Browse by title
Edited by Jesper Jespersen and Finn Olesen
Today, more than a decade after the outbreak of the Great Recession, many economies are still struggling to get back on a prosperous track. Most countries were hit hard by the international crisis. The US, the EU and other countries have experienced low GDP growth rates and high levels of unemployment for a number of years. In the EU, and especially within the Eurozone, most member states have had to cope with the mainstream macroeconomic policy strategy of austerity (with Greece as the most significant recession case of the EU). As such, the neoclassical macroeconomics that became so dominant during the 1990s, and is still today by many seen as the only way to do macroeconomics, ruled the process of giving advice on economic policies to overcome the crisis. By using general equilibrium theory and models as the dominant analytical device, the focus point was at de-regulation, privatization and a balanced public sector budget to secure private sector optimization. No wonder that the vision of the beneficial welfare state and the egalitarian society was set on hold and in many cases rolled back on the political agenda. However, as we know as a fact today, prosperity did not come back to the many only to the few, already well off, in the US, in the EU and many other places. This misunderstood macroeconomics has taken a heavy political toll, because ‘[there is a] lack of correspondence between the results of their [the professional economists’] theory and the fact of observation; - a discrepancy which the ordinary man has not failed to observe’ (Keynes, 1936, p. 33). The Great Recession, initiated 10 years ago, began as an international financial crisis. It came as a surprise to mainstream macroeconomists. Accordingly, the policy recommendations were inconsistent and have been followed by stagnation, particularly of European economies, for a number of years. Consequently, many macroeconomic scholars have cast a critical eye on the content of the previously dominant new Macroeconomic Moderation (Bernanke, 2012) and the related Dynamic Stochastic General Equilibrium (DSGE) models.
Louis-Philippe Rochon and Virginie Monvoisin
The financial crisis that began in 2007 has generally shown the weaknesses of neoclassical theories and policies, in particular by highlighting the irrelevance of modern macro models such as the Dynamic Stochastic General Equilibrium (DSGE) model and its microfoundations, which has come under considerable attack in the last few years, even from the mainstream. Indeed, as Lavoie (2018, p. 15) observes, “there is considerable dissatisfaction with the current state of mainstream macroeconomics”, leading The Economist (2009) to refer to the “turmoil among macroeconomists”. As early as 2009, Krugman (2009a, Internet) was claiming “[t]he economics profession mistook beauty, clad in impressive-looking mathematics, for truth”. More recently, he once again criticised the quest for microfoundations (see 2013, Internet), arguing “so the truth was that microfoundations in macroeconomics had its moment, but failed utterly at the one thing it was sold, above all, as being able to do - namely, give a better explanation of why nominal shocks have real effects. Time, you might think, to reconsider the project”. A few years earlier, Solow, in a 2010 address to the United States Congress, disapprovingly claimed “I do not think that the currently popular DSGE models pass the smell test” (see Solow, 2010).
Robert W. Dimand and Harald Hagemann
“Rereading the General Theory”, wrote Milton Friedman (1997, p. 5), “has reminded me what a great economist Keynes was.” His Chicago colleague, Judge Richard Posner (“How I became a Keynesian” 2009), when driven by the Global Financial Crisis to actually read Keynes’s The General Theory of Employment, Interest and Money, was shocked to discover that he found the book admirable, readable and helpful in understanding the world, and even was converted to Keynesianism (not at all an effect that rereading the book had on Friedman). That Keynes was an economist of sufficient historical influence, both of attraction and repulsion, to warrant inclusion with David Ricardo or Alfred Marshall in The Elgar Companion series hardly seems debatable. We cannot imagine a three-volume biography of any other economist, however well written, being published, let alone being a best seller (Skidelsky 1983–2000, 2003). The evolution of modern macroeconomics cannot be understood without reference to Keynes’s influence – and in the case of monetarism and New Classical economics, to reactions against his influence (see Skousen, Dissent on Keynes, 1992). The Global Financial Crisis has provoked an outpouring of books with titles such as Keynes: The Return of the Master (Skidelsky 2009), Keynes: The Rise, Fall and Return of the 20th Century’s Most Influential Economist (Clarke 2009), Maynard’s Revenge. The Collapse of Free Market Macroeconomics (Taylor 2010), The Return to Keynes (Bateman et al. 2010), The Fall and Rise of Keynesian Economics (Eatwell and Milgate 2011) and Keynes Hayek: The Clash that Defined Modern Economics (Wapshott 2011). Yet even if Keynes had never written General Theory, he would have been historically important as the critic of the Versailles Peace Treaty and author of the Economic Consequences of the Peace, and as a leading Treasury advisor and international negotiator during and after two world wars. His interests and activities, notably as a philosopher and as a cultural entrepreneur, ranged far beyond economics. The Elgar Companion to John Maynard Keynes surveys and samples the scholarship on his life and legacy, the influences on his intellectual development, and the nature and context of his contributions. This body of scholarship, anchored by the great biographies of Keynes by Donald Moggridge (1992) and Robert Skidelsky (1983–2000), has benefitted from the 30 volumes of The Collected Writings of John Maynard Keynes (1971–89, general editors Donald Moggridge and Austin Robinson, volume editors Donald Moggridge and, for four volumes, Elizabeth Johnson), supplemented by T.K. Rymes’s reconstruction of Keynes’s lectures in the early 1930s (Rymes 1989), and by much now-available unpublished material such as declassified Treasury files (see Lekachman 1964, for an overview of earlier studies of Keynes as an economist). It has also benefitted from a changed, and deepened, understanding of Keynes as an economist, notably by Axel Leijonhufvud’s distinction between Keynesian economics (the economics of the mainstream of those who considered themselves Keynes’s followers) and the economics of Keynes himself (Leijonhufvud 1968; see also Minsky 1975, Friedman 1997 and Harcourt and Riach 1997 for other perspectives on the economics of Keynes). Views of Keynes the man also evolved: contrast Jeff Escoffier (1995) on Keynes as a gay man with the reticence of Harrod (1951). Too much can, and all too often has, been made of this: Keynes’s pre- Lydia homosexuality can explain his break from the economic orthodoxy of Pigou and Robertson only if a similarity can explain a difference. The Bloomsbury group, a crucial context for Keynes, is now much better known and understood than it was.
Edited by Sheila Dow, Jesper Jespersen and Geoff Tily
The chapters in this volume, and its companion volume, The General Theory and Keynes for the 21st Century, originated in a celebration marking the happy coincidence that 2016 saw the 80th birthdays both of the publication of Keynes’s General Theory of Employment, Interest and Money and of Victoria Chick, who has contributed so much to the development of Post-Keynesian theory and method. Her monograph Macroeconomics after Keynes: A Reconsideration of the General Theory has been one of the stepping stones for two generations of macroeconomists. As with Keynes, from the very beginning of her career monetary, banking and financial theory have been of special interest: how to analyse the development of money and finance, and the intertwined relationship between financial and real activities. The chapters in these volumes serve as a reminder to academic and professional economists of the narrowness, let alone the limited relevance, of the conventional account of Keynes. They are indicative of a more substantial and richer approach to economics, just as mainstream economics is being forced to confront its grave limitations in the wake of the global financial crisis and subsequent stagnation. Those from the mainstream who are approaching these limitations in a constructive manner are therefore found assessing the nature of money and deposit creation, the role of uncertainty and ideas around multiple equilibria – constant themes of Vicky’s research.
It was some fifty years ago, when Harry Johnson came to the LSE and established his monetary seminar there, that Vicky Chick and I first met, and have remained friends and colleagues ever since. During these fifty years there have been several regime changes in monetary management. The Bretton Woods system of pegged exchange rates gave way in 1971–72 to a rather inchoate non-system of regional pegging (or fixing as in the euro-zone) combined with a – somewhat managed – float between major currencies. So, until the early 1970s, only the Fed in the USA had to concern itself with the principles, regime and rules for managing its domestic monetary system.
Economic theory that is relevant to the real world is always a product of its time, taking for granted the institutions and behaviours that characterise that time. Old books, like Keynes’s General Theory, present a conundrum: how much is still pertinent today and what revisions are necessary to bring the theory into line with changes in the economic system since the book was written. This chapter attempts an answer to that question. It is argued that the principle of effective demand and liquidity preference is almost unchanged, but that globalisation and changes to the banks’ behaviour pose serious questions for the theory, as does our new awareness of resource constraints and climate change. The underlying methodology remains the best on offer and should be retained in any revision.
Edited by Louis-Philippe Rochon and Sergio Rossi
Louis-Philippe Rochon and Sergio Rossi
What precisely is endogenous money? Does the central bank always accommodate banks’ demand for central-bank money? Does it have the ability to increase the money supply exogenously? Can it really have the rate of interest of its choice? Has money always been endogenous or has it become endogenous through time with the advent of certain institutions? This volume shows that a proper understanding of money is still required, and that the institutional actions of central banks reveal how recent so-called unconventional policies are doomed to fail. Revisiting the fundamental elements of the theory of endogenous money leads to completely different sets of monetary policy recommendations.