Saturday, December 23, 2017

Brad DeLong — John Maynard Keynes: Essays In Biography

Brad rates this as a should-read. For anyone interested in Keynesianism, Post Keynesianism and MMT, the history of economics, or economic theory, it is a must-read.

Conventional economists have apparently concluded that they don't need to read it if they even thought about, which most probably haven't, being under the spell of the "normal paradigm" in spite of its poor results empirically.

Washington Center for Equitable Growth
John Maynard Keynes: Essays In Biography
Brad DeLong

Here is a link to download Keynes's Essays in Biography (1933) as a PDF.

Another must-read from Brad.
 I think the very smart Jeffrey Friedman gets this… not quite right. The case for the empirical benefits of capitalism is very strong—but only if one is willing to remove libertarian blinders and focus on eliminating the market failures (in distributions, in aggregate demand, in externalities, in information, etc.) that keep the function the market maximizes from being a good proxy for societal well-being. And once one has the market properly supported and disciplined, the philosophical discussion can commence: Jeffrey Friedman: What’s Wrong with Libertarianism: “Libertarian arguments about the empirical benefits of capitalism are, as yet, inadequate…
From the Marxian and Institutionalist points of view,  economic liberalism, of which contemporary Libertarianism is a variant, provides the philosophical framework for bourgeois capitalism. Its fundamental weakness is prioritizing economic liberalism over social and political liberalism, which gives rise to many paradoxes of liberalism that result in illiberality such as have been pointed out many time here at MNE.

Brad also provides another keeper Keynes quote.

Here is an excerpt:
But, above all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice.
Individualism as the pursuit of self-interest does not lead to the greatest good for the greatest number the spontaneous emergence of natural order, unless "natural order" is conceived as the outcome of social Darwinism. This result is so grossly unfair that overtime it becomes unstable politically.

Keynes is saying here that individualism only works as a guiding principle of liberalism if collective consciousness is sufficiently high, which is manifested in a society's culture and institutions. The fact that civil and criminal law are needed goes to show that collective consciousness alone is not that high presently. In addition, the level of social and political dysfunctionality in liberal countries shows that the culture and institutions of the society are insufficient to bridle narrow self-interest to the degree necessary to generate a harmonious society and balanced social, political and economic conditions.

This is a design problem.

Jeffrey Friedman: What’s Wrong with Libertarianism

More from BDL:

Three Books for 2017: Economics for the Common Good, Janesville, Economism

Weekend Reading: Richard Thaler: Behavioral Economics


AXEC / E.K-H said...

Keynes’ intellectual nonexistence

Keynesianism is a failed approach, more precisely, Keynesianism is axiomatically false and materially/formally inconsistent. This is a proven fact.#1 Because the underlying theory is false in all dimensions, Keynesian policy guidance NEVER had sound scientific foundations.

So, the question is why are there still Keynesians around 80 years after the General Theory and why have neither pro- nor anti-Keynesians spotted Keynes’ lethal error/mistake/blunder until this very day.

Here is where Keynesianism went straight into the deep woods: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

This two-liner is conceptually and logically defective because Keynes NEVER came to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

Because profit is ill-defined the WHOLE analytical superstructure of Keynesianism is false.#2

While Keynes was right in rejecting the microfoundations approach, he simultaneously messed up the macrofoundations approach.#3 Because both Walrasianism and Keynesianism are materially/formally inconsistent any synthesis of the two is merely a bad joke.#4

So, Keynes messed up profit theory#5 and employment theory#6 but both pro- and anti-Keynesians never realized anything. After-Keynesians and Flat-earthers are intellectually at the same level.#7

Egmont Kakarot-Handtke

#1 How Keynes got macro wrong and Allais got it right

#2 For details see cross-references Keynesianism

#3 From false micro to true macro: the new economic paradigm

#4 The father of modern economics and his imbecile kids

#5 Profit theory in less than 5 minutes

#6 Demand-led and wage-led growth

#7 Throw them out! Orthodox and heterodox economists are unfit for science

Matt Franko said...

Egmont in the end all you are really is doing is adding up ex post accounting results....

So you are still way short of doing anything that has predictive value... which is what you always want to pursue in science...

Matt Franko said...

“This result is so grossly unfair that overtime it becomes unstable politically.”

That’s only because you don’t have the will to kill/euthanize all the losers.... iow if you killed the losers (or maybe just took away their voting rights and access to munnie/material so they would eventually starve) then you would never have the political problems...

Tom Hickey said...

If you had the stomach for it, and if the have-nots, who greatly outnumber the haves, didn't revolt.

This is dystopian.

It's the track that we are going down.

Tom Hickey said...

BTW, there are a lot of people who are firmly convinced of the various conspiracy theories providing "evidence" that the elite has already begun a mass pruning.

The people that I am hearing this from are not have-nots by US standards, let alone global standards. Many of them are quite well-off (top two quintiles) but not "elite."

Greg said...


In a system that requires a continuous pool of losers in order for the winners to keep on growing their share it should be obvious that this is not sustainable. Eventually Matt, YOU might even be euthanized. I guess you'd just accept that with no argument. Maybe even as Gods will?

The direction you have taken some of your comments lately is a little.......... troubling. Especially when you combine them with your
tendency to quote scripture.

Matt Franko said...

I quote scripture in the proper context... or maybe I should say I seek to quote scripture in the correct context...

Matt Franko said...

Hey YOU guys are the libertarian Darwin cocktail people not me.... I’m trying to understand you guys... how that cocktail is supposed to work...

Matt Franko said...

So you guys are the big Darwin people with your “survival of the fittest!”!... keyword being “survival” ie the losers have to die off , ... then when I simply point out that for that to work you have to see to it that you disappear the losers and you guys have a shit fit...

It’s your Darwinism to defend not mine...

Matt Franko said...

I’m just following the Darwin to it’s reasoned conclusion...

AXEC / E.K-H said...

Economists claim to do science and communicate this every year to the general public with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. Whether the claim to be a science is self-delusion or fraud does not matter much. Fact is:
• the profit theory is false for 200+ years,
• Walrasian microfoundations (including equilibrium) are inconsistent since 140+ years,
• Keynesian macrofoundations (including I=S, IS-LM) are inconsistent since 80+ years.

Economics is a failed science or what Feynman called a cargo cult science. Fact No 1: There are opinion and brain-dead blather, this is called politics. There are knowledge and proof, this is called science. Economics is 99 percent politics. Fact No 2: Theoretical economics (= science) had been hijacked from the very beginning by political economists = agenda pushers like Smith and Marx. Fact No 3: Political economics has produced NOTHING of scientific value in 200+ years. Fact No 4: Walrasianism, Keynesianism/MMT, Marxianism, Austrianism is mutually contradictory, axiomatically false, and materially/formally inconsistent. Fact No 5: Both orthodox and heterodox economists are quite content with the pluralism of false theories, they do not have any real scientific ambitions.#1 Fact No 6: Economics never rose above the proto-scientific level. Fact No 7: Debates between orthodox and heterodox economists have zero scientific content and are if anything, pure propaganda/disinformation exercises.

Either economics gets now rid of its scientifically incompetent Walrasians, Keynesians/MMTers, Marxians, Austrians or science gets officially rid of economics.#2

Egmont Kakarot-Handtke

#1 How Heterodoxy became the venue for science’s scum

#2 Throw them out! Orthodox and heterodox economists are unfit for science

Calgacus said...

Tom Hickey:if collective consciousness is sufficiently high, which is manifested in a society's culture and institutions. The fact that civil and criminal law are needed goes to show that collective consciousness alone is not that high presently.

I (& many others) would say these statements contradict each other. Civil & criminal law are social institutions that manifest collective consciousness. (Called forms of objective spirit in Hegel, say.) The real point is to draw up good ones, that manifest a more developed consciousness. It is imho a destructive utopian daydream to imagine that one can abolish them in any currently imaginable future.

Bob Roddis said...

From page 408 of the Friedman paper:

In the new, post-1989 intellectual landscape, Cornuelle noted, it is not socialism but the redistributive, regulatory state that commands allegiance. In the 1920s and 1930s, Ludwig von Mises developed a challenge to the economic feasibility of socialism that was finally, and suddenly, accepted as self-evident in 1989. With the collapse of communism, however, what is at issue between libertarians and everyone else is no longer the value of a market economy, but whether the market should be “closely watched and guided” by “democratic political institutions...and a welfare or service state with a broad charter to keep the society fair and fit for human habitation”(ibid.,365). Cornuelle pointed out that this was a debate libertarians would find much tougher going than the debate over socialism.

This is the same old Keynesian nonsense that ignores Austrian Business Cycle Theory which applies a form of the "socialist calculation problem" to a market economy beset by either fiat money or artificially created credit and interest rates.
The market does not fail nor does it suffer from panics, depressions or recessions. Those problems are caused by the fiat money and/or artificially created credit which "stimulates" an unsustainable and artificial boom. It also produces unsustainable false prices.

The Keyesian "solution" to these problems fails to recognize that the problems are themselves caused by Keynesian style policies. I have been waiting since 1973 for a Keynesian to demonstrate at least some familiarity with this analysis. Because ABCT so profoundly and completely refutes all Keynesian analysis, Keynesians treat is as if it were the actual history of Obama installing Nazis in Ukraine in 2014 or the USA aiding ISIS in Syria and the Keynesians are working for CNN.

The truth may not be spoken.

Tom Hickey said...

@ Calgacus

If collective consciousness were sufficiently high, positive law would no longer be needed since people would act not from self-interest but out of unconditional love. The only lapses would be due to inadvertence or mistake and would quickly be corrected once noticed.

True love is setting others before oneself, that is, putting the happiness and well-being of others before one's own. Then the non-aggression principle would be natural for all. Nothing would need to be said about it.

This seems utopian now, perhaps. But Steven Pinker argues in The Better Angels of Our Nature: Why Violence Has Declined that humanity is becoming more benevolent over time.

Narrow self-interest is an evolutionary trait that has served its purpose. However, as Pinker observes regarding the tendency toward violence, narrow self-interest has been broadening, which is encouraging. However, there is still a long way to go before the creation of ideal society.

I will cite Meher Baba's discourse, The New HumanityMeher Baba's discourse, The New Humanity, again in this regard.

This is the teaching of perennial wisdom, exemplified by the teaching of the one whose birth is celebrated this Monday, a teaching that Augustine encapsulated in, "Love and what you will, do." ("dilige, et quod vis fac," often misquoted as "ama, et fac quod vis"). If one really loves, that is, unconditionally and universally, then one can only will universal good.

jrbarch said...

People forget. The collective consciousness is easily seen in a herd of wildebeest. Mind at the level of the animal instinct rules, and moves them from place to place; operates their cyclic nature in an environment that is also cyclic. The group soul evolves through experience. If one could gaze into that childlike soul, perhaps one might feel the pressure they feel, the fear, bewilderment and vulnerability - in all that is unknown to the instinctive mind. The wildebeest personality may vary a little from herd to herd, even among individuals; but the group nature predominates.

There are large groups of human beings on this planet who do much the same, but there is an added operator – the ‘I’. Personalities are more complex and evolved. Because we are so hypnotised by the ‘I’, we do not see our human similarities any more. Only the heart sees another human being. Only the heart sees the consciousness evolving within. Humans are the most deluded species. I say this because the ‘I’ is just a wave in the mind-stuff (chitta), red with desire. Of what use is intellect if it does not know?

There is no greater knowledge on this earth, no greater reality than the truth. The consciousness in the human being seeks to become self conscious. The ‘I’ may rule the mightiest nation on earth; but it leaves empty handed (after interfering with everyone and everything else - ask Alexander the Great). Two empty hands he left, protruding from his burial mound.

The first sign of an evolving collective consciousness is that we give the wildebeest and everything else and each other a break. And begin to enjoy being alive!

Merry xmas and best wishes for 2018 to the MNE lot :-)!! Salute to Tom Hickey for all that he brings to the site; and my $money is on Mike in the presidential regatta!

Greg said...


You are only following Darwin to its weakly reasoned conclusion. Arguing that "unfit people should just be left to die" is the only logical endpoint of Darwinian theory is incredibly shallow.

Evolution has also equipped us with a brain and capacity to care (animals have the capacity to "care" too), with that capacity comes people who look for reasons for illness and work to reverse them. Your tribe would have stopped at "The gods have cursed them" and left it there. The "determinists", to borrow your jargon, just knew that the god(s) made choices and we were just pawns.

There are definitely things we get to determine. We get to determine if we will make housing, feeding, protecting and restoring to health as many of our human friends as possible THE priority or if we will just care about something else. How we do all those things after we make the determination to prioritize them is another matter that requires many different people providing input, not just one guy "making it so"

Tom Hickey said...

I have explained in the past how evolutionary theory is no longer characterized by "Darwinism." Evolution was known from ancient times, but Darwin was the first to give a scientific account of how it happens. Darwin as not alone in making the discovery at the time but the first to publish. This achievement was great at the time, but it was only a beginning.

Evolutionary theory has come a long way from Darwin's day, and "survival of the fittest" is no longer central to natural selection. See here. Wikipedia has a much more complete summary here .

Darwin's explanation was inchoate and it needed to be complemented by Mendel's genetics to effect a "New Synthesis" that explained the process in terms of genetic inheritance to round out natural selection. This synthesis took place almost a hundred years ago and evolutionary theory has developed considerably since Darwin and Mendel.

Interestingly, genetics is now becoming very popular as Ancestry and others have offered relatively inexpensive genetic testing to facilitate geology and put it on a modern scientific basis. So many now are familiar with the concept of genetics and the role DNA plays in genetic inheritance, if not the details.

The only people that believe in "Darwinism" now are the social Darwinists, since it suits their social, political and economic ideologies and agendas. Some of these people are libertarian and some are authoritarian, but they both tend to fall into the right quadrants.

The political compass is a four quadrant model that is a convent simplification of a complex reality. Moreover, their are gradations in the model that should be a warning against black and white thinking about it.

Matt Franko said...

“There are definitely things we get to determine. We get to determine if we will make housing, feeding, protecting and restoring to health as many of our human friends as possible ”

Not according to the libertarians among us....

Matt Franko said...

Oh please Tom that is a lot of hand waving to avoid admission that Darwin is all false by people who have a conscience...

Tom Hickey said...

Who is being unscientific here?

Bob Roddis said...

“There are definitely things we get to determine. We get to determine if we will make housing, feeding, protecting and restoring to health as many of our human friends as possible ”
Not according to the libertarians among us....

What a load of garbage. First of all, it is statism and the violations of personal safety in the present and over time that cause poverty. Second, there is no basis for the claim that without a literal gun pointed at their head by a SWAT team that people will not be charitable. Third, if people will not be charitable on a voluntary basis, where’s the consensus for sending out the SWAT teams to compel at the price of arrest and prison charitableness? Finally, there are limitless sanctions that might be applied to compel charitableness without the use of SWAT teams, arrest and prison.

AXEC / E.K-H said...

Bod Roddis ICYMI

Austrian idiocy ― the case of Hayek
Comment on David Glasner on ‘Hayek’s Rapid Rise to Stardom’

At some point in history, economics left science for good and became part of the entertainment industry. Perhaps this was in 1931 when Hayek became the star of the London School of Economics.

The economic problem then was the Great Depression. Economists were expected to come forward with diagnosis and therapy. This expectation, indeed, was delusional because economists had no idea how the monetary economy works. Hayek was one them.#1

In order to fully appreciate the proto-scientific state of Austrianism one needs the axiomatically correct theory. Because economics is a failed science it has to be reconstructed from scratch.

As the new analytical starting point, the pure production-consumption economy is defined with this set of macroeconomic axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

Under the conditions of market clearing X=O and budget balancing C=Yw in each period the price is given by P=W/R (1), i.e. the market clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation see Figure 1.#2

The price is determined by the wage rate, which takes the role of the nominal numéraire, and the productivity. The quantity of money is NOT among the price determinants. This puts the commonplace Quantity Theory forever to rest. The Quantity Theory, to recall, was one leg Hayek stood on.

From (1) follows that if the productivity increases over time the market clearing price falls. So, in order to avoid deflation, the wage rate has to rise with the same rate as productivity. The problem is that, when deflation and depression come together, the wage rate tends to fall, thus worsening the situation.

The critical insight at this point is that the market economy does NOT stabilize itself neither does it return to some acceptable equilibrium ― just the contrary. The price mechanism DESTABILIZES the economy. Needless to emphasize that Hayek and the other supply-demand-equilibrium storytellers never arrived at this insight. Hayek’s narrative of the market system as a superior information processor stands forever as a monument of utter scientific incompetence.

Monetary profit for the economy as a whole is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm+Sm=0, or Qm=−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing total monetary profit is zero.

The Profit Law makes it immediately clear that saving is NEVER equal to investment.#3 There is NO such thing, as Hayek argued, as an “equilibrium relationship between savings and investment, investments being financed entirely by voluntary savings, …”.

What is needed in a monetary economy is two things (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system which declares the central bank’s deposits as legal tender.

See part 2

AXEC / E.K-H said...

Part 2

Deposit money is needed by the business sector to pay the workers who receive the wage income Yw per period. The need is only temporary because the business sector gets the money back if the workers fully spend their income, i.e. if C=Yw.

Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income. This time sequence is no problem for the central bank because the temporary overdrafts vanish with wage payments.

For the case of a balanced budget C=Yw, the idealized transaction sequence of deposits/overdrafts of the household sector at the central bank over the course of one period is shown in Figure 2.#4

The household sector’s deposits/overdrafts are zero at the beginning and end of the period. The business sector’s transaction pattern is the exact mirror image. Money, that is, deposits at the central bank, is continually created and destroyed during the period under consideration. There is NO such thing as a fixed quantity of money. The central bank plays an accommodative role and simply supports the autonomous market transactions between the household and the business sector.

From this follows the average stock of transaction money as M=kYw, with k determined by the transaction pattern. In other words, the average stock of money M is determined by the autonomous transactions of the household and business sector and created out of nothing by the central bank. There is NO such thing as a monetary policy.

The transaction equation reads M=kYw=kPX=kPRL in the case of budget balancing and market clearing and this yields the commonplace correlation between the average stock of money M and price P for a given employment level L, except for the fact that M is the DEPENDENT variable. If employment is doubled the average stock of transaction money M doubles. If the average wage rate rises with productivity the price remains constant, no matter how much the economy and the average stock of transaction money expands. Money is absolutely neutral.

These are the basics of the elementary production-consumption economy. With the investment economy thing get a bit more complex.#5 The takeaway though remains the same: in order to get out of deflation and depression, the wage rate must rise faster than productivity. This does not happen spontaneously. The market system is NOT self-stabilizing. Hayek’s fundamental premise is provably false. Because of this, the whole analytical superstructure of Austrianism is false.

Hayekian policy prescriptions lack sound scientific foundations and have only one effect: they worsen the situation. Hayek will be remembered as one of the imbeciles about which Napoleon spoke: “Late in life … he claimed that he had always believed that if an empire were made of granite the ideas of economists, if listened to, would suffice to reduce it to dust.” (Viner)

Egmont Kakarot-Handtke

#1 For details see cross-references Failed/Fake scientists

#2 Wikimedia, Pure production-consumption economy

#3 For details see cross-references Refutation of I=S

#4 Wikimedia, Idealized transaction pattern, household sector, balanced budget

#5 Full employment through the price mechanism

Greg said...

"Second, there is no basis for the claim that without a literal gun pointed at their head by a SWAT team that people will not be charitable"

Is anyone making that claim Bob?

Paying taxes, btw, is not "being charitable", just to get that out of the way.

Bob Roddis said...

Is anyone making that claim Bob?

In fact, Matt Franko is claiming that GROUP ACTIVITY is impossible without coercion. Which begs the question of whether or not a consensus exists for a particular group activity. But that's a complicated issue, so nevermind.

Obviously, all supporters of government welfare make that claim. The claim is that voluntary charity will be insufficient. If "charity" isn't voluntary, it is compelled under penalty of law. You become a criminal if you don't pay your assessed taxes. It is one or the other.

How can you possibly try to obfuscate regarding the simple distinction between a voluntary contribution and compulsory taxation?