behavioral approaches to financial economics.
The next three focus on philosophical and methodological issues. Flavio V. Comin’s “Keynes’ common-sense economics: a criticism of Coates’ argument” examines the combined influences of Marshall, Moore, Wittgenstein, and Frank Ramsey, with Keynes using “vagueness” as a way to simplify complex systems in his “common-sense” approach based on “ordinary language.” The focus on language continues in Mario Garcia’s “Scientific communities, language and the Keynesian revolution,” who argues that ultimately Keynes did not generate a Kuhnian paradigm shift because of the ability of the neoclassical school to absorb so much of his theory in the “neoclassical synthesis.” Finally Allen Oakley’s “Situational analysis and agent rationality: Shackle contra Popper,” uses G.L.S. Shackle (1979) to deconstruct Karl Popper’s emphasis on agent rationality in “typical situations,” arguing instead for the importance of imagination and feelings in economic decisions.
Claudio Sardoni’s “The debate on excess capacity in the 1930s” provides an interesting bridge from Keynes to the Post-Keynesians in that he focuses on the microeconomic arguments of Richard Kahn, Roy Harrod, Joan Robinson (1932), Edward Chamberlin, Gerald Shove, and Nicholas Kaldor regarding the possible existence of excess capacity in imperfectly competitive markets. He notes the irony that even as several of these figures were simultaneously discussing with Keynes his macroeconomic ideas that appeared in the General Theory, neither they nor Keynes saw any links between these excess capacity arguments and the possibility of inadequate capital investment. Apparently this was at least partly due to Keynes not being impressed with the static nature of the equilibrium models used for these theorems, while he focused on expectations and implicit dynamics in considering macroeconomic investment problems.
The first of three essays focusing more specifically on Joan Robinson is Keiran Sharpe’s “Cantabridgian preferences: Joan Robinson v. Frank Hahn,” in which their debate over the nature of preferences is recounted. Robinson (1962) argued that the standard commodity space does not explain people’s utility, but that normative considerations are important. Hahn argued that the commodity space could be generalized to a quality space. However, Sharpe argues that Robinson’s response to this was very much in line with modern behavioral economics with preferences simply being too unstable and idiosyncratic to model in an a priori manner at all.
The most provocative of these three is Prue Kerr’s “Reading Marx: Joan Robinson’s essay on Marxian economics.” Kerr accurately sees her 1942 essay as a way station in the development of Robinson’s ideas from more conventional to more radical, but argues that she was still too conventional to fully understand or appreciate the “complexity” of Marx’s arguments and that she failed to understand important arguments he made such as the distinction between variable and constant capital (a point repeated several times in this essay) or the source of profits. I found this essay to be the least satisfying of all in this volume. Certainly one can quibble with Robinson’s take on Marx, and many have done so in the past. However, Kerr repeatedly seems to imply that all the contradictions and difficulties in Marx have been resolved in a clear manner, without saying what the nature of this resolution is, and then uses claim this to denigrate Robinson’s analysis. I think most observers understand that how best to resolve the various apparent contradictions in Marx’s work remains very much a matter of ongoing debate, as the recent controversies over the termporal single system (TSS) interpretation remind us (Freeman, Kliman, and Wells, 2004). Robinson’s view can be seen as somewhat of a forerunner of Steedman’s (1977), which draws on Sraffa, whom Robinson was very close to, although her view later evolved along its own path. Although many do not like this view, it cannot simply be dismissed by vague reference to an undescribed (and unreferenced) alleged solution. I believe that Kerr has done a disservice to Robinson in this essay, and her failure to properly discuss the later development of Robinson’s views on this serious topic are a sign of the problems with this essay. A substantially more insightful perspective on this matter can be found in Baragar (2003).
The concluding essay of the first section is Pervez Tahir’s “Joan Robinson: a neglected precursor of internal migration models.” He notes that in various works in 1937 on employment she argued that internal migration responded to differences in unemployment rates in regions, in contrast with later neoclassical models emphasizing wage differentials in much of the development literature. He argues that her approach is superior for understanding internal migration and that her contribution has been more recognized by demographers and geographers than by economists.
The first essay in the second part, Jorge Thompson Araujo’s “The Cambridge theory of distribution in the short period: an open economy approach,” draws on early work of the honoree of this volume, Geoff Harcourt (1963). In particular the point is made that there will be a negative multiplier on investment in an open economy if exchange-rate depreciation is expansionary. This reflects Harcourt’s concern with the economic problems facing his native country, Australia.
Pulapre Balakrishnan’s “The political economy of macroeconomic policy” then presents a rather garden variety attack on the Washington Consensus view that budget deficits should be reduced in developing and debt-crisis countries. I have no disagreement with his argument that such an approach may slow growth and aggravate underlying problems, but would have preferred if he had relied less on extensive quotations from Paul Krugman in doing so.
Terry O’Shaughnessy’s “Unemployment hysteresis in an open economy” examines how the presence of such hysteresis undermines the NAIRU concept. He notes that contrary to widespread perception hysteresis is not the same thing as persistence. The latter reflects the presence of unit roots in time series. However, hysteresis suggests substantially longer lasting effects from a significant increase in unemployment rates, with a structural change in the economy happening as a result that locks in the higher unemployment rate as a new pattern.
Roy Green’s “How manufacturing can help young people to get high-wage jobs” vigorously follows arguments made by Harcourt (1992) that Australian policymakers should intervene to achieve labor-management accords and implement flexible manufacturing strategies. Harcourt’s admiration for the government-guided growth strategies of the East Asian newly industrializing countries is noted, while also arguing that the key to their success has been a focus on investment in manufacturing that brought about export expansion, rather than a focus on exports bringing about industrial growth,
Peter Kriesler’s “Harcourt, Hicks and Lowe: incompatible bedfellows?” is in my view the most interesting piece in the entire book. The title is a takeoff of Harcourt’s “Marshall, Sraffa and Keynes: incompatible bedfellows?” (1981), but the real hero of this work is Michal Kałecki, the founder of one of what Harcourt identifies as the three main strands of Post-Keynesian economics, the others being “fundamentalist Keynesian” and “Ricardian.” The central topic of the essay is the centrality and unavoidability of the problem of the traverse, that we live not only in a world of path determinacy but in one of path dependency as well. Hicks (1965) is credited with first recognizing the importance of the problem, which Harcourt also recognizes, especially given the failure of economies to ever really be in equilibria, and more importantly for the equilibria to change in response to the very movements of economies towards them. Harcourt himself emphasizes Joan Robinson’s distinction between logical and historical time in his discussion of this point. Lowe (1976) and Kałecki (1971) are contrasted regarding models of non-steady state growth with fluctuations, with Lowe’s three sector model having two capital goods and one consumption good while Kałecki’s has two consumption goods and only one capital good. This reflects that Lowe saw the failure to go to full employment as due to structural imbalances in production from improper signals, whereas Kałecki emphasized more the problem of effective demand. Kriesler argues that ultimately these two perspectives complement each other.
Elizabeth Webster’s “Technological Progress and Effective Demand” further elaborates on the Kałeckian approach to dynamics. A formal model is presented to analyze rule of thumb behavior in the face of uncertainty that leads to price effects, labor productivity effects, and the innovation effect, or rate of investment in new innovations, arising from technological change.
Diana Barrowclough’s “Lighthouses, television and the theory of public goods” draws on Harcourt’s 1992 paper and cites the original prisoner’s dilemma formulation regarding public goods as put forward by Hume and later by Mill. She critiques the 1986 Peacock report on television that led to reduced support for public television in Britain and follows the influence of this report critically in New Zealand’s policy changes.
“Repetition, evolution and learning in games: from equilibrium to open-endedness,” by Giuseppe Ciccarone and Robert Neugeboren follows the previous paper in being concerned with the prisoner’s dilemma, but otherwise moves somewhat farther away from concerns usually associated with Harcourt. It focuses on the large literature in how cooperation can evolve in evolutionary games with various kinds of automata. It is noted that rather than converging on equilibria, systems may exhibit complex or even chaotic dynamics (see Rosser, 2000 for further discussion of such dynamics).
The remaining three papers all present specific applications to the Italian economy, and I frankly found them of less interest than most of the others in the book. Giuliana Campanelli’s “A modified trend through peaks approach to measuring potential output: an application to the Italian economy” does cite Harcourt’s (1972) work on capital theory while noting the difficulty of measuring potential output. Sergio Destefanis’s “The wage-price spiral and wage determination: an empirical appraisal for Italy” finds evidence of cross-sector influences in wage determination and argues this supports Harcourt’s argument for the role of institutions in inflation and also more specific arguments made by Lavoie (1992). Finally, Gianluca Cubadda, Stefano Fachin, and Francesco Nucci’s “Disaggregated import demand functions for the Italian economy” delivers what its title claims, looking at sectoral breakdowns of imports in Italy.
At this point let me note a minor criticism. The editing of this book was a bit sloppy in some places, most particularly regarding references and in at least one place the identification of who was being quoted. Regarding references, some sources cited in several papers did not appear in their bibliographies. However, I do understand that this is a fairly long book with many papers, and this is not an egregious problem.
Regarding the book more broadly, although it first appears to be rather all over the place, there is a thread and order that works through it from a consideration of early history of thought issues (Adam Smith) up to modern applications of ideas associated with Geoff Harcourt. There is wide variation of quality of the papers, but a number are very well done, with several being highly original and insightful. I would single out especially the ones by Rod O’Donnell and by Peter Kriesler as perhaps the most outstanding in this category and the biggest reasons why many readers might want to take a look at this quite diverse volume.
More generally the papers do succeed in honoring the person intended to be honored, Geoff Harcourt. It covers themes and issues that have been of interest to him in the development of modern Post-Keynesian economics. It reflects his influence and input in these areas in many places and more generally shows the evolution of post-Keynesian thought in its various stages and aspects. Ultimately the fact that so many former students and associates are honoring him reflects his own collegial and friendly and supportive personality and career, as well as his great influence on many people and on the development of the heterodox economic tradition at Cambridge and in many other places as well. He is certainly deserving of this honor.
Baragar, F. 2003. Joan Robinson on Marx. Review of Political Economy 15: 467-482.
Cassel, G. 1904. Om kriser och daliga tider [On crises and bad times]. Ekonomisk Tidskrift 4: 21-35, 51-81.
Freeman, A., A. Kliman, and J. Wells, eds. 2004. The New Value Controversy and the Foundations of Economics. Cheltenham: Edward Elgar.
Harcourt, G.C. 1963. A critique of Mr. Kaldor’s model of income distribution and economic growth. Australian Economic Papers 2: 20-36.
Harcourt, G.C. 1972. Some Cambridge controversies in the theory of capital. Cambridge: Cambridge University Press.
Harcourt, G.C. 1981. Marshall, Sraffa and Keynes: incompatible bedfellows? In On political economists and modern political economy: Selected essays of G.C. Harcourt, ed. C. Sardoni, pp. 250-264. London and New York: Routledge.
Harcourt, G.C. 1992. Markets, madness and a middle way. The Second Donald Horne Address, Melbourne: National Centre for Australian Studies, Monash University. Reprinted in G.C. Harcourt, Capitalism, socialism and post-Keynesianism: Selected essays of G.C. Harcourt, pp. 9-24. Aldershot: Edward Elgar.
Hicks, J.R. 1965. Capital and growth. Oxford: Oxford University Press.
Kałecki, M. 1971. Selected essays in the dynamics of the capitalist economy. Cambridge: Cambridge University Press.
King, J.E. 2002. A history of post Keynesian economics since 1936. Cheltenham: Edward Elgar.
Lavoie, M. 1992. Foundations of post-Keynesian economic analysis. Aldershot: Edward Elgar.
Lowe, A. 1976. The path of economic growth. Cambridge: Cambridge University Press.
Moggridge, D.E. 1992. Maynard Keynes: An economist’s biography. London and New York: Routledge.
Robbins, L. 1934. The great depression. London: Macmillan.
Robinson, J.V. 1932. Imperfect competition and falling supply price. The Economic Journal 42: 544-554.
Robinson, J.V. 1962. Economic philosophy. Hammondsworth: Penguin.
Rosser, J.B., Jr. 2000. Aspects of dialectics and non-linear dynamics. Cambridge Journal of Economics 24: 311-324.
Shackle, G.L.S. 1979. Imagination and the nature of choice. Edinburgh: Edinburgh University Press.
Skidelsky, R. 1992. John Maynard Keynes: The economist as saviour, 1920-37. London: Macmillan.
Steedman, I. 1977. Marx after Sraffa. London: Verso.
J. Barkley Rosser, Jr.