On Interpreting Keynes: A Study in Reconciliation

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There is discontent with how the textbooks have come to reinterpret Keynes but there is little communication between the most prominent schools of criticism. This book argues that this lack of dialogue is mistaken and damaging. A synthesis is possible as many of the arguments between them can be traced to simple misunderstadings and differences of emphasis.

On Interpreting Keynes: A Study in Reconciliation Review

Littleboy's(L)book would have deserved a higher rating if he had incorporated an analysis of Keynes's formal mathematical model,contained in chapters 10,20,21 and the appendix to chapter 19,into his discussion of the large overlap and common ground that he shows exists between the different,competing subgroups that make up the Keynesian school of economics.Such an analysis would show that none of the Keynesian subgroups have a complete formal understanding of the complete theory that Keynes presented in 1936 in his General Theory(GT).Each subgroup has grasped onto some part of the whole that is correct.None of the subgroups has been able to reconstuct Keynes's original contribution .This is due to their inability to understand the formal mathematical structure of Keynes's model of the GT.Keynes's model is composed of two parts or sub models.The first part is the Y=PO=C+I model,where C=bY(or a+bY).Here Y equals actual or current aggregate demand.P represents the actual price level for the economy as a whole in this part of Keynes's model and O represents real output.The second part of Keynes's model is the D-Z model.Keynes introduced this model in chapter 3 of the GT.Keynes intended this chapter to be no more than a brief guide to what he intended to cover in the course of constructing his theory.It is an introduction that presents no analysis whatever.The rudimentory "equations" are essentially grammer school prealgebra constructs that form the starting point from which Keynes will constuct the formal aspects of his D-Z submodel in chapters 20 and 21 of the GT.Keynes then compares his complete theoretical construct(Y and D-Z) with that of Pigou's 1933 masterpiece,The Theory of Unemployment.Pigou's technical analysis is contained primarily in chapters 8-10 of Part II of his book.It is here that L goes badly astray.L assumes,like all other economists who have written on the GT, that chapter 3 of the GT is the core of the theoretical analysis of the GT.L follows in the footsteps of Dennis Robertson,Ralph Hawtrey,Harry Johnson and F. de Jong,who claimed that the heart of Keynes's GT was contained on pp.24-30(chapter 3)in a series of articles published in the Economic Journal(EJ) in 1954-1956.All of the Keynesian subgroups have accepted this.For instance,chapter 3 "interpretations"are all based on the above mentioned EJ articles .The socalled Post Keynesian models of Paul Davidson,Sydney Weintraub,Paul Wells,Douglas Vickers and J.A.Kregel are all derived directly from the EJ articles listed above plus some "interpretation"of chapter 3.The same conclusion holds for A.Leijonhufvud,whose interpretation is the one of the two that L concentrates on.Keynes's D-Z model is straightforward.D=pO, where p equals the expected price level and D equals the expected level of aggregate demand.O is a function of total employment,N.The analysis is based on the short run assumption that technological change and the capital stock are being held constant.Z =P+wN,where P is expected economic profit,w is a short run constant money wage level and N is total employment.Keynes sets D=Z,where D=f(N) and Z=g(N).A set of D=Z points is created depending on the different number of expected prices that entreprenuers consider probable.The amount of involuntary unemployment present in the economy will be determined by comparing the set of D-Z intersections with Y.Only one of the D-Z points will represent full employment.If Y intersects this point ,then no involuntary unemployment will be present.Any other point of intersection will mean that some amount of involuntary unemployment is present.Any reader of this review or economist ,who knows how to integrate(take the anti derivative),can derive Keynes's formal model simply by integrating Keynes's derivatives on pp.55-56,ft.2,pp.280-286,and pp.304-306.Automatically,the conclusion that will be reached is that the claim made by Robertson,Hawtrey,Johnson,Davidson,Vickers,etc.,that Z=pO,is simply an obvious mathematical error.The more serious question is" why are economists unable to integrate Keynes's derivatives close to 70 years after the publication of the GT?"

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