Things to Read by Keynes

Tyler Cowen writes:

Marginal Revolution: New MR book club - Keynes's General Theory: I will go through the book [Keynes's General Theory], chapter by chapter, with an eye toward a deeper understanding of what Keynes wrote and why it is, as Greg says, so important.  I'm not yet sure what kind of pace I can maintain but order your copy here, now.  The Kindle version is only $3.96.  We'll do chapters 1 and 2 by next Monday, eight days from now.

The Marxists.org version of the General Theory is free: http://www.marxists.org/reference/subject/economics/keynes/general-theory/

I am of a different view than Tyler. I think that the most important things by Keynes to read do not include the General Theory. My list of General Theory-length reading from Keynes is this:

• Keynes (1919), The Economic Consequences of the Peace http://www.gutenberg.org/files/15776/15776-8.txt
• Keynes (1924), A Tract on Monetary Reform No etext
• Keynes (1932), Essays in Persuasion No etext
  • Keynes (1919), "Inflation"
  • Keynes (1923), "Social Consequences of Changes in the Value of Money"
  • Keynes (1925), "The Economic Consequences of Mr. Churchill"
  • Keynes (1926), "The End of Laissez-Faire" http://www.panarchy.org/keynes/laissezfaire.1926.html
  • Keynes (1930), "The Great Slump of 1930" http://www.gutenberg.ca/ebooks/keynes-slump/keynes-slump-00-h.html
  • Keynes (1931), "The Consequences to the Banks of the Collapse in Money Values"
• Keynes (1932), "The World Economic Outlook" http://www.theatlantic.com/unbound/flashbks/budget/keynesf.htm
• Keynes (1933), "An Open Letter to President Roosevelt" http://newdeal.feri.org/misc/keynes2.htm
• Keynes (1938), "A Private Letter to President Roosevelt" http://delong.typepad.com/egregious_moderation/2008/12/john-maynard-ke.html

and I am tremendously annoyed at the absence of etext versions of the Tract on Monetary Reform and Essays in Persuasion.

---

Special bonus:

• Jacob Viner (1936), "Mr. Keynes on the Causes of Unemployment" http://www.jstor.org/stable/pdfplus/1882505.pdf

Comments

[MattYoung]

I was hoping I wouldn't have this reading assignment, but I guess it cannot be avoided.

[Brad]

The Marxists.org version of the General Theory is free

I should hope so....

I guess I should pick this off of my shelf again.

[bob mcmanus]

http://cepa.newschool.edu/het/texts/keynes/gtcont.htm

A very nicely formatted indexed lightly-hypertexted version at History of Economic Thought

I love that site. You can move directly on from the GT to Hicks-Hansen and the IS-LM model etc. I don't know why it isn't more often linked.

[MattYoung]

OK, I got through a few chapters.

My actual complaint, other than incompleteness, is that he did not have to bring money wages in the picture, or bring money into the picture. He had a simple explanation. Workers act aggregately, and employers treat them aggregately because they can get economies of scale in delivering goods to the worker. So, the resistance to money wage lowerings does not have to be introduced.

Chain of causility: Minimize scarcity of goods yields economies of scale in goods distribution yields aggregation.

Ignoring the affects of aggregation, the result is, plain and simple, a generally bell shaped distribution of a generally bell shaped variety of goods at equilibrium, regardless of herding species and without the necessity of money.

The affects of aggregation is somewhere I have not read, but I am guessing he screwed that up.

[bob mcmanus]

Oh, and my current reading, among much else, is a collection of essays by contemporary economists Revisiting Keynes Economic Possibilities for Our Grandchildren.

I suppose I should add a comment or review on the book but the modern economists' perspectives elicit some very mixed feelings, which I suppose was the point. I liked the Stiglitz piece.

[Ken Houghton]

There are books that, even if you don't read it all, you should read a section:

Book IX of _Paradise Lost_, which remains the greatest accomplishment in English Literature

Chapter 9 (iirc: second to the last, discusses the problems of organizational structure in governments) of Easterly _The Elusive Quest for Growth_. Had I been the editor charged with making the book readable, that would have been the first chapter, since it is the one that makes the other eight seem less like silly nattering. (There may be something that can ameliorate the bitterness of _The White Man's Burden_, but I wasn't willing to find out after the first twenty pages of incessant whining about why people pay more attention to Jeffrey Sachs.)

and

Chapter 12 of the _General Theory_, discussing "The State of Long-Term Expectation," which is both incredibly appropriate today ("For whilst the weakening of credit is sufficient to bring about a collapse, its strengthening, though a necessary condition of recovery, is not a sufficient condition." "It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges.") and the clearest analysis of motivations in economics before Kahnemann and Tversky decided to bound rationality and see What Lies Beyond.

[DCBob]

I just read "Economic Consequences" last week. How can one not appreciate his description of Wilson:

"But if the President was not the philosopher-king, what was he? After all he was a man who had spent much of his life at a University. He was by no means a business man or an ordinary party politician, but a man of force, personality, and importance. What, then, was his temperament? ... The clue once found was illuminating. The President was like a Nonconformist minister, perhaps a Presbyterian. His thought and his temperament wore essentially theological not intellectual, with all the strength and the weakness of that manner of thought, feeling, and expression. It is a type of which there are not now in England and Scotland such magnificent specimens as formerly; but this description, nevertheless, will give the ordinary Englishman the distinctest impression of the President. ... in fact the President had thought out nothing; when it came to practice his ideas were nebulous and incomplete. He had no plan, no scheme, no constructive ideas whatever for clothing with the flesh of life the commandments which he had thundered from the White House. He could have preached a sermon on any of them or have addressed a stately prayer to the Almighty for their fulfilment; but he could not frame their concrete application to the actual state of Europe."

[Sandwichman]

Sandwichman just posted Keynes's memorandum "The Long Term Problem of Full Employment" (1943) at EconoSpeak.

http://econospeak.blogspot.com/2008/12/long-term-problem-of-full-employment.html

[bob mcmanus]

I can't say I really understand sandwichman's work on Chapman. I have read some of the posts, and the one above helped.

Reading contemporary economists' commentaries on Keynes "Economic Possibilities for Our Grandchildren" and their incomprehension at solving the "economic problem" with Keynes leisure economy makes me wonder how it went so terribly wrong. Keynes was not "mistaken". Keynes was betrayed.

One of the explanations for why things haven't worked to Keynes expectations is that Keynes was some effete Bloomsbury elitist, and it is only natural that people want McMansions & SUV's rather than time with their families and recreational time.

But I wonder if Keynes knew of Chapman's work.

[debriefing]

"Essays in Persuasion" and "La réforme monétaire are available" in french on the site of Quebec University :

http://classiques.uqac.ca/classiques/keynes_john_maynard/keynes_jm.html

[MattYoung]

I went through hus chapter on the multiplier effect, and that can be explained, again, without reference to money.

An output gap is the condition that the distribution and variety of goods is not smoothly bell shaped. In these conditions, each individual in the herd will adjust is ratio of consumption to production such that the smoothness of the distribution is restored, simple.

A little hand waving of proof will show that the lack of smoothness in goods distribution will be reflected in a lack of smoothness in the wealth distribution, so absent money, cows still have wealth.

When we talk about efficiency of adjustment we have to indtroduce time and show that efficient adjustment results in exponential decay (or expansion). I am not doing that because I am a commenter not a blogger.

But, with time involved we can talk about smoothness of distribution of goods over time and space allowing us to deal with differential adjustments absent shocks.

Problems occur when we introduce quantum effects, namely there is no such thing as a fractional member of the species, so the herd distribution over goods will have thick tailed effects onthe right side of the distribution.

Neither have we introduced money, nor have we decomposed the herd into sectoral components, except to note the quantum effects of the finiteness of herd members.

But, the multiplier effect comes into play. If the herd adjusts its position and production to minimize an output gap, then we get the highest multiplier, and the greater the output gap initially, the higher the multiplier effect.

I think, when all is said and done, Keynes will have to introduce sectorial decomposition and he will have stability problems.

I might also note, the hand of the general planner works only if the general planner can identify output gaps properly. The general planner may not even exist under stability assumptions, but if he exists, then getting the output gap wrong results in a multiplier less than one and the result is more output gap after the adjustment.

[David Richardson]

By far the most comprehensible version of Keynes I have found is How to Pay for the War (1940). Once you understand the point of War Bonds (which have nothing to do with paying for the War) almost all of the rest of Keynes is much clearer.

[tom]

Brad, I am curious why you don't think the GT is an important work to read. To my mind, it is the starting point because in it Keynes identifies the central issue of uncertainty, and elaborates his thesis that price flexibility will not stabilize a modern financially complex capitalist economy. (I do not agree with the consensus view that Keynes rests on the assumption of fixed prices--belied by his key chapter, "Changes in Money Wages.")

I have been using the GT in teaching for many years, and have found that both these discoveries can be conveyed to intelligent students willing to pay attention, provided they have a docent to give them some cliff's notes. The chapter on long-term expectations is a crowd-pleaser.

[arthur james]

You cannot be serious that "The General Theory" is not among the most important of Keynes's works to read. It is the distillation of his mature thought - even if it has many imperfections, and if his mind continued to move after it was finished. The key ideas in the GT laid the basis for all that Keynes did subsequently, from "How to Pay for the War" to Bretton Woods and "The Balance of Payments of the United States".

At a literary level, even the most beautiful and powerful passages of "The Economic Consequences of the Peace" are not more elegant and compelling than some key passages in the GT, especially in the concluding chapter.

I am especially drawn, for many reasons, to the passage in chapter 24 when Keynes explains why he thinks his economic system will be less likely to lead to war than the old economics. "War has several causes. Dictators and others such, to whom war offers, in expectation at least, a pleasurable excitement..." etc

This is beautifully written, and analytically powerful, and supremely important - and amazingly neglected!

I have had a check again last night, and I can find no reference to this in Harrod or Moggridge or Skidelsky. Amazing that they ignore what Keynes has to say in the GT about war and peace! As has been pointed out elsehwere, the authors who do deal with this are Hyman Minsky ("John Maynard Keynes", Columbia UP, p 159) - what a shame he did not live to see the 2008 revival of his work! - and Donald Markwell ("John Maynard Keynes and International Relations: Economic Paths to War and Peace", Oxford UP, pages 178-190).

There is an interesting discussion of this at http://hypocrisy.com/2008/11/23/tanya-white-reminds-us-of-economist-keynes-paths-to-peace/

[arthur james]

PS Can I also put in a plug for "Essays in Biography". Magnificent.

[r m flanagan]

I'd include his Finlay lecture in April 1933 on the subject of National Self Sufficiency, arguing against the "economic advantages of the international division of labor".

And also against letting one's country be "at the mercy of world forces working out, or trying to work out, some uniform equilibrium according to the ideal principles of laissez faire capitalism"

[JayAckroyd]

When I was taking macro theory from Tom Sargent, he remarked, at one point, that he read The General Theory and didn't understand it. He read it again. Still didn't understand it. Then, midway through the third reading he came to the realization that it wasn't that it was too deep for him. It was that it didn't make sense.

[In which I think that Sargent was wrong. Different pieces of it make a lot of sense to different audiences...]

[MattYoung]

"at the mercy of world forces working out, or trying to work out, some uniform equilibrium according to the ideal principles of laissez faire capitalism"

Here he confuses, for he should have known that the economy, by his own minimization procedure, yields incomplete markets in the distribution tails.

[D S Lamont]

Before recommending Keynes's 1933 lecture and article on 'National Self-sufficiency', it is really important to consider its context, and what Keynes himself said about it. It would be very easy to quote bits of it out of context to create the impression that Keynes was more of an economic isolationist than he ever was, and to forget that this lecture/article represented something unusually vague and imprecise in Keynes's thinking that he did not intend to be treated as a major statement in favour of national self-sufficiency.

It is also clear that he later changed his mind on some of the key points - returning in large measure to the free trade views on which he had grown up, so long as there were Keynesian economic policies and an international economic governance framework that supported this. This is discussed by Keynes’s various biographers, such as Harrod (who may have been too keen to depict Keynes as reverting to his youthful free trade evangelism) - but most especially, so far as I can tell, by Donald Markwell in his 2006 book on “John Maynard Keynes and International Relations: Economic Paths to War and Peace”.

It would be terrible and a travesty of his views (as Markwell sets them out) if Keynes came to be used today as a supporter of protectionism.

Keynes himself did very little to bring prominence to 'National Self-sufficiency', and clearly did not regard it as very important. We would be foolish to invest it with too much importance today!

[ric mcintyre]

In Keynes' 1937 QJE article ("The General Theory of Employment" vol. 51, pp. 212-­223) he lays out more clearly than anywhere else his differences with orthodoxy, particularly concerning the importance of fundamental uncertainty about the future. This piece and ch.12 of the GT are most useful in understanding the current situation.

[Arthur James]

Here is a puzzle.

1. In the final four pages of "The General Theory", Keynes devotes two pages to a passage about the effect of his economics on the prospects of war and peace. You'd think that was an important topic, wouldn't you?

2. Keynes does. He stresses the importance of this, by starting this passage -

"I have mentioned in passing that the new system might be more favourable to peace than the old has been. It is worth while to repeat and emphasise that aspect."

Keynes says "it is worth while to repeat and emphasise that aspect".

3. In the index, there appears this entry:

"War -
the Mercantilists on, [page] 348
and future of capitalism, [pages] 380-2"

i.e. "war and [the] future of capitalism".

What Keynes thought it "worthwhile to repeat and emphasise" about "war and [the] future of capitalism" would seem to be important.

But none of his biographers (it seems) mentions this, and almost no other writing about him mentions it either.

Why is this so?

Two exceptions have been mentioned earlier in this blog, authors about Keynes whose books do discuss this passage - Minsky and Markwell. Prompted by a footnote in Markwell, I can add a third - Don Patinkin, in "Anticipations of the General Theory?" (Basil Blackwell, Oxford, 1982, page 14).

But don't get too excited. All Patinkin says is this, in a brief account of the final chapter of "The General Theory":

"Most of the chapter is devoted to the long-run implications of a successful full-employment policy for the accumulation of capital, hence the rate of interest and the distribution of income; for the future of laissez-fair versus state socialism; and for the prospects of war and peace."

At least that's six words - "the prospects of war and peace" - more than almost anyone else has written on this!

Minsky devotes half a page to this topic, and Markwell gives over about a dozen pages to the context, exposition and analysis of what Keynes had to say about "war and [the future] of capitalism".

Can anyone explain why almost all economists writing about Keynes, including about the writing of "The General Theory" and specifically about this chapter of "The General Theory", say nothing about this crucial topic when Keynes himself thought it "worthwhile to repeat and emphasise" it?