Saturday, March 10, 2012

Taking Keynes’s Name in Vain

That title refers to what is now an almost notorious 2011 article by Vince Cable, the UK Secretary of State for Business, Innovation and Skills, which defends the Tory-Liberal Democrat coalition regime of austerity in Britain:
Vince Cable, “Keynes Would be on Our Side,” New Statesman, 12 January 2011.
There are already good responses from David Blanchflower and Robert Skidelsky and partly from Bill Mitchell.

I suppose part of the problem is that Keynes moved through various stages in his economic thinking, from being essentially a typical liberal before 1914 in favour of free trade, to a quasi-monetarist, to the Keynes of the General Theory in favour of stabilisation of investment and fiscal activism. Which Keynes are people claiming?

For me it would be the Keynes who praised the work of Abba Lerner (1943; 1944; and 1951), the man who really did develop the modern Keynesian policy of active fiscal management of an economy.

After some initial dismissal of some of Lerner’s ideas (perhaps even hostility) at a lecture at the Federal Reserve in 1943, Keynes withdrew this opposition. This is related by David Colander:
“Keynes retracted his characterization of Lerner’s ideas as ‘humbug.’ According to Lerner, ‘in reading … [The Economics of Control] later, at leisure, … [Keynes] found the logic less escapable and the resistances more obvious’ … Keynes admitted to being at least a closet Lernerian in a letter to Lerner (September 1944) congratulating him on The Economics of Control. Keynes wrote:
‘I have marked with particular satisfaction and profit three pairs of chapters-chap. 20 and 21, chap. 24 and 25 [where Lerner had discussed functional finance], chap. 28 and 29. Here is the kernel of yourself. It is very original and grand stuff. I shall have to try when I get back to hold a seminar for the heads of the Treasury on Functional Finance. It will be very hard going-probably impossible. I shall have to temper its austerity where I can. I think I shall ask them to let me hold a seminar of their sons instead, agreeing beforehand that, if I can convince the boys, they will take it from me that it is so!’
It was not only in this letter that Keynes retracted his initial remarks about Functional Finance. In 1945, when Keynes again visited the United States, he repeated his praise of Lerner at another Federal Reserve Seminar. In this meeting Keynes spoke in glowing terms of Lerner’s contribution and ‘without any provocation, he held forth a panegyric on Functional Finance’” (Colander 1984: 1574).
BIBLIOGRAPHY

Colander, D. 1984. “Was Keynes a Keynesian or a Lernerian?” Journal of Economic Literature 22.4: 1572–1575.

Lerner, A. P. 1943. “Functional Finance and the Federal Debt,” Social Research 10: 38–51.

Lerner, A. P. 1944. The Economics of Control, New York, Macmillan.

Lerner, A. P. 1951. The Economics of Employment, New York, McGraw Hill.

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