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Keynesian vs Newtonian economics

from Lars Syll

To complete his theory, Keynes tied these elements together. The market for money determined interest. Interest (and the state of business confidence) determined investment. Investment, alongside consumption, determined effective demand for output. Demand for output determined output and employment. Consumption out of incomes determined savings. Employment determined the real wage.

diffIn this world, a change in monetary policy, such as a cut in interest rates leading to an increase in bank credit, now had fundamental real consequences. The classical dichotomy, in economics as in physics, had been broken. And with the deconstruction of labor and capital markets, the reductionist idea of microfoundations had also to be abandoned. Workers, Keynes pointed out, bargain for money wages, not real wages. The act of dropping money wages would generate feedbacks through previously unrecognized–monetary–channels in the system … The system interacts with itself, and a full employment equilibrium cannot be achieved within the labor market. Economic space-time is curved.

In the long run, Keynes did not achieve what he hoped … In the United States, the prevailing view became that of Paul Samuelson, who transposed Keynes’s unemployment theory into the proposition that wages are “sticky” … What Samuelson did was to push the daemon of Keynesian relativity back into its box. And modern American Keynesians, even down to the New Keynesians currently in fashion around Harvard, MIT, Princeton, and the Council of Economic Advisers, are Newtonian and Samuelsonian to the core …

Too bad. For one cannot say, as one can with Newtonian physics, that Newtonian economics is good enough for practical situations … The failure of Keynesian macroeconomics to establish full theoretical independence from the classical labor market and the classical neutrality of money means that we are, in effect, now denied fair discussion of Keynesian solutions to policy problems. The end result is that we cannot cope now, any more than could the classics in their day, with stagnation and involuntary unemployment.

James K. Galbraith

  1. Econoclast
    July 19, 2020 at 11:11 pm

    Thank you, Lars, for posting this, and for providing the link to James K. Galbraith’s outstanding and timeless essay (I have no idea how I missed this in late 2001; likely being too busy with the fallout of 9/11).

    For those who miss the link, here’s an alternative one to Galbraith’s essay: https://prospect.org/economy/keynes-einstein-scientific-revolution/. I strongly recommend this essay to anyone wanting to understand one reason today’s dominant economics has become so twisted. Galbraith is one of the clearest, most erudite writers today, and has filled his father’s shoes well, no common accomplishment.

    I do not concern myself with the debate about “conspiracy theories”, only about the practice of conspiracy. And I think in the field of economics we have such practice, not only twisting the popular mind, but worse, teaching our youngsters. The conspiracy goes back at least to John Bates Clark, making it more than a century old. I am too old and tired to assemble the evidence, but it’s out there, partly in the form of such work as Mason Gaffney’s.

  2. July 20, 2020 at 8:25 pm

    I have no problem with criticising, or even discarding, “Newtonian” economics. But was Keynes right? For example, a fall in the interest rate may well lead to an increase in bank credit. But does it stimulate the real economy? I think that the evidence is clear that bank lending has little impact on real-economy investment, because it mainly goes to other sectors such as real estate and the financial system itself. The relationship between the interest rate and real-economy investment is similarly unconvincing. Maybe it was different in Keynes’s day? Does anyone know the evidence on that?

  3. Yoshinori Shiozawa
    July 21, 2020 at 3:36 am

    I agree with evidencebas. I believe Post Keynesians must check each small proposition even if it may originate from Keynes. If economics is a science, what Keynes wrote is not necessarily true. It must be checked and confirmed.

    The proposition “a fall in the interest rate may well lead to an increase in bank credit” can be checked directly by examining two time series: interest rate and lending or money creation (M2 for example). I do not know someone has done such a work.

    The proposition seems to be composed of two propositions. (1) If the interest rate is low, investment would increase (because new investment opportunities increase). (2) Firms’ demand for borrowing increases, when the investment opportunities increase.

    Among these two propositions, (2) has a chance of being true. (Of course, firms have other way to procure necessary capital money other than borrowing. But, for many countries, bank borrowing is the unique practical channel to procure money for investment.) Proposition (1) is more doubtful than (2).

    I do not know whether some empirical works have been done to confirm the proposition. What I know is the refutation case. A famous survey by Oxford Economists’ Research Group (in 1930’s) reported that neither short-term or long-term interest rates do influence investment (at least directly). This “fact” (collected by hearing method) was reported in

    Mead and Andrews “Summery of Replies to Questions on Effects of Interest Rates” Oxford Economic Papers (Old Series) No.1, 1938.

    Henderson “The Significance of the Rate of interest” Oxford Economic Papers (Old Series) No.1, 1938.

    These are reprinted in Wilson and Andrews (eds.) Oxford Studies in Price Mechanism, 1951.

    A strange anecdote in history in the economic thought is that Oxford studies were systematically ignored by Cambridge economists (except Michał Kalecki who spent some years in Oxford). Orthodox, New and Post Keynesian economists still continue to neglect Oxford Studies and claim that low interest rate has an effect to stimulate the economic acitivity. Very strange.

  4. Edward Ross
    July 22, 2020 at 11:49 pm

    In reply to Yoshinori Shiozawa’s first paragraph “It must be checked and confirmed’ As a person who has a great respect for Keynes.i add the checking must be done, bearing in mind the present circumstances.Again i think you are aware if this requirement, but make the point to remind some of the readers of this necessity. ted

  5. Yoshinori Shiozawa
    July 23, 2020 at 3:37 am

    Thank you, Ted, for your reply. If you can participate to ResearchGate (a social network of researchers), please join to our discussion page:
    https://www.researchgate.net/post/What_is_the_current_state_of_empirical_work_on_Post-Keynesian_economics

    Someone has recently posed a question pointing that

    The Post-Keynesian tradition argues that it differs from the mainstream for its more realistic perspective on the social and economic reality. However, I have been researching the recent contributions on this tradition, in special the ones in the Journal of Post-Keynesian Economics, the Cambridge Journal of Economics and the Review of Keynesian Economics, and there are hardly any empirical papers published in these Journals.

    I did not mind much how empirical works are done and treated in Post Keynesian economics. But this is a serious problem for Post Keynesian economics. I made a quick survey how the situation is. I could find a continued work done In the subjects as the theory of pricing, but in other subjects it is quite hard to find good empirical works. Coutts and Norman (2013) is a good survey paper:

    Coutts and Norman (2013) Post-Keynesian Approaches to Industrial Pricing: A Survey and Critique. An article in The Oxford Handbook of Post-Keynesian Economics, Volume 1, Theory and Origins.

    As a researcher who makes a part of Post Keynesian economists, I think this is a serious point on which all Post Keynesians must reflect.

  6. July 25, 2020 at 6:06 pm

    I appreciate the point made by James Galbraith in the material quoted. However, I will try to remind readers of one thing from the history of economic thought, a much-underappreciated subfield of a discipline that constantly seeks to be seen as a quantitative science. In the late 1980s, not so long before Jamie (I knew him years ago) wrote the quoted piece, Philip Mirowski made the point that the neoclassical theory proposed by founders of the new approach including Menger, Jevons, and Walras attempted to adopt a metaphor from physics literally down to its precise equations!!! These core equations were in the theory of consumer choice and were drawn from 19th century energetics. What was the set of equations involved? In very basic terms, in equilibrium, the ratio of the marginal utilities is equal to the ratio of prices. MU(1)/MU(2) = p(1)/p(2), where the numbers 1 and 2 index two different goods or services. So even if people insist on using the term Newtonian for the neoclassical paradigm (perhaps okay given Newton’s towering stature until developments in physics that occurred even later), the very equations that the founders of neoclassical economics used were copied directly from a post-Newtonian part of physics—again 19th century energetics. The effort to come up with a social science in this way was very deliberate and scientists and mathematicians wrote to Walras with various objections as his work came out. The metaphor was not going to work for reasons they quickly identified.

    But yes, I agree with the larger point of the post that neoclassical bowdlerizations of Keynes by Hicks, Modigliani, and others took over, to mention some other figures than Samuelson.

    A personal note: I took Phil Mirowski’s course in the 1990s in the now-defunct pluralist Ph.D. program at the University of Notre Dame and might not even know of Phil’s historical critqiue if I had not. The point is made in his book More Heat than Light. A neoclassical program in the standard vein was put in the place of the old department, though Mirowski is still active in academe in the field of science and technology studies.

    • July 26, 2020 at 11:01 am

      “the founders of neoclassical economics … copied directly from a post-Newtonian part of physics. … The effort to come up with a social science in this way was very deliberate and scientists and mathematicians wrote to Walras with various objections as his work came out. The metaphor was not going to work for reasons they quickly identified”.

      This is more or less what Bhaskar, Tony Lawson and myself have been saying about Hume’s post-Newtonian interpretation of science, with Kant the most obvious objector.

      Incidentally, I too have personally met Mirowski, at a lecture he gave warning against medical patents at Geoff Hodgson’s Hertford. I’m an admirer and have learned a lot from his history, but am published objecting to his misinterpretation of Shannon, whose eccentric behaviour was consistent with Asperger Syndrome and thus with his being totally straight.

      • July 27, 2020 at 4:45 pm

        Thanks for situating yourself as a scholar in these academic literatures. I wonder if you could elaborate a bit on one point. You say:
        “This is more or less what Bhaskar, Tony Lawson and myself have been saying about Hume’s post-Newtonian interpretation of science, with Kant the most obvious objector.”
        How is the work by Bhaskar, Lawson, and you analogous to the situation I describe in my comment, involving scientists and mathematicians objecting to an attempted appropriation of field theory from energetics to start a new science of economics?
        Are you suggesting that the early neoclassicals were post-Newtonian also in that they were Humean in their methodology? Is that the sense in which the three of you have been saying “the same thing” but in relation to Hume’s post-Newtonian interpretation of science?

    • July 31, 2020 at 11:35 pm

      Sorry for the delay in answering this: I’ve been in hospital. Though I’ve read more books than most, I am not an academic or professional scholar, I situate myself as an information scientist with roots in catholic economics (Leo XIII, the Chesterbelloc and Schumacher), the Keynesian interest starting from his Treatise of Probability when researching reliability theory, which it turns out derives from Shannon’s “Mathematical Theory of Communication”. I chanced on Bhaskar and Lawson in a Chestertonian book review, and following them up found us in agreement on the Humean problem I had recognised during philosophy of science classes back in 1958. In hospital I just re-read A N Whitehead’s 1926 “Science and the Modern World”, and found him anticipating more or less what I have been saying and you are now saying, so I may have learned more than I had realised from him, though I have had the advantage over him of almost another century of the logical, mathematical and scientific advance in which he was a pioneer, in light of which we differ at some points (notably his understanding of electrons and Einstein). As this discussion is of Keynes as well as Newton, let me just say that since reading Keynes’ “General Theory” I have always interpreted him as anticipating the information feedback based type of control system that Shannon invented and I had worked with, applied to the economy, not the monetary control system of pseudo-Keynesian economics. To answer your questions: …

      On the first, Bhaskar, Lawson, I and Whitehead agree with you, except that you have in mind Maxwell’s field theory (actually Heaviside’s version of it) which relies on Newton’s differential methodology underpinning continuous functions. Maxwell added the electromagnetic field, free to radiate in all direction in space, which free-traders now subconsciously ape and quantum theory, Whitehead and Shannon argue is both directed and digitised. (As Whitehead already points out, matter and money are not continuously variable but atomic and digitised).

      So yes, on the second I am saying the early neo-Classicals were post Newtonian (Humean) in their methodology, and the later ones were post Maxwellian (wrong about free trade as well as money). Whitehead implied that; Bhaskar and Lawson focussed on Hume eliminating direction, communication and ethics from what academics now take to be science.

      • August 10, 2020 at 10:13 pm

        Thanks for this elaboration on your earlier answer. I now understand, though I have yet to get to much of this work. I have been involved in various skirmishes below! I am afraid we are not yet convincing some interlocutors that Keynes and today’s neoclassical economics are not mostly Newtonian, in spite of the commonality of the use differential calculus. When students equal marginal rates of substitution with price ratios they are far closer to Maxwell and 19th Century energetics than to other types of physics. Nowhere do you find e = mc^2, for example. Of course, in coming up with a title for his 1936 book, Keynes himself drew an analogy with Einstein because he sought a general theory that would admit the possibility of both full-employment and underemployment economies. But energetics provided an equation-for-equation analogue deliberately cited by the late 19th century neoclassicals in their theory of exchange. This a basic and original part of the micro theory seen today in almost any mainstream textbook.

      • August 10, 2020 at 10:17 pm

        O.K. Sorry for the following errors: “equal marginal rates of substitution with price ratios” should read “EQUATE….” and “use differential calculus” should read “use OF differential calculus”

  7. July 27, 2020 at 6:05 pm

    I think it’s misleading to look at these issues from the viewpoint of different philosophical “ism”s. Taylor, Bhaskar and Lawson may or may not be saying essentially the same thing, and this may or may not correspond to Hume.
    But the important thing is whether the theories that are put forward are subjected to proper empirical testing, and how well they survive that test. And even more basic, that all these discussions should be grounded in reality. If you start from Keynes’s statement about the important causal role of interest rates, you get sucked into to a discourse that is structured by his original perspective, and miss the obvious (at least to anyone who has been following the modern economy): when bank credit increases – whether due to low interest rates, quantitative easing or whatever – the increased lending goes almost entirely to real estate and the financial sector. Very little of it now goes to finance real-economy investment. So even if we had good evidence on the way Keynes has set it up, we would miss the most important observation! And the link which is so important in Keynes’s model is found not to exist. So why are we talking about this model at all? – let alone its philosophical “foundations”?
    In relation to Bhaskar etc, the person whose views I am most familiar with is Tony Lawson. He has written a lot of good stuff, but is not really very tuned in to the importance of evidence. It is more a question of getting the right philosophical perspective (ontology), in his view. In particular, he sets up an a priori account of what all social life, and therefore the economy, is like. I find it quite unconvincing, and it has the same flaws as other a priori schemes including mainstream economics. It’s a way of looking at things, not an empirically-based causal account.
    I agree with Yoshinori about the importance of the Oxford studies in the 1930s. I am continually surprised how little impact they have had. Among other things, they show that the thinking of business people has nothing to do with calculations about marginal revenue etc – business people found it totally alien to think in those terms. It is theoretically possible that the apparatus of MC, MR, etc does describe quantitatively what goes on* – though I have never seen any attempt to show that, even though it is the core of mainstream theory! But even if this were true, the account would be wrong in its account of the causal mechanism – it’s an “as if” theory, and its survival is one of the many harmful legacies of Friedman’s methodological writing. (* Actually I don’t think this is possible either, because it rests on the assumption of a U-shaped cost curve, and the evidence shows this is rare, at least in manufacturing – estimates range from 5% to 11%.)
    This is actually a major strength of the post-Keynesian tradition: I think that Fred Lee’s book on price setting is a major achievement. Unfortunately it is called “post-Keynesian price theory”, whereas it is more important than that: it’s a realistic account of how that aspect of the modern economy actually works.

    • July 28, 2020 at 4:11 pm

      Evidencebas: O.K., I am a post-Keynesian also myself and agree that the Keynesian model leaves much to be desired. The empirical evidence you mention is important indeed. In my theory, I find the historical questions interesting and important in themselves. To the extent we are debating whether neoclassical economics is in some sense Newtonian, we are discussing an issue in the history of economic thought and the history of science for its own sake. I also continue of course to agree strongly with the post’s central point that the message of Keynes was largely lost in the economics that followed, whatever name one uses for the latter and its methodology. You raise a lot of interesting issues nonetheless in your comment.

      • Craig
        July 28, 2020 at 5:35 pm

        “I also continue of course to agree strongly with the post’s central point that the message of Keynes was largely lost in the economics that followed, whatever name one uses for the latter and its methodology.”

        Correct. And that is because Keynesianism was a mere reform when a paradigm change is required, desperately required. So lets get desperate about it by changing the present paradigm to Direct and Reciprocal Monetary Gifting at the points of retail sale and at note signing.

      • August 10, 2020 at 7:01 pm

        First, to *Ken*: Thanks. I have been objecting to the Newtonian analogy in the original post by Lars. Your reply helps to explain how you and Lars see Newton in the mainstream paradigm. I understand your view much better now. Economists’ mathematical models are analogous to clockwork as opposed to the soulwork seen still in some of Kepler’s work, for example. But what about the centrality of preferences in the neoclassical (mainstream) economics? If two people trade commodities and consume so that the marginal conditions are satisfied, is that like a clock? First, utility and preferences bring in an important role for something about the mind of a person involved in exchanging commodities. The mind chooses a certain commodity bundle that is optimal, subject to a budget constraint. The mathematical (first order) conditions for the optimum in this problem are drawn from 19th century energetics, but they lack the conservation principle that makes for tractable (Hamiltonian) dynamics offered by conservative systems in the physical analogy. Hence, if you are looking for an analogy to the original neoclassical theory of exchange (say, an Edgeworth box), the physics of a particle moving though a force field is much closer than a clock. Mechanism and clockwork might be closer to, say, the Adam Smith of the Wealth of Nations—which is part of classical economics. Smith represents a paradigm that dropped out of the mainstream in the 19th century. Presumably, if we are talking about such an old school of thought, Lars’s post (and your recent reply) would say so!
        Okay, so mainstream (neoclassical) economics is not so Newtonian in that it follows equations for a force field. On the other hand, you can probably more easily make the case that the Keynes of the General Theory is mechanistic in this way than you could ever make for the original neoclassical paradigm. The General Theory emphasizes expectations from the beginning, as did Alfred Marshall, another Cambridge theorist who had great influence on Keynes. The assertion that Keynes ever has a mechanistic “interest-rate theory” misses most of what is in Keynes, as many comments by various people have been pointing out. If the expectations underlying the marginal efficiency of investment schedule can shift at any time (as Keynes makes clear from early in the General Theory), there is to the economy than mechanistic clockwork. Post-Keynesians have shown that the mechanistic version of later interpreters misses the real Keynes. They are recalling neoclassical equilibrium models of Keynes, such as Hicks’s IS-LM.

        To *Craig, Econoclast, and other commenters seeking complete change*: Why does all of this matter for us? It matters if we are trying to agree if Keynes embodies a Newtonian paradigm as asserted in the post. Please forgive us for dwelling on this historical point. I’ve become a vegan and have worked in a co-op and a CSA myself. I am also in a local group called the Hudson Valley New Economy meetup, which advocates for a more localized and solar-based economy. These sentiments are somewhat popular in the mid-Hudson Valley area.

        To *Yoshinori*: Thanks. I will look for your book! I understand that you too are a post-Keynesian. I would ask that you be a bit gentler on Keynes if you are bothered by the hypothesized interest rate effect. Keynes includes it in the 1936 General Theory but has more or less dropped it by 1937, as argued out by G. L. S. Shackle and H. Minsky. I have to point this out to Lars because he sees 18th century clockwork in Keynes and mainstream economics. Profit expectations have a great deal to do with mental processes and minds.

        I am impressed favorably that Marc Lavoie has given your book a good review. I, too, think complexity is important and have fit distributions such as those advocated by Benoit Mandelbrot to VAR residuals in an article in the International Review of Applied Economics (2012). Phil and Esther-Mirjam Sent have written about how economists have also ignored this part of probabilistic 20th Century physics—fractals, fat-tailed distributions, etc.

    • August 1, 2020 at 12:03 am

      Evidence-based: “It’s a way of looking at things, not an empirically-based causal account”.

      I agree with this, but like Geoff Davies you are still thinking of micro-foundations for the economy as it is now, not even acknowledging my point that axioms are prima facie for a deductive argument in which each stage of the deduction needs to be empirically tested, but as Bhaskar and Lawson pointed out, they are the conclusions, not the start, of a retroductive argument. This, I learned from library scientist S R Ranganathan, can be take right back to the start of the universe, even before space-time had begun to evolve to generate electromagnetic waves, sub-atomic particles, atoms, molecules – all the way up to Shannon’s paradigm case of an automatic telephone exchange in which electrical switches perform logic. The economy is like people talking to each other, whereof science can say little about what they are saying, but can be quite definite about their needing to dial a number, have it connected and picked up before they can talk to each other. Arguably, then, a reliable science of economics can only ever be about its methodology and its adaptation to different conditions.

  8. ghholtham
    July 27, 2020 at 11:37 pm

    The interest rate has a very limited effect on business investment. The results of the Oxford surveys were supported by statistical analysis from the1950s on by the work of Klein and others. There are, however, other transmission channels. In the United States the housing market was an important channel. Lower interest rates made mortgages cheaper raising housing demand and, with a lag, supply, In the UK housing supply was less elastic but since mortgages are mainly floating rate, lower interest rates raised household disposable income directly stimulating consumer spending. In the UK and similar or smaller economies the exchange rate is an important channel. Easier money and lower interest rates encourage a capital outflow and a lower exchange rate, other things equal. If sustained that eventually diverts demand from foreign to home-produced goods and services. In general a change in interest rates changes the relative income of borrowers and savers. If those groups have a different tendency to spend, the change will affect overall demand. The argument that the public will assume a change in monetary policy will just alter the inflation rate and they will not alter their behaviour was popular in the 1980s but is without empirical support.
    Nonetheless, the practice of trying to fine tune the economy with monetary policy is absurd. The lags in perception and policy effect are long and uncertain and the effect of interest rates is much affected by the state of confidence and other factors influencing demand. It is well-known that using interest rates to stimulate the economy can be like pushing on a string. They will inflate financial asset prices but that need not stimulate activity. Even as a restrictive policy they are a blunt instrument, having little effect before they precipitate a credit crunch and bankruptcies.
    I share evidencebas’ impatience with raking over what Keynes did or didn’t say, The world we inhabit is much changed from his. Economics should be an empirical subject where disputes are settled by empirical research and evidence not an appeal to holy writ. The principal dead economist whose work has been neglected in the mainstream but has much to teach us is H A Simon. He pointed to a different way of conceiving and tackling the subject which transcends the merits or faults of any particular macroeconomic model. Klein said that everything of merit in Keynes had been more concisely written by Kalecki, whom Joan Robinson recognised as a greater intellect than Keynes, although she was a great admirer of the latter. More research and less hagiography would be beneficial.

    • July 28, 2020 at 4:33 pm

      In essence, the concern with what Keynes said has to do with the nature of the alternatives available. In essence, people were mislead because Keynes’s arguments were distorted and trivialized by the what is known as the neoclassical synthesis. People are calling the latter by various names because it is based on timeless equilibrium in systems of some kind. The Bowdlelrization of Keynes might not have mattered if Kalecki had been better known in North America, but that is another story. Sure, Keynes’s theory of investment turns out not to be supported by subsequent studies. However, Keynes’s theory was as much an expectations theory of investment at least as much as an interest-rate theory of investment. In that post-Keynesian light, it is not so falsified by the estimates of the determinants of investment, to the extent they simply reject the interest rate as an explanatory variable. It is then mostly subsequent Keynesians who deserve to be criticized, partly for dropping the role of uncertain expectations and also for claiming to be Keynesians. So it worth making the point that not everything of value in Keynes is also in Kalecki’s work. Keynes made many contributions that prove to be important, at least as interpreted by Robinson and others who were truly trying to develop the thought of Keynes (and Kalecki), taking into account the Oxford studies and other subsequent work.

    • Yoshinori Shiozawa
      July 28, 2020 at 6:15 pm

      Greg Hannsgen
      > Keynes’s theory of investment turns out not to be supported by subsequent studies.
      > Keynes’s theory was as much an expectations theory of investment at least as much as an interest-rate theory of investment.

      Please see my post on July 28, 2020 at 5:52 pm below. If Keynes’s interest-rate theory of investment is not supported, what theory do you propose? Do you know it requires major restructuring of Keynes’s economics? What is your expectations theory of investment?

      It is subsequent Keynesians who deserve to be criticized. You are right, but you and I are part of those subsequent Keynesians. I hope you do not repeat the errors of those subsequent Keynesians.

      • August 10, 2020 at 9:05 pm

        Yoshinori—(Also, please see my comment under Craig’s comment at 7:01 am today, according to the above, where I reply to some of your other comments addressed to me. Notably, I reply to some comments to which you refer above. So I have seen and attempted to clarify. Thank you for your responses!)

        Quoting you: “If Keynes’s interest-rate theory of investment is not supported, what theory do you propose? Do you know it requires major restructuring of Keynes’s economics? What is your expectations theory of investment?”

        I agree that the profit rate, capacity utilization, and balance sheet variables are good candidates. I also like the idea of making expectations endogenous (modeling their formation). I also refer to my attempts with Tai Young Taft to moot a Poisson probability model of expectational shifts in Levy Institute working paper 839, which follow up on a paper by me in Metroeconomica in 2014 and previous working paper. I would like to try to estimate such a probability model. Of course, such a model is not the final answer by any means and in part is simply there to formalize the Post Keynesian argument.

        My paper with Tai: http://www.levyinstitute.org/pubs/wp_839.pdf

        I can also provide papers via researchgate.net for members of that site.

        I agree very strongly that postwar “Keynesians” such as Samuelson, Hicks, and Modigliani had bad models and models that were not true to Keynes. If we say their models were really good as representations of Keynes, we then lose Keynes’s true theory before we get to new models which endogenize profit expectations. So having a clear view of Keynes’s theory matters. In part, Keynes’s theory was mostly invisible to American undergraduates and graduates taking macro or intro courses for decades following World War II. So, in trying to interpret what Keynes “really said” we make visible his contribution. It should go without saying that we should also teach about Kalecki, who is even less well known to U.S. students. Otherwise we have a weak, straw-man version of Keynes as some guy who thought expectations would be wrong forever. We then get very quickly to naive laissez-faire responses that mostly work to speed up a recovery process that the market would accomplish on its own. The economy would go to full-employment spontaneously but we stimulate it when it is cool and remove stimulus when growth is hot. If we see the system as fundamentally flawed, we see with Keynes and Kalecki that unemployment almost always exceeds amounts generated by normal frictions, etc. Hence, you need something like an employer of last resort program that supports the labor market though booms and busts. Fine-tuning won’t be sufficient. I think both Keynes and Kalecki help explain why, along with empirical studies by people developing Keynes’s and Kalecki’s views in the present time.

      • August 10, 2020 at 9:32 pm

        Greg, I agree with your point about an “employer of last resort program”. I have just been reading “The case for a job guarantee” by Pavlina Tcherneva. I find her very persuasive – I’ve been trying to find reasons why (a) she is wrong, and (b) if not, why hasn’t everyone been talking about this – and acting on it – for decades. I would genuinely be interested if anyone has criticisms of her work – unusually for me, I agree with almost everything in the book. (Though I admit that she sometimes overstates her case or underplays some potential difficulties in implementation.)

      • Yoshinori Shiozawa
        August 11, 2020 at 1:23 pm

        Greg Hannsgen

        I have to argue two points: (1) the merits/demerits of appraising Keynes as having similar revolutionary ideas like Einstein, and (2) relationships between Keynes’s General Theory and what Keynes called “classical economics.”

        I will argue (1) in this post. (2) will be argued in the next post.

        If you were trying to convince that

        > Keynes and today’s neoclassical economics are not mostly Newtonian, in spite of the commonality of the use differential calculus.

        it is all right. But, if you point that neoclassical economics is “far closer to Maxwell and 19th Century energetics than other types of physics”, you still perplex me, because Maxwell has no very different physical world vision than Newton.

        Please read my post on August 9, 2020 at 11:24 am (a Reply to Ikonoclast’ post “”Heterodox economics needs to develop an agreed ontology and agreed modeling methods” posted on July 20, 2020. You can find my post at the last post but one.

        In my view, it is not correct to treat Einstein very different from Newton and Maxwell. Between the two, probably Einstein is more influence by Maxwell than Newton, because Einstein’s theory of general relativity draws much on Maxwell’s idea of electromagnetic field. But this is a minor point of discussion.

        I have a basic doubt about James K. Galbraith’s contention that Einstein and Keynes have some parallelism. It is a very rough parable that may be persuasive for some economists and impressive for many non-economists. Even if one notices Keynes’s parallel to Einstein, that alone lead economics nowhere.

        To construct a new economics, what we need is accumulation of evidence, search for more consistent theory that connect various facts, and endurance. There are no easy solutions. There is no royal road to economics as there is no royal road to geometry.

        Keynes had revolutionalised economics, but we must check each point of his theory from economics point of view, i.e. check with evidence, logical coherence, history, and wisdom and insight. But we must not deify Keynes as preachers of the truth. As a member of Post Keynesians, I believe this is the most important creed when we read Keynes and when we cite Keynes.

      • Yoshinori Shiozawa
        August 11, 2020 at 4:03 pm

        (Continued)

        (2) Re: Relations between Keynes’s General Theory’s and what Keynes called “classical economics.

        It is unfortunate that Keynes called all economics prior to General Theory “classical economics”. Before General Theory, there were two distinct currents in economics. It may have been blurred in Cambridge, because Alfred Marshall contended and believed that he is rather a successor of Ricardo and John Stuart Mill than is a revolutionary while Willian Stanley Jevons wanted to situate him as a revolutionary. Even if there were these attenuating situations, it was an gross error to neglect all differences that existed between classical political economy and the more modern neoclassical economics after the marginal revolution. Keynes’s naming not only confused but misguided later arguments.

        What Keynes called “Two postulates of the Classical Economics” was simply those of neoclassical economics in the labor market. He refused the Second Postulate but accepted the First Postulate. Had he really reflected what this rejection meant? If he doubts the validity of the Second Postulates, why did he not question the same principle in the product market? If he doubts the second Postulates, then how about the first Postulate? Is it all right? He employed in essence process analysis in his Treatise on Money. Why did he employed equilibrium analysis in General Theory?

        Keynes criticized the division of economics between the theory of value and distribution and the theory of money. Was he successful in his attempt to producing monetary theory of production? In the General Theory, he boasted that “One of the objects of the foregoing chapters has been to escape from this double life and to bring the theory of prices as a whole back to close contact with the theory of value.” Had he succeeded in it? I can read no concrete analysis in which Keynes has brought back theory of prices in close contact with the theory of value.

        If we are Post Keynesians who learn from Keynes, we should also consider why anti-Keynes revolution (in the name of rational expectation) occurred. Half of the responsibility of this counterrevolution lies in Keynes himself. He could not presented a theory of value which is compatible with his idea of the principle of effective demand. On this point, classical theory of value (Ricardo’s cost-of-production theory of value) was more compatible with the principle.

        Of course, we should not blame Keynes that he was not almighty. We should blame Keynes’s followers who did not and perhaps could not develop a new framework that can expand Keynes’s core ideas. I believe this is the true way to defend Keynes. Worshiping Keynes’s texts like sutras is the worst way to defend him and true economics.

      • August 12, 2020 at 7:59 am

        The two earlier responses below by Greg and Gerard confirm what I have repeatedly said about Yoshinori misrepresenting Keynes. Let me instance here “He could not presented a theory of value which is compatible with his idea of the principle of effective demand”. He had, explicitly, changed his mind since 1930 about [the value of] money, and by 1936 was considering employment, interest and money primarily from the point of view of the value of [the employment of] people being more fundamental than that of the monetary valuation of commodities. As the relevant theory of control wasn’t made explicit until around 1968, he can hardly be blamed for not being able to use it explicitly in his own argument. Nevertheless, being familiar with the control theory from first hand experience, what he was getting at was evident enough to me in 1968. I’ve told Yoshinori that often enough, but he still doesn’t want to accept it.

        Curiously, I heard a story about this yesterday dating from 269 a.d. The Roman emperor had decided to kill off all christian church dignatories and demanded the one holding the community’s wealth for distribution as needed (c.f. Acts 2:44-5) should hand it all over. Deacon Lawrence asked for three days to collect it together, during which time he distributed the wealth, then presented all the people to the emperor saying “These are the church’s wealth”. Needless to say he was martyred, and is now honoured as Saint Lawrence.

  9. Yoshinori Shiozawa
    July 28, 2020 at 2:09 am

    What Keynes said is often false, not only because the world changed since his time. His logic was often wrong. A simple example is the view that the interest rate is the prime mover of business investment. Keynes mentioned to housing investment but his logic was not that people invest in houses when the interest rate is low. He clearly compares interest rate with the marginal efficiency of capital (of industrial investors who invest in capital equipment).

    Keynes’s much bigger mistake was that he treated industrial investment or investment in productive capacity as if it can be treated like financial asset with promised future return. He completely ignored that fundamental uncertainty of the future revenues excludes the possibility to treat industrial investment as something like financial asset with fixed incomes. I wonder why Lars Syll does not object this serious error committed by Keynes when he talks about uncertainty. He is not consistent at all.

    • July 29, 2020 at 5:01 pm

      Yoshinori- I think you are right in regard to the 1936 General Theory itself. But in Keynes’s 1937 paper in the Quarterly Journal of Economics and the work of followers such as G.L.S. Shackle, Keynes’s theory of investment and the interest rate quickly became more or less expectations theories, based on the radical uncertainty introduced in Chapters 12 and 15 of the General Theory. With the subsequent work by Keynes, Shackle and others truly in Keynes’s school (not the neoclassical versions criticized in Lars’s post), it becomes far less tenable that the marginal efficiency of investment and liquidity preference curves in the GT can be independent. It may well be true that Keynes should have started with fundamental uncertainty and endogenous money from the beginning in writing the GT. Joan Robinson said as much in her published writings with regard to adopting endogenous money in the theory of the interest rate.

  10. ghholtham
    July 28, 2020 at 2:55 pm

    Yoshinori, I find myself in the unusual position on this blog of defending Keynes. He made great play of uncertainty and the need for animal spirits in driving commercial investment. The problem was, I think, the gap between his perceptive commentary and his formal model, where he effectively treated expectations as given and allowed the interest rate to dictate investment at the margin.

    • Yoshinori Shiozawa
      July 28, 2020 at 5:52 pm

      ghholtham I am not attacking Keynes in particular. Keynes was only one of many economists who believed interest rate matters. Leijonhufvud named the group Wicksell connection. It includes Wicksell, Hawitrey, Robertson, Keynes, Hayek, Friedman and more recently economists in the New Consensus Macroeconomics. They all believe that interest rate matters but evidence is quite poor. Recemt 8 year experiment of Abenomics and its subset quantitative and qualitative easing of different dimension by BOJ president Kuroda has beautifully failed.

      Isn’t it time to say farewell to Wicksell connection? At least, the effectiveness of monetary policy is overemphasized.

    • Calgacus
      July 28, 2020 at 9:09 pm

      Yoshinori, I find myself in the unusual position on this blog of defending Keynes

      Indeed. One should note that even before one wisely resolves to not take everything Keynes said on faith – that it may be proper to assure oneself that Keynes actually said what he is purported to have said. The more widely “known” it is that historic figure X said or believed Y, the more likely it is that they said nothing of the kind, or said sometimes Y, sometimes not-Y or even spent their life denouncing Y and all its works. Where are the quotation marks and citations? Like Yogi Berra, Keynes didn’t say half the things he said. Other examples – Descartes was most certainly not a Cartesian Dualist and explicitly denounced that idea. Was just skimming Leonard Nelson’s critique of metaphysical thinking, which he [wrongly] identified somewhat with Hegel – and noting that he could have just copied it out of Hegel himself.

      Keynes was well aware of multiple effects of interest rates. as for instance his writings on and naming of “Gibson’s paradox” show. If one can wangle Keynes into privileging interest/; monetary operations over fiscal – rather than his unquestionable and irrefutable and historical role in doing the exact opposite, then one is able to convince oneself that black is white and white is black. Perhaps the opposition of Keynes or his genuine followers to high interest was most aptly summarized by Galbraith pere’s witticism that people who have money to buy bonds that pay interest tend to have more money than people who don’t have money to buy bonds. That high interest is just another form of welfare for the rich.

      • Yoshinori Shiozawa
        July 29, 2020 at 4:56 am

        Please reflect who is trying to “convince oneself that black is white and white is black.” Have read all my posts in this page? (I have posted five “replies” not counting this one.) Please point me exactly where I am wrong in my objection to Keynes’s interest-rate theory of investment.

        You may not know but I am one of the most vehement attacker of mainstream economics. I am also trying to build a new economics which is not based on optimization (rationality) and equilibrium, i.e. on fundamental framework of traditional / neoclassical microeconomics. Please read our book Microfoundations of Evolutionary Economics. If you understand the significance or not, this is a clear departure from the one-and-half century tradition of neoclassical economics.

        As we have emphasized in the Preface, our theory provides foundations both for evolutionary and Post-Keynesian economics. See also Marc Lavoie’s book review which you can read freely because it is open-source paper. He approves almost all of our contention.

        To defend Keynes as an infallible saint is to ruin all his contributions to economic science.

      • Yoshinori Shiozawa
        July 29, 2020 at 2:00 pm

        Erratum:
        Have read all my posts in this page? -> Have you read all my posts in this page?

  11. ghholtham
    July 28, 2020 at 4:55 pm

    Greg, while Keynes wrote perceptively about the dark forces of time and ignorance he never developed a theory of expectations formation. Perhaps he regarded it as impossible. He assumed expectations of interest rates were regressive, hence the potential liquidity trap (though I don’t think he used that phrase himself). He used the term equilibrium himself. His formal apparatus did not fully reflect his own thinking. That left the door open for people to focus on the formalization and neglect other points. Keynesian failure to address expectations convincingly led to the gap eventually being filled by “rational expectations” which set macro theorising back several decades. But the answer never lay in clever armchair theorising. It lay in going and surveying people and their actions to assess empirically what could be said about the way expectations were formed and what causal relationships existed. It required economists to collaborate with and not be sniffy about psychologists and social psychologists. Keynes had the excuse of having very little data to deal with. We don’t have that excuse and must use the data we have to move past Keynes. In the words of Wittgenstein “don’t think, look.”

    • Craig
      July 28, 2020 at 5:31 pm

      Correct. “Don’t think” in terms of the present 5000 year old monetary and financial paradigm of Debt Only, and “Look” at the efficacy of monetary gifting price and monetary policies at both retail sale and at the point of note signing.

    • July 29, 2020 at 4:18 pm

      I agree that various empirical work has to go on, but I am trying to explain why Keynes’s theory has any validity at all to a commenter (Evidencebas) who is arguing there is nothing of value in Keynes’s theory. Thus, I have to explain that a test of interest rate effects does not constitute a test of Keynes’s theory. So yes, I like the concept of behavioral work on expectations. Of course, Keynes left much incomplete about dynamics with his methodological approach off starting with expectations given at a point in time and finding equilibrium, as you point out. In contrast Kalecki was able to use methods from mathematical dynamics. Yet A. Asimakopulos,* Harrod, Shackle, and other theorists worked in the decades following the GT to develop the issues of time and dynamics in Keynes’s theory. Today, behavioral studies, etc., go on and why not? I don’t have a disagreement with a program of empirically studying expectation formation as a way of working on Keynes’s ideas, but rather a disagreement with an inaccurate description and dismissal of Keynes’s theory in the form of a reference to work on the determinants of investment. On the other hand, personally I have been very interested in some ways of estimating a model of the probability of financial crises.** Some of these papers were written with Tai Young Taft as a coauthor.*** We have used this model in the context of post Keynesian model. Expectations have to matter greatly for, say financial markets, even if one takes a mostly Kaleckian perspective rather than a Keynesian one.
      *A key work by this author can be found at: https://www.amazon.com/Keynes-Theory-Accumulation-Cambridge-Economics/dp/0521368154
      **levyinstitute.org/pubs/wp_723.pdf
      ***levyinstitute.org/pubs/wp_839.pdf

      • Yoshinori Shiozawa
        July 29, 2020 at 5:14 pm

        Greg Hannsgen

        How can you say that Evidencebas is arguing that “there is nothing of value in Keynes’s theory”? As far as I know, he has never claimed such silly thing.

        In his post on July 20, 2020 at 8:25 pm he wrote “But was Keynes right?”. This does not mean that there is nothing of value in Keynes’s theory. He only asked if Keynes was always right? As an example, he asked if a fall in the interest rate stimulates the real economy. You should answer to this question concretely: yes, no, or with more nuanced reservations. Don’t distort your opponents‘s intention. (Is this done with intention?)

      • August 1, 2020 at 4:14 pm

        Yoshinori: Quoting Evidencebas from his comment of July 27 at 6:05,

        “And the link which is so important in Keynes’s model is found not to exist. So why are we talking about this model at all? – let alone its philosophical ‘foundations’?”

        Given this quotation, I do not see how I am “distorting” Evidencebas’s “intentions.” Evidencebas is very close to saying there is “nothing of value” at least in the topic being discussed, given that he asks us “why talk about it at all?”

        Perhaps you were looking at a different comment by Evidencebas? Okay?

      • Yoshinori Shiozawa
        August 1, 2020 at 5:14 pm

        Do you know what is Keynes’s interest-rate theory of investment. It assumes that low interest rate increases investment. He is speaking of the model which adopts Keynes’s theory of investment. However, the link (i.e. link between interest rate and investment) is not confirmed. See my post on July 21, 2020 at 3:36 am in reply of evidencebas’ post on July 20, 2020 at 8:25 pm and also my post on July 31, 2020 at 4:21 pm. Then, it is natural that evidencebas doubts the validity of most of Keynesian model. He does not contend that all what Keynes said was useless. He depicts one clear proposition and it was refuted. Do you believe what Keynes said is always true and correct? If not, what is the problem? Please read all posts of evidencebas and me in this page.

  12. July 29, 2020 at 6:39 pm

    First, I want to say that I find this discussion extremely interesting and useful. Many people have made really important contributions. So thank you to all participants. But it leaves me with the thought, why are these issues not front and centre of discussions in economics? I have been trying for a very long time to have a sensible discussion of Keynes (especially the GT) in terms of the evidence. I’ve even approached leading Keynes scholars, and got nowhere.

    I’m not specifically criticizing Keynes. My point is about basic methodology. Someone said (I think quoted on this forum) that we shouldn’t bother with economic methodology, we should get on and do the actual economics. My view is that we should do the actual economics and use methodological insights to ensure that we do it as well as possible.

    I agree with ghholtham that Keynes said many important and brilliant things, but it’s his model that’s the problem. This is an entirely general problem in economics. I can think of a number of good current economists who talk a lot of sense, but their models don’t really work. And of important economists before Keynes as well.

    This is the key methodological point: valid insights into how the economy works typically result from the writer’s intuitive grasp, informed by deep immersion in the subject matter, i.e. the evidence – which is likely to be qualitative as well as quantitative, and not necessarily formally published as evidence. When the same writer tries to formalize this in a model, including a verbal model as with Keynes, a lot of these valid insights get squeezed out. This simplification is necessary for building models, and if the excluded bits are relatively unimportant, little or no harm is done. But this is not always the case, and one needs evidence to make that judgment. More important, the writer may put in a causal component that is essential to the whole model, but which doesn’t actually work in the real world. Or very likely, it works in some places and times but not others. This appears to be the case with Keynes’s view about interest rates and real-economy investment. (I appreciate ghholtham’s points about the impact on various aspects of consumption. This could indirectly stimulate business investment, but the effect would be weak.) It’s a feature of many models in economics, including the GT, that their analysis depends on a chain of causation – and if one link doesn’t operate, the entire chain is broken.

    Coming back to Keynes: an expectations theory of investment appears to be sound in view of what is known: real-economy investments are made when they are expected to yield future profit. This is hard to model. But that doesn’t make it less true! I suppose you could say it’s a question of what affects animal spirits. Keynes himself would have included the state of effective demand, so what I’m saying is not “anti-Keynes”, it’s a criticism of just one element plus the consequences that flow from it for the rest of a particular model.

    On Yoshinori’s point about Keynes’s confusion of investment in productive capacity with a financial asset: the GT is not the only place he does this. For example, in “Economic possibilities for our grandchildren” (1930), he makes a prediction based on the logic of compound interest. Doubtless this was a proxy in his mind for actual economic growth, but this is the problem! They are not the same. Before the industrial revolution, interest rates were positive, but sustained growth of any magnitude was rare.

    • August 1, 2020 at 5:06 pm

      “Coming back to Keynes: an expectations theory of investment appears to be sound in view of what is known: real-economy investments are made when they are expected to yield future profit. This is hard to model. But that doesn’t make it less true! I suppose you could say it’s a question of what affects animal spirits. Keynes himself would have included the state of effective demand, so what I’m saying is not “anti-Keynes”, it’s a criticism of just one element plus the consequences that flow from it for the rest of a particular model.”

      I appreciate your willingness to consider that point and to say your argument was not meant to be anti-Keynesian. Because indeed it seems that with a full reading of Keynes, it is hard to portray him as having a theory that focuses on the interest rate rather than expected demand. Of course, given this one strategy is to simply use a current variable like the profit rate (J. Robinson) or capacity utilization (J. Stiendl). H. Minsky’s work suggests financial variables such as leverage ratios, etc. Explicitly modeling expectations or sentiments is of course yet another answer that probably gets closer to Keynes’s model in the GT.

  13. Meta Capitalism
    July 30, 2020 at 1:05 am

    My point is about basic methodology. Someone said (I think quoted on this forum) that we shouldn’t bother with economic methodology, we should get on and do the actual economics. (Michael Joffe, RWER, Complementarity of Sources of Evidence, 7/29/2020)

    .
    More than one regular poster on this blog—each at different times and to different degrees—has made this argument dismissing methodological reflection (i.e., philosophy).
    .

    My view is that we should do the actual economics and use methodological insights to ensure that we do it as well as possible…. This is the key methodological point: valid insights into how the economy works typically result from the writer’s intuitive grasp, informed by deep immersion in the subject matter, i.e. the evidence – which is likely to be qualitative as well as quantitative, and not necessarily formally published as evidence. (Michael Joffe, RWER, Complementarity of Sources of Evidence, 7/29/2020)

    .
    It seems this is an accurate insight into how good science is generally done. Some degree of philosophical reflection on methodology is required to able to remain self-conscious of one’s own presuppositions. A healthy humility and self-awareness and critical reflection upon epistemological and ontological questions need not paralyze research.

  14. Yoshinori Shiozawa
    July 30, 2020 at 7:47 am

    Actual mainstream macroeconomic policy is derived by negative reasoning. Before 1970’s, when (old, bastard, new synthesis, …) Keynesians were influential, fiscal policy was dominant. After Friedman’s monetary policy failed, New Keynesians in the U.S. regained some power of influence. The latter argued that fiscal policy became ineffective because in an open economy, effective demand created by a government would leak out of the country and there for one should draw on monetary policy by controlling interest rate (Taylor rule, etc.). By this “reasoning” New Consensus Macroeconomics (= Macroeconomic Policy) was adopted by majority of macroeconomists. However, no study existed based on evidence proving that lowering interest rate was effective (as far as I know). When first phase of monetary policy was put into implementation and was proved to be ineffective, only the strengthen of monetary policy was tried. It was the QE (quantitative easing). It was not sufficiently stimulating in the Japanese case and a “Quantitative and Qualitative Easing of Another Dimension” was invoked in 2013 by the new President Kuroda named by Prime Minister Abe.

    All imagination was confined to a narrow choice between fiscal or monetary policies. When monetary policy was adopted, it was strengthened more and more because the policy was ineffective. If economics is sane and sound, the policy must have been corrected somewhere before now. The responsibility of economics is great. So, the question posed by Evidenceba is extremely important. We (including Post Keynesians and heterodox economist) have been neglecting to ask if Keynes’s simple proposition is valid or not, is supported by evidence or not.

    A criticism that covers surface is not useful, because what is asked is, in my opinion, to emancipate ourselves from the wide spread and deeply entrenched thought tradition named Wicksell Connection which comprises not only New Keynesian economics but also majority of Post Keynesians who criticize QE but yet believe that interest rate is unique variable (if not at least main factor) that determines investment.

    • July 30, 2020 at 10:43 pm

      Yoshinori, do you accept the analysis of Richard Werner – who knows a lot about Japan – that the reason for the ineffectiveness of conventional QE (buying bonds) is because the money flows to the financial sector? He distinguishes between money going to real investment, which he identifies with boosting GDP, and money going to the financial sector and real estate. Josh Ryan-Collins has a similar analysis. I find them quite convincing, but I don’t really know a lot about those particular areas. (I am not getting into to issue here of problems with GDP …)

    • Yoshinori Shiozawa
      July 31, 2020 at 3:27 am

      No, I didn’t know him until you asked me about him. I started to study financial economy from 2014 and had no interest on this area before that. Thank you for the information.

      His book Princes of the Yen was published in 2001 and seems to have been very popular. In the Amazon Japan there are 50 customer reviews. Many readers thought that It unveiled the unknown history of the Bank of Japan after the WWII. Minority of reviews read it as a kind of conspiracy theory.

      In the Wikipedia (Japanese) article Richard Werner, it was explained that he distinguishes financial and real investment. It is a new account why Quantitative Easing has failed, which he proposed as early as 1990’s. I believe it is important to distinguish real and financial economy and how money circulates inside and between them. It is true that money went to real estate and caused a bubble of late 1980 which burst in 1992. Does this mean that he has evolved his theory? It seems to me that he still believes there is financial remedy for a disease of the real economy, if I am not misunderstanding him by my quick survey.

      As there are many impatient people who ask quick effective treatment, Werner may be responding to those people. You have replied on July 30, 2020 at 10:53 pm to Econoclast below that search for quick treatment alone does not necessarily make science progress. We should also doubt if there is a financial remedy for a disease of the real economy.

      Keynes distinguished industrial and financial circulation of money in his Treatise on Money. Robertson considered hoarding, which can be interpreted as money in financial circulation. I am interested in this kind of distinction which has been lost since The General Theory. Therefore, we may situate Werner’s distinction between real and financial economy in a new framework.

    • Yoshinori Shiozawa
      July 31, 2020 at 4:21 pm

      evidencebas

      I have read

      Kansel Lee and Ricahrd A. Werner 2018 Reconsidering Monetray Policy: An Empirical Examination of the Relationship Between Interest Rates and Nominal GDP Growth in the U.S., U.K., Germany and Japan. Ecological Economics 146:26-34.

      because it is the most recent paper of which I can get a copy.

      My impression did not changed much. This paper contains empirical study of the relation between interest rates and growth rates (Nominal GDP growth rates). As I have no good knowledge on econometrics, I have no comments to add on their statistical studies. They claim this is the first empirical test ever tried. If it is true, it is extremely astonishing.

      Their examination showed that two series (interest rates and growth rates) are strongly correlated but Granger test showed that growth rates Granger-causes interest rates for all four countries but no opposite causality was admitted except Germany. As they claim, it would be most plausible to interpret that central banks adjusted their interest rates following the growth rates. As there is no strong Granger-causal relations, we may conclude that low interest rate has no strong power to stimulate economic growth. Despite of this fact, 95 % of economists believe that lower interest rates can stimulate the economy, If the authors estimates is correct. (Almost all economists from classical to new classical economics to Post Keynesian and Austrians.)

      As a policy recommendation, Werner still emphasizes that quantity easing has some possibility, despite the clear result obtained by 8 years of Abenomics and QQE of the BoJ.

      His economics seems still quite traditional, because he is thinking that economy is in disequilibrium and market in disequilibrium is characterized by rationing. In my opinion, we should overthrow equilibrium/disequilibrium framework and adopt process analysis (or sequence analysis). I have no idea how this can be done for financial economy, but for majority of real economy we have already find such a theory. It is explained in our book
      Microfoundations of Evolutionary Economics. See also Marc Lavoie’s book review.

  15. Yoshinori Shiozawa
    July 30, 2020 at 4:31 pm

    The increasing mathematization of economics has made mainstream economists more or less obsessed with formal, deductive-axiomatic models.
        Lars Syll “Why economics is an impossible science” on July 28, 2020.

    As a criticism of mainstream economics, this may work positively. In other words, this may produce by chance a small number of young economists who reflect on their economics and try to study economics in a more synthetic way with a sound spirit. On the other hand, this kind of attack on mathematics has a strong negative effect which may disrupt the efforts to reconstruct economics in a more logically coherent system.

    Keynes said many insightful observations but also said many contradictory propositions. So the people who believe Keynes was always consistent and right fall in a great confusion. Keynes’s economics needs not only correct interpretations but also a right reconstruction.

    Reconstructing economics requires enormous number of propositions based on evidence. But collecting those propositions alone is a kind of natural history of economic affairs. We need a system of concepts and theories by which we can interpret the labyrinth of different facts as systematic facts. In that phase, we need not only esprit de finesse but also esprit géometrique. Lars is forgetting a half of scientific spirit..

    • Meta Capitalism
      August 1, 2020 at 4:01 am

      Here is an example of the kind of silly ill-logic that takes both this blog and its influence and oneself far too seriously:

      As a criticism of mainstream economics, this may work positively. In other words, this may produce by chance a small number of young economists who reflect on their economics and try to study economics in a more synthetic way with a sound spirit. On the other hand, this kind of attack on mathematics has a strong negative effect which may disrupt the efforts to reconstruct economics in a more logically coherent system. ~ Shiozawa Ranting Silly Sky is Falling Logical Fallacies
      .
      What is at the stake is the whole structure of a discipline. Can you imagine such a thing in geology or geophysics? It is something similar to replacing modern physics by another. Probably you cannot understand the real issue of economics. (Yoshinori Shiozawa, 2/5/2018, Personal Communication)

      .
      Where does this sky is falling fear mongering—e.g., “What is at the stake is the whole structure of a discipline.”—come from? It shows someone who is cloistered and out of touch with the real world in my view. Clearly Shiozawa thinks this blog is of world-influence significance for the entire field of economics.

      For starters, here one site that has far more real-world impact than RWER does, in my view:

      https://pitchforkeconomics.com/

      That seems a bit out of touch with the real world and the role blogging plays in it. When one considers the number of blogs out there on economics by economists and others, along with the number of podcasts, this kind of myopic self-centered comment becomes ludicrous.

  16. Econoclast
    July 30, 2020 at 5:15 pm

    As a grandparent of an autistic child, I favored the name change from “Post-Autistic Economics”, although I’m not hung up on that. But recent posts on this blog suggest to me the original meaning of the name: out of touch with the “real” world.

    Today’s report shows that gross domestic product fell in second quarter by nearly one-third, the highest drop since World War 2. And Agent Orange, who is stealing the White House, has tweatened (that is threatening while tweeting) to postpone the November Presidential Election.

    All this while hundreds of Federal armed thugs occupy my former home of Portland, Oregon, defying court orders to leave. While a visit Tuesday showed me that homeless camps are radiating, von Thunen-like, in all directions. My daughter, who lives there, cannot afford to buy a home and many of her friends cannot afford their rents. This while politicians dither over a policy oxymoron called “affordable housing”.

    While the likely top two Democratic nominees for vice president either monger permanent war or shill for the jail industry. This while a new bioweapons lab on Galveston Island has its design limits tested by 140 mph winds from a current hurricane, sea levels rising incessantly to threaten its foundations 20 feet above sea level. While the factory farming industry is losing its pollinating bees. While my wife’s treasured crabs are losing their shells. While water is being monopolized.

    On and on. Yet, except for Ruccio, the posts on this blog overwhelmingly concern technical minutiae, squabbling about science philosophy, computer models, Keynesian interpretations, or whatever.

    It all amounts to fiddling while Rome burns. We should rename again: Unreal World Economics Review.

    • July 30, 2020 at 10:53 pm

      I have a lot of sympathy with the desire to be working on more current, practical issues. But that doesn’t mean that these issues of basic economic theory plus methodology are useless. The way I think of it is, economics now is like medicine in the past – say, 150 years ago. Doctors then probably did more harm than good. What changed the situation was the scientific study of various apparently quite theoretical topics: the germ theory of disease, physiology (how the body works, mechanistically), the laws of genetics, and so on. We now tend to see modern medicine as a science, but in fact it’s a practice (as it’s always been) that is now *based* on sound science. I see what we’re trying to do in economics as similar. Unfortunately it’s on a longer timescale – although some of the issues we’ve been discussing actually could be useful in transforming policy in the short term. Also, it’s important to debunk the false theories that are around – for example the doctrine of shareholder primacy, which has done a lot of harm, and continues to do so.

      • Econoclast
        July 30, 2020 at 11:12 pm

        Thanks for responding.
        I don’t really disagree with what you say, but in my training in market-fundamentalist neoclassical economics, and right through today, I experience too little that addresses the dominant governance and economic power of our time: the power of corporate capital. And in graduate school at a prestigious university we were explicitly discouraged from studying institutional economics (in the lingo of the time, “that’s so over, dude”) and the work of such as Marx and George. Such study is, or can be, as “scientific” as the technical models I worked on then with pioneers in such.
        If we don’t worry too much about political relevance, then Henry George’s single payer tax, for example, makes as much sense as Thomas Piketty’s global wealth tax. If we bring in political relevance, as we must, then neither of those has much chance of passage, no matter their technical merits.
        If we don’t get on top of this out-of-control financialization and rampant speculation engine, then we’re doomed, no matter how “scientific” we are.

      • July 30, 2020 at 11:22 pm

        I agree that corporate power, and economic power more generally, should be front and centre of economic theory. This is as much a methodological point as a political one. To go beyond complaining about neoclassical theory and replace it with something that actually explains how the world works, new theory is clearly needed, and it needs to be methodologically sound. In my view, this would involve economic power.

        It’s important to get the theory (empirically-based analysis of causal relationships) right in order to be effective. So it’s a lot more than a political campaign, it’s an intellectual one too.

      • Econoclast
        July 31, 2020 at 12:41 am

        Well at least we’re having a discussion I can relate to, and I’m enjoying it.

        What I wish to emphasize is that I find an imbalance in this blog that reflects one of my criticisms of mainstream economics: an imbalance of technical versus non-technical/institutional/political. This condition reflects something that’s been wrong about the mainstream for more than a century, when the profession dropped the “political” from its former name, political economy. If you know the history (an important empirical quest itself), you know that this was a deliberate move to counter Karl Marx and Henry George and to bolster corporate capitalism.

        And what I was told by the luminary economists in my schooling (several future Nobel winners) also was deliberate, in effect saying that “we must be scientific, science is all about measurement, and that’s what economics is all about.” Well, no, it is not. Science is not just about measurement, nor is “empirical” only about numerical data. This last claim of mine could be a good discussion here.

        I graduated from the same department from which John Kenneth Galbraith received his PhD. This luminary certainly did not share that narrow view of science.

        It is odd that I should be advocating balance here. I’m rarely concerned with such as balance and objectivity (deeply concerned with fairness, on the other hand). But then, some consider me unbalanced, so go figure.

      • Yoshinori Shiozawa
        July 31, 2020 at 5:29 pm

        Econoclast You have such a good background in economics. I am sad that you do not have better understanding of conditions in which economics is thrown. As evidencebas noted, economics is like medicine 150 years ago. If you ask magic solutions to economics, there is a big chance that economists’ imaginations are narrowed to policy thinking. It may obstruct economics to develop to a further, higher stage.

        Please read my two answers on July 31, 2020 at 3:27 am and July 31, 2020 at 4:21 pm to evidencebas.

        Richard A. Werner seems to be an extraordinary economist. He simply refuses that lower interest rates stimulate economic growth. How do you think of his contention? He has shown in his paper Reconsidering Monetary Policy of 2018 that interest rates had almost no effects in stimulating economic activity. That is fine. As he estimates himself, he has courage to doubt and reject what other 95 % believe. Even such an economist seems to be obstinate to the idea that there must be some effective financial measure for the central bank. He still advocates quantitative easing of different kind. But there is no evidence that supports his expectation, although there is already one clear counter evidence.

        I feel sorry for him. Why can he not escape from such an obstinate idea? I believe it is because so many people ask some magic treatment for present awful situation. You have the right to do so, but such right claims have the chance to distort economics.

        You know very well how your teachers went astray in technical details. Of course, you have the right to say “no!” if they indulge in astrological magic. But do not throw your baby away together with magic. They may have seized a law in astrology that may lead to the scientific revolution. You need to be patient.

    • August 1, 2020 at 5:56 pm

      Econoclast: to quote you,

      “On and on. Yet, except for Ruccio, the posts on this blog overwhelmingly concern technical minutiae, squabbling about science philosophy, computer models, Keynesian interpretations, or whatever.”

      Recall that there is more to life than government policies and political issues! Economists, like other people, have many other concerns and interests.

      But I agree that relatively arcane theory has dominated here at times, especially in Lars’s posts.

      Also, I wonder how you find Dean Baker’s posts. He certainly tends to stick to down-to-earth policy issues in his writings.

      But some of the arcane theory (such as misleading theorems from neoclassical trade theory) are frequently deployed–in the textbooks for example–in unfortunate ways. Moreover, the “science” helps lend prestige to some bad policy ideas. The result is that the masters of these theorems tend to garner high positions in governments and central banks. Then once in office, they tend to apply the simplistic nostrums in the textbooks, forgetting how little they can prove or show empirically.

      • Econoclast
        August 2, 2020 at 9:40 pm

        I like Dean Baker and find his posts informative. However, like so many economists, including some of those I like (including Keynes), he labors to save capitalism from itself. Capitalism has several built-in collapse mechanisms, some of which are operating in spite of economist’s efforts. My concern is with people who will be harmed by the collapse.

    • Econoclast
      August 2, 2020 at 9:33 pm

      Yoshinori, perhaps I have not made myself clear. I hope to do so with this: about the issues of effect of interest rates on business investment, r versus g, carbon tax versus cap-and-trade, sales tax versus property tax, income tax versus global wealth tax, I simply no longer care. We’re past that. I want us citizens to have credible information with which to confront The Deep State (and its bloated Pentagon budget), to enable us to better cope with climate catastrophe, and to get our state and local government finances under control. Somehow, if we somehow make progress in these three things, I feel we might have a future that is not doomed. My position has nothing to do with magic.
      Herman Daly can hold his own with the best of them on interest rates. But this fine economist has spent his career trying to persuade his colleagues that the economy is a subset of the planetary ecology, not vice versa, as the mainstream ideology believes. He’s made some headway, but not enough, because we’re mired down in cultural misunderstanding that still infects the economics profession.
      The bulk of my large family lives in my former home town of 35 years, Portland, Oregon. This fine city is a testing ground for whether Agent Orange, who daily violates his oath of office while runnihg The Constitution through the Oval Office shredder, will get away with occupying American cities with storm troopers and agents provocateurs. A revisiting of the Weimer Republic, the Reichstag fire, Hitler, and all that, if you will. If you are on the ground here, where data is/are created, you will know I am not being hyperbolic (a fine essay from a credible author: http://www.counterpunch.org/2020/07/31/a-portland-sit-down-can-rock-trumps-boat/). Under these circumstances, locked down under Covid-19 in a community full of climate and Covid-deniers and shuttered small businesses, perhaps you can understand why I don’t care about arcane technical economics discussions, yet care deeply about the economy. My former home is Ground Zero for a culture war that was declared on me and all of you in August 1988.
      No, I do not “need to be patient”. At the end of a long life I ask, as Bob Dole once did, “where’s the outrage?” And I’ll quote Dylan Thomas: “I’ll not go gently into that good night”.

  17. Meta Capitalism
    July 31, 2020 at 1:34 am

    The last exchange between Econoclast and “Evidence based” (EB) is both enlightening and heartbreaking at the same time. I agree wholeheartedly with Econoclast. That doesn’t mean I don’t agree with EB, just that I believe that economics is less in the middle of a crisis rooted in the science of methodology and practice and more a crisis of meanings and values. How one defines the goals, the purpose, the ends of the scientific enterprise largely determines the problems one sees and chooses to solve. I fear we are going to walk civilization right over the cliff into another dark ages while some fiddle away precious time searching for the holy grail of deeper patterns/regularities to create a new theory when pragmatic real-world solutions are pragmatically available to be solved using a wide variety of tools, evidence, and methodologies both quantitative and qualitative as both Econoclast and EB have noted on this blog. I am consoled in knowing that RWER is a small place with little real-world impact; more entertainment than solutions for the real world. A kind of distraction, hence, not to be take to seriously.

    • August 1, 2020 at 12:34 am

      Agreed until “some fiddle away precious time [in] a small place with little real world impact”. The likes of Metacapitalism seeking entertainment rather than “solutions for the real world” are what can make it so, but it was founded as a safe place in which serious seekers of solutions can explore and share and criticise possible solutions and (insofar as they are not too busy listening to themselves) learn about possibilities they had never before considered, creating the possibility of their coming to agree on a real world solution.

      Admirers of Keynes might like Whitehead’s concluding sentence: “The total effect of the influence of [the great conquerors] shrinks to insignificance , if compared to the transformation of human habits and human mentality produced by the long line of men of thought from Thales to the present day, men individually powerless, but ultimately the rulers of the world”.

      In response to capitalist BinLi, they unfortunately invented money, and it is the Money Masters who now rule the world. Keynes, like Goethe’s Faust, found you cannot reason with the devil.

      • Meta Capitalism
        August 1, 2020 at 3:37 am

        Talk about misquoting; here is what was said:

        I fear we are going to walk civilization right over the cliff into another dark ages while some fiddle away precious time searching for the holy grail of deeper patterns/regularities to create a new theory when pragmatic real-world solutions are pragmatically available to be solved using a wide variety of tools, evidence, and methodologies both quantitative and qualitative as both Econoclast and EB have noted on this blog.

        I will ignore your distorting what was said Dave for apparently your own ego-driven-purposes (which is one main reason I see this blog as a failure) and simply say this.

        Real world solutions will not be created on any blog, let alone this blog with its limited scope and focus. Ideas may be discussed, but they are not really having any real impact in the world where change really happens it seems in my view. In fact, I don’t believe economists will contribute much of anything to any real world solutions at all except for the few who focus on real-world problems in contexts in which actual new business (economic) models are created in the REAL WORLD.

        Economists (most anyway) will write about an pontificate on real world solutions as they emerge from the social change brought about by the necessity of the crisis we are in. Real world solutions will be created by a mix of actors, from creative business leaders (creating, for example, co-op models of business that don’t put ‘shareholder’ capitalism front and center), social activists, and political leadership that reigns in predatory capitalism’s grip on power through lobbyists and money and corrupting institutions. Some economists might contribute some useful ideas, but generally they are chatter in the wind that few who are in the trenches of social change and struggle (e.g., fighting Trumpism) listen to seriously.

      • August 1, 2020 at 10:57 am

        Talk about misquoting! What I actually said was I agreed with you (i.e. in your diagnosis) until “some fiddle away … “. Let’s be up to date: strumming their own guitar while complaining of Covid 19 and global warming raging round them.

        A blog is not the easiest place to keep track of who does what, but surely you should have realised that the most constructive comment here comes from people like myself who, though concerned about the state of the world economy, are not economists? In my case I’m primarily an information scientist with a lifelong interest in economic history and philosophy of science. I was trained for engineering scientific experiments
        so always have practicable solutions in mind.

        One cannot have solutions in mind until they have been invented, which my proposed credit card solution not only has been but is already familiar, needing little to change in our everyday life. Those fighting Trumpism etc need to agree on what they want to end up with, remembering that their empire building opponents seek to “divide and rule”.

    • Econoclast
      August 2, 2020 at 9:38 pm

      Well said. I distinguish between art and entertainment thus: the former is life-engaging, whereas the latter is distracting.

      Regarding “How one defines the goals, the purpose, the ends of the scientific enterprise largely determines the problems one sees and chooses to solve”, see my comment on creating a new economic model in response to Craig, below.

      • Meta Capitalism
        August 3, 2020 at 11:52 am

        I distinguish between art and entertainment thus: the former is life-engaging, whereas the latter is distracting. ~ Econoclast’s Wisdom Worth Keeping

        .
        To paraphrase Econoclast (and to check my understanding) when art is diffused with purpose, higher meanings and values, it becomes life-engaging; otherwise it is merely entertainment—a momentary distraction from life’s troubles. I believe that when I view this statement in the light of his statement below I see a certain symmetry of artistic beauty in the truth of his definition of economics that when put into practice can lead to true goodness:
        .

        Here’s my contribution, based upon one goal and two first principles. The goal in any democratic society is this: an economy is a system, created or evolved by people to be run by people to serve people’s material needs. In my view, this goal is not a question served by discussion. The relevant questions should be: created by who, run by who, serving what people’s needs how? In the latter viewpoint we immediately enter the realm of political economy and our focus is power.
        .
        The two first principles are these: first, in unambiguous recognition of physical reality, the economy is a subset of planetary ecology, not vice versa (and in this principle rests the thorny questions of population level and its control). Second, in frank recognition of cultural reality, the economy must recognize class conflict, that democracy is a flexible, evolving phenomenon, that we are dominated by the power of corporate capital, and that we live in a patriarchy. This principle also forces us into political economy and a continuing analysis and discussion of power. ~ Econoclast’s One Goal and Two First Principles

        .
        I say this beautiful because it is true and it is good because it is actionable. Enlightened economics in my view is not so much concerned with some specific intellectual belief or with any one particular mode of living as with discovering the truth of living, the good and right technique of reacting to ever-recurring situations of mortal existence that raise questions that fall within the domain of economics—how to serve people’s material needs in a just, fair, and equitable manner that is sustainable not just for us but for our children, grandchildren, and future generations. When we recognize the fact that this inevitably means we must address political power relations, class conflict, that “democracy is a flexible, evolving phenomena” that requires never-ending adjustment and engagement on multiple levels, that ethical meanings and values are not static but ever adapting to demands that day-by-day control and guidance of conduct require, we can perhaps stop seeking the “holy grail” of some future “social mathematics” when economics becomes a true science and get on with the task of confronting the real problems that confront our society today.

      • Meta Capitalism
        August 3, 2020 at 11:53 am

        So sorry for the mish-mash, you will have to sort the start and end quote yourself.

      • Econoclast
        August 3, 2020 at 3:27 pm

        Meta, no need to apologize for a small instance of “mish-mash”; after all we’re talking about an entire profession infected with mish-mash.

  18. Meta Capitalism
    August 1, 2020 at 4:46 am

    As a criticism of mainstream economics, this may work positively. In other words, this may produce by chance a small number of young economists who reflect on their economics and try to study economics in a more synthetic way with a sound spirit. On the other hand, this kind of attack on mathematics has a strong negative effect which may disrupt the efforts to reconstruct economics in a more logically coherent system. ~ Shiozawa Distorting Lar’s Intention & Argument.
    .
    Don’t distort your opponents‘s intention. (Is this done with intention?) ~ Shiozawa’s Pot Calling the Kettle Black

    .
    Lars has made obvious many times on this blog his critique is aimed narrowly at Mainstream Economics and its theoretical abuse of mathematics with examples that are widely supported throughout the literature. Most the complaints are that he doesn’t go beyond this narrow focus (for example, he doesn’t address complexity theory, as far as I know). This may be true but nevertheless is not germane to his central arguments. He refers to this effort as ‘clearing the underbrush’. His specific critiques of mathematics are context-specific and valid, yet Shiozawa disingenuously (he know better, as his first comment above proves) distorts both Lars intention and actual argument. He has done this repeatedly on this blog. So, I find it rather self-contradictory to on the one hand raise his objection to reading into an argument that which is not there and distorting and misrepresenting what was said (intentionally or unintentionally) yet turning around and doing just this in the same post no less.
    .
    Truly, that is like complaining that leading one’s ox to water violates the sabbath while turning around and leading one’s ox to water on the sabbath!

    • August 1, 2020 at 11:00 am

      Sadly, Metacapitalism, experience has led me to agree with you here too.

  19. Craig
    August 1, 2020 at 7:25 am

    What are the policies everyone here would recommend to rectify the economy and economics? Talking and theorizing are fine, but policy is the action of systems, and I think everyone here thinks action is urgently needed. C’mon, let’s talk policy.

    • Robert Locke
      August 1, 2020 at 8:30 am

      change the governance of firms from a proprietary to an organic decision=making structure.

      • August 1, 2020 at 11:24 am

        I entirely agree with Robert’s proposal, but with Craig talking of “policies” would extend it to include politics (government) and banking as well. With credit card finance, Covid epidemiology and three dimensional printing before us as paradigms, the policy needs to gradually reorganise the balance between local and mass production and marketing in favour of the more organically manageable “local”. Gaia! Mondragon! Small is Beautifull!

      • Robert Locke
        August 4, 2020 at 9:18 am

        organic decision making could be called a community decisionn making structure, as in german apprentice training system, wher 60% of high=schoolers entrer the program, 10th grade, where firms, local schools, trade unions and government run it cooperatively. That’s nation wide, with local peculiarities.

    • Econoclast
      August 2, 2020 at 9:41 pm

      Craig, I often read people saying we critics must be for something and that we must create a new economic model. As a critic, I feel I have no obligation to accompany my criticism with a statement of what I am for. A professional movie critic has no obligation to state what they would have done differently in making the movie.

      Regarding creating a new economic model, I agree we badly need this. Here’s my contribution, based upon one goal and two first principles. The goal in any democratic society is this: an economy is a system, created or evolved by people to be run by people to serve people’s material needs. In my view, this goal is not a question served by discussion. The relevant questions should be: created by who, run by who, serving what people’s needs how? In the latter viewpoint we immediately enter the realm of political economy and our focus is power.

      The two first principles are these: first, in unambiguous recognition of physical reality, the economy is a subset of planetary ecology, not vice versa (and in this principle rests the thorny questions of population level and its control). Second, in frank recognition of cultural reality, the economy must recognize class conflict, that democracy is a flexible, evolving phenomenon, that we are dominated by the power of corporate capital, and that we live in a patriarchy. This principle also forces us into political economy and a continuing analysis and discussion of power.

      In my work life I spent years in policy development, both legislative and executive. Turning this goal and these principles into policies, then into actual programmatic and institutional practice in our democracy takes years of hard, sustained work. On the ground, where ordinary people live, I am not optimistic that people from now on will have the time to do the work (hard to find the time holding down two jobs). And fighting apathy and despair makes it all harder. Same for revolution. And about policies from the top? Been there, done that, and not interested. Likely outcome of all this: chaos and collapse and who knows what after.

      • August 2, 2020 at 11:13 pm

        Eco, my own reply to Craig responded to his appeal for policies, so I wouldn’t want you to think I hadn’t taken years developing an underlying model of reality to justify more or less your goal and two “first principles”. Your second principle I would express in terms of the model rather than class conflict: as capitalism’s monetary FIRE economy being parasitic rather than run by a consciously antagonistic class of people.

        To clarify my position in relation to your comments below, which I welcome, I am anything but “a narrow, numbers-driven, technical science pretender”. See wikipedia on “elastic” [non metric] topology [https://en.wikipedia.org/wiki/Topology], and Shannon’s “Mathematical Theory of Communication” not for its maths but on proposing use for error correction of redundant [e.g. FIRE economy] information capacity.

    • Meta Capitalism
      August 3, 2020 at 12:43 am

      There is nothing new Beneath the sun!

      Sometimes there is a phenomenon of which they say, “Look, this one is new!”— it occurred long since, in ages that went by before us. The earlier ones are not remembered; so too those that will occur later will no more be remembered than-a those that will occur at the very end.

      — Ecclesiastes 1:9-11

      If the rich could hire other people to die for them, the poor could make a wonderful living.

      — Yiddish Proverb

      A wonderful recommendation, pragmatic and real-world, was made by Imam Makram El-Amin to Majdi Wadi in the midst of a real-world crisis in which Majdi Wadi discovered his own role in perpetuating racism and economic injustice.

      https://www.npr.org/2020/07/20/892974522/un-holyland-an-arab-muslim-reckoning-with-racism

      I find the idea of creating a community owned co-op urban agriculture + supermarket to create sustainable agriculture that provides local jobs and local food resources to underserved communities a “revolutionary” and “new” idea. But actually it is not new nor revolutionary when one knows history. Honest Abe was a Co-op Dude, after all.

      • August 3, 2020 at 9:15 am

        Meta, love your quotes, especially the Yiddish one! My favourite seems to be “hope for the best, expect the worst, and be prepared for anything”. Living among people of contrary personality types, all preferring different things, I suppose I am just putting in my pennyworth sharing what I prefer: adaptable logical solutions.

      • August 3, 2020 at 9:20 am

        Sorry. “Adaptable logical solutions” are not just what I prefer but what since globalisation have become necessary.

      • Meta Capitalism
        August 3, 2020 at 11:57 am

        Glad you enjoyed them Dave. God Mocks is great book, which is were I first encountered the Yiddish satire.

      • August 3, 2020 at 6:08 pm

        Yes., Meta. A quick comeback on localised production and cooperativism not being “revolutionary” and a “new idea” after all. I don’t think I anywhere implied that it was. I probably first got it from Chesterton, who died while I was still in my mother’s womb, and I gained an interest in NZ from my wife’s mother having moved there.

        What I might say is that my basic theory justifying Eco’s aims and first principles enabled me to select from possibilities that satisfied them, which were practicable in that they had already been invented. Given the extent and distribution of the world’s population now, I envisage “adaptability” being needed in the form of on-going mass production of materials, and necessities to feed the world’s cities, at least until workshops for local initiatives have trained enough people into thinking and cooperating locally. That might be encouraged by returning residential areas of city centres to Nature and relocating mass production along railways; but that is, perhaps, a bit “utopian”.

        Left to itself, I wonder if Nature might repair itself. We suffer from fast-growing adjacent trees seeding our garden, so if we popped our clogs and our house was left derelict, it would disappear into a dense forest in three or four years time.

      • Econoclast
        August 3, 2020 at 11:06 pm

        Dave: Good thinking about a cooperative economy.

        I am a bit nostalgic about this: “until workshops for local initiatives have trained enough people into thinking and cooperating locally. That might be encouraged by returning residential areas of city centres to Nature and relocating mass production along railways”. Three things come to mind. First, my mother was a pioneering organic gardener who trained people in the raised-bed, French-intensive method of organic gardening. At the time (the 60s) this was “far-out”. Now raised beds and organic gardeners are everywhere. Second, the dismal rundown area of downtown Detroit has been occupied by a large organic farm run by black residents, and I’m told it is quite successful. Third, when the Soviet Union fell, Cuba lost the industrial agriculture assistance (mainly machinery and chemicals) it had come to depend upon, so they shifted much of the farming that fed the cities back into the cities themselves, or so I’ve read and friends have said who have seen these farms.

        And: “Left to itself, I wonder if Nature might repair itself.” This amuses me. For several decades my car sported a sticker that said “nature bats last”. Once, in the 60s, I picked up a hitchhiking hippie who, completely lacking any knowledge about baseball, asked, “what’s a ‘naturebats’?”

      • Robert Locke
        August 4, 2020 at 11:49 am

        in his stables in poland, my son directly markets eggs from his chickens, bread from his own ovens, cheese he makes from goats,his, cows mik cheesse and buttermilk — people dont trrust dutch farm factories chemical crap.

  20. Econoclast
    August 2, 2020 at 9:43 pm

    In this thread, I do not advocate limits on discussion. I am asking for more from people for whom economics is more than a narrow, numbers-driven, technical science pretender. I am a fierce advocate of the First Amendment and a long-ago member of Berkeley’s famous Free Speech Movement. On those I do not compromise.

  21. Meta Capitalism
    August 3, 2020 at 11:58 pm

    Dave states, “I don’t think I anywhere implied that it was.” Never said you did as the comment was not personal or aimed at you or anyone else. Just a general observation of something I see as the way forward to economic renewal on the local level. In South Korea high-tech urban agriculture is already being pioneered in underground cities. Fresh salad grown locally (literally behind the vending machine) on sale from a high-tech vending machine picked hours before anyone?

  22. August 4, 2020 at 10:45 am

    Thank you so much, guys, for your enthusiastic comments. Robert Locke might be delighted with “Honest Abe”, Macro, and we’ve been watching developments in hydroponics and vertical farming with amazement: admiring the incredibly straight carrots and getting back this year to growing tomatoes on the patio in flower pots!

    More seriously, Craig is right about the “money” issue needing to be dealt with. Variations on the tax issue (particularly as rent and interest are simply privatised, undemocratically regulated forms of tax) leave people needing regular “employment” or secure “profits” in order to pay them. To my mind that is the weak side of Henry George’s and Major Douglas’s arguments. Another problem is people needing different incomes at different times in their lives, as when they are setting up house, or in secure old age with the house paid for, full of necessities and accumulated delights. If both wages and need for profiteering gave way to an interest free credit card, with its debts accounted for but written off insofar as they were reasonable and earned by working responsibly (e.g. at one’s studies, application of skills or volunteering when possible and needed), then actual incomes can vary with the need for them, and where the weather gets cold we can go back to hibernating like the animals and trees!

    Even given Eco’s goal and first principles, “Turning this goal and these principles into policies, then into actual programmatic and institutional practice in our democracy takes years of hard, sustained work”. [Eco, August 2nd, 9:41] It seems to me all the problems Eco sees with this originate in the money problem, which is why, having sorted out the theory, sorting the money problem needs to take priority in practice. Uncertainty of incomes due to Covid seems to me a very timely reason for giving the credit solution a go now. Given the political power issue, the best option may be to silence the rich by bankrupting the banks, then restructuring these as mere accountants. Rather that than a Russian-style blood bath or a pragmatic Keynesian contract with a devious devil.

    Incidentally, on “Honest Abe”, Meta, you mention “Dishonest Hayek”, who turned Belloc’s warning against both Capitalism and its Marxist offspring (“The Servile State”, 1912) into a praise of capitalism. Given his influence on Mrs Thatcher, he’s my pet hate!

    • August 4, 2020 at 10:49 am

      Sorry, Robert: “Honest Abe” came of course from Meta rather than Macro. Don’t know where that came from!

  23. August 4, 2020 at 11:26 am

    Lars (looking back to your “Keynesian-vs-Newtonian-economics”). Alongside brave Keynes’s contract with the devil let me flag up Newton’s fame deriving from his four equations of motion rather than his flat earth/infinite cosmos Euclidian geometry. My characterising the economy as a [complex] PID servo derives from his equations of motion, their cosmological origins being dealt with very readably in Simon Singh’s “Big Bang” (2005), which has helped reassure me that my topological understanding is justified by the cosmological-perspective evidence.

    • August 4, 2020 at 5:46 pm

      Yes, Lars. You say “The failure of Keynesian macroeconomics to establish full theoretical independence from the classical labor market and the classical neutrality of money means that we are, in effect, now denied fair discussion of Keynesian solutions to policy problems”.

      I am not quite clear what you think Keynes should have done differently to establish that independence, nor that (given he didn’t) the Keynesian solutions (a pragmatic compromise), though better, were actually the best ones.

      I’ve approached this from my original position of Keynes (before the words were available to express this) almost characterising the economy in terms of it being a PID control servo (i.e. advancing from a P “price” system to a PI “price and labour” system without dealing with D “developments” in technology and organisation. These take the existing system off-course, so causing chaos if compensatory changes are not made quickly enough in the PI system). What I’ve done is to show from first principles how how economics is a PID control system, in which the I (for ‘integral’, labour being the integral of production) is independent of (orthogonal to) the P, and Developments in the use of money have spawned a parasitic PID FIRE economy, which is independent of economics in being at a higher level, i.e. something inhuman only humans are capable of). The basic ontological model thus shows what economics and chrematism are functionally, and the economic model shows hows how money pricing labour rather than monitoring unemployment in a “labor market” provides P rather than I feedback. The best policy outcome is thus to scrap the parasitic FIRE system and make incomes independent of earnings (as in a credit system repaid continuously by necessary work being done [-P feedback] and occasionally by prizes incentivising and rewarding actual good work [-I feedback]). D policy changes need to be made time local and only spatially generalised with good reason.

      How to say what that is trying to say in academically acceptable language?

    • August 5, 2020 at 11:47 am

      Looking back through the responses here, I’ve followed up Econoclast’s link to Jamie Galbraith’s splendid take on this:

      https://prospect.org/economy/keynes-einstein-scientific-revolution/

      This starts with Newtonian causes “determining” outcomes, using graphs rather than system schemata, but it ends up highlighting Keynes’ focussing on “expectations” and “effective demand”, changing from monetary causes via what Weiner termed a “cybernetic” causal system to an information-based, humanly intermediated PID form of cybernetics where outcomes follow from what we THINK is going to happen, i.e. our expectations and demands.

      I’ve found it very helpful to see Keynes in this light. When one does, and looks through the index to his General Theory, words like “effective”, “expectations”, “meaning”, “propensity” and “psychological incentive” stand out very clearly. Though his social philosophy is based upon redistributive taxation used to generate employment, the argument for it is that “only in conditions of full employment is a low propensity to consume conducive to the growth of capital”. But we’ve gone full circle. Keynesian full employment has increased industrial capital to such an extent that automation now decreases employment, leaving capitalists maintaining their own incomes by creating austerity, leaving us living largely on second-hand capital, with the world falling apart by our not renewing the “Nature’s Capital” we had.

      • Econoclast
        August 5, 2020 at 5:11 pm

        Good work, Dave! None of my highly educated friends who read Jamie’s excellent and clearly stated take got it.

  24. Ken Zimmerman
    August 5, 2020 at 3:22 pm

    To understand what physical scientists in the West believed historically, we best look at their own statements and actions about those beliefs. For example, Kepler was, first and foremost, an astronomer who based his astronomical models on observation; indeed, the best observations obtainable. Kepler struggled to use the exceptionally accurate data of Tycho Brahe (1546–1601) in formulating his theory of the orbit of Mars. We must, opines Kepler appeal to observation to determine the real motions of planets. In response to Fludd’s fanciful symbolic representations of the cosmos, Kepler replied: “I have demonstrated that the whole corpus of tempered Harmonics is to be found completely in the extreme, proper motions of the planets according to measurements which are certain and demonstrated in Astronomy. To [Fludd], the subject of World Harmony is his picture of the world; to me it is the universe itself or the real planetary movements.” (Westman, “Nature, Art, and Psyche,” p. 206.)

    But observation alone was not enough for Kepler to fix the real structure of the world. For that, we need to know says Kepler that the structures discovered by observation correspond to a geometrical archetype. The discovery that the resulting model derived from observation satisfies an elegant geometrical schema permits assertion about the way the world really is. Kepler wrote in Book I of the Epitome: “Astronomers should not be granted excessive licence to conceive anything they please without reason: on the contrary, it is also necessary for you to establish the probable causes of your Hypotheses which you recommend as the true causes of Appearances. Hence, you must first establish the principles of your Astronomy in a higher science, namely Physics or Metaphysics.”

    Mathematical harmonies had their role to play for Kepler, but only in tandem with observation. In this emphasis on observation as grounds for the claims about harmony, Kepler separated himself both from what Fludd had done and from what Kircher was yet to do. In many ways, Kepler’s view of the basic nature of the cosmos agreed with elements of the worldviews of his contemporaries (including Newton). Like that of many of his contemporaries, his universe was animistic. Kepler freely compared the sun with the intelligence of the world and with the heart of the world, and he compared the world with an animal and argued that the sun has a soul and is, in a sense, a living being. However, from time to time he also used another, very different analogy. In a letter to Herwart von Hohenberg dated 10 February 1605, Kepler wrote:

    “My goal is to show that the heavenly machine is not a kind of divine living being but similar to a clockwork insofar as almost all the manifold motions are taken care of by one single absolutely simple magnetic bodily force, as in a clockwork all motion is taken care of by a simple weight. And indeed I also show how this physical representation can be presented by calculation and geometrically.” (1959, p. 136)

    This mechanical analogy is a much different conception of the foundations of the physical world than the animistic analogy Kepler used elsewhere. In radical contrast with the Renaissance world, infused with soul, sentience, intelligence, and harmony, the mechanical philosophy took as central the image of the machine. This “clockwork” universe is the analogy adopted by Newton. And the one that underlies most of 20th century economics. Most physicists transitioned away from this analogy after the publication of Einstein’s Special and General Theory of Relativity (Albeit some more quickly than others). Most economists have thus far not made the transition. No room for relativity in either a clockwork universe or a clockwork economics.

  25. August 10, 2020 at 10:40 pm

    Ken, I don’t know where you dug out Kepler’s letter to von Hohenburg, but substitute gravity for Kepler’s magnetic force and this clockwork analogy is precisely what most of us have been arguing against here, on the grounds that clockwork involves (and deductive logic models) immediate causes and effects.

    Newton’s data involved distant forces not only from fixed stars but from moving ones and relatively close moving ones like the solar bodies accelerating each other. Hume argued Newton’s equations of motion merely described what could be seen, but the deductive logic then used by the classical economists still implied immediate causes and effects. Maxwell’s equations suggested electromagnetic fields were free to radiate in any direction, providing the neo-classicals with a convenient argument justifying free trade. So how does one explain the structure of the economy? By capability being the inverse of freedom so that, being human, we are constrained (if not by location) by having kids to feed, goods to supply and production needing income. Developing new distribution methods or goods does not alter this but at the same time creates a new situation with its own set of constraints. The PID theory of control via information feedbacks is the modern way of using Newton’s action at a distance to constrain interactions and developments which threaten necessary capabilities.

    To me, all this neo-Keynesian talk assuming Keynes was arguing for fiscal against monetary control is a load of rubbish. He was arguing the need for monetary incomes given the use of money, and proposing a way of providing it. Was it Jamie Galbraith who said Keynes’ original 1936 title was a theory of employment?

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