Essays on Political Economy Volume III

This volume contains six essays on Keynes' general theory: Chapter 1, Keynes on Economic Stagnation and Debt, explains how the failure of neoclassical economics to embrace Keynes' arguments with regard to the long-run tendency of the system to trend toward stagnation and to ignore the problems endemic in the economics of debt facilitated the adoption of economic policies in the United States that contributed to the economic, political, and social problems we face today. Chapter 2, Causality in Keynes' General Theory, explains the way in which Keynes' adoption of Marshall's ceteris-paribus, partial-equilibrium methodology combined with his realization that a) the rate of interest is determined by the supply and demand for money and b) employment, output, and income are determined by saving and investment as expectations adjust to the realized results that are achieved within the system as the system evolves through time makes it possible to establish the temporal order in which events must occur and that this makes a logically consistent, causal analysis of dynamic behavior pos-sible within the analytical framework developed by Keynes' throughout The General Theory. Chapter 3, Robertson versus Keynes and the Short-Period Problem of Saving, demonstrates that the only way to make sense out of Robertson's dynamic explanation of an increase in saving within the context of Keynes' general theory is to assume unit-elastic expectations with an instantaneous adjustment in the value of output produced. It is argued that Robertson IGNORED the effects of an increase in saving on expectations, prospective yields, and the demand for investment goods in his 1957 Lectures just as they have been ignored by economic policy makers over the past seventy or eighty years. Chapter 4, A Note on Robertson and Tsiang versus Keynes, demonstrates that Tsiang does not reconcile the Robertson/Keynes controversy in Robertson's favor in that Tsiang misspecified Keynes' demand for money function. It also demonstrates that both the liquidity preference and loanable funds theories as embodied in Tsiang's model assume that the rate of interest is a purely monetary phenomenon, determined solely by the supply and demand for the stock of money, not the flow of loanable funds. Finally, the fundamental difference between Robertson and Keynes as exemplified by Tsiang's analysis is seen to be that Robertson's method of analysis was descriptive and static while Keynes' method of analysis was causal and dynamic.Chapter 5, A Stock-Flow Model of Keynes' Theory of Interest, provides a formal model of Keynes' Liquidity-Preference theory of interest that draws a clear distinction between stocks and flows. This model is used to clarify the confusion that exists within the discipline of economics with regard to the issues that separated Robertson and Keynes Loanable-funds/Liquidity-Preference controversy. Robertson's misconceptions with regard to the nature of Keynes' theory of interest, and by extension those of Harry Johnson, Axel Leijonhufvud, George Horwich, Meir Kohn, Sho-Chieh Tsiang and others who have defended Robertson's arguments, are explained within the context of this model.Chapter 6, Mr. Keynes and the NeoClassics: A Reinterpretation, provides a model of Keynes' integration of monetary and value theory that incorporates the price of non-debt assets as well as the prices of consumption and investment goods is specified below. It is demonstrated that the Keynesian IS/LM model is a special (static) case of this model, and that the Marshallian roots of Keynes' model makes a causal analysis of dynamic behavior possible while the Walrasian roots of the neoclassical Keynesian model only allow for a description of dynamic behavior without explanation other than through the invocation of a mythical auctioneer.