Rereading parts of John R. Hicks’s massive oeuvre is a rather liberating experience because it is both very insightful and also a very self-critical work.1 A centrally-positioned theme of special interest in Hicks’s2 work is the concept of ‘time’. Although this theme has been quite understated in the overall picture of Hicks’s achievements, it certainly deserves attention.3 Early on in his analytical work, Hicks was compared to economists such as Menger and Lindahl. Their inspiration marked Hicks throughout his research. Hicks admits that he spent much time on steady-state economics. He felt he had to learn about this, and the best way was to write out his own version. But in the successive versions that he produced, he was always making some effort to get away from this approach (Hicks 1976).
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.
There is a tendency to see Indian Currency and Finance as anticipating Keynes’s later work on international monetary issues, including his proposals for the Bretton Woods conference. This chapter argues, however, that such continuities as there may appear to be are purely technical, relating to the ideas and methods of managing money, and are not original to Keynes’s economic thinking. On the other hand, a vast political chasm and thirty years separate these two endeavours. This chapter demonstrates now unoriginal the common technical elements of these two sets of work were while also showing how politically different they were. In this way, the chapter seeks to provide an appreciation of just how great a distance Keynes travelled from his Marshallian convictions of his earliest days to the critical account of capitalism he eventually arrived at.
Marx and Keynes approach the analysis of capitalist economies from distinct standpoints, by starting with the investigation of the production of value and surplus value, and of its realisation, respectively. This implies complementarity, evidenced in several points of contact. Both writers adopt a labour theory of value, with goods prices varying around prices of production, and both affirm a tendency for the rate of profit to fall, underpinned by a tendency for organic composition to rise. The conclusion reached is that the thesis that Marx and Keynes are utterly opposed, expounded for example by Pilling, Mattick and Potts, is incorrect.
In June 1931 Keynes wrote of the ‘prodigious and incredible’ investment activity in the United States: It seems an extraordinary imbecility that this wonderful outburst of productive energy should be the prelude to impoverishment and depression. Some austere and puritanical souls regard it both as an inevitable and desirable nemesis on so much over-expansion, as they call it; a nemesis on man’s speculative spirit . . .. I do not take this view. (Keynes [1931b] 1973, p. 349) His primary concern was to sustain the boom, not repair the bust. Ultimately the world crisis was catalyst to a theoretical scheme which formalised this insight and provided the practical means to its realisation.
In looking to Keynes for guidance on modern policy issues, we identify some general principles which can be carried forward to the present day. In order to address problems arising from the domestic and international monetary systems, we focus on the principle of effective demand and the theory of liquidity preference, applied to analysis of a monetary production economy. Yet for Keynes theorising started and ended with context. The analytical process started with identifying the problem and looking to relevant theory for illumination. Yet it was crucial to consider the nature of the context in order to assess the validity of the assumptions and, if necessary, to change them. We therefore consider the differences in monetary systems between the 1930s–1940s and the present day in order to form a Keynesian view of monetary reform.
In light of Victoria Chick’s work on Keynes and economic methodology, in this chapter I explore why there was a Keynesian revolution at all. The reason I give is that existing political solutions to unemployment were blocked. Keynes offered an unblocking intellectual alternative in which both capitalists and workers would gain. I argue that The General Theory can be read on at least two levels: one responding to the institutional facts of the time, the second a more general rebuttal of the neoclassical road to full employment. Though the first reading has been more popular – the orthodox economics profession has always preferred Keynesian policy to Keynesian theory – Victoria Chick’s work and our experience of the Great Recession require us to build a better macroeconomics based on the second.
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.