Hummel on Posner and Garrison on Keynes
I followed a recent email discussion about Judge Richard Posner’s 2009 article in the New Republic in which he tried to revive John Maynard Keynes’s contributions to macroeconomic understanding.
Jeff Hummel, as per usual, had some cogent comments:
I read this and found it somewhat interesting. Posner does a fairly good job explicating Keynes’s General Theory (although I think I did a more persuasive job of making Keynes’s theories plausible when I taught intermediate and graduate macro). But except for Posner’s complaints about mathematics and his emphasizing the distinction between risk and uncertainly, I think he was quite unfair to mainstream economists. Posner is obviously grossly unfamiliar with the actual views of mainstream macroeconomists . For example, a fall in money’s velocity is precisely equivalent to what Keynes means by hoarding or passive saving, and nowadays nearly all macro and monetary economists, including even Austrians such as George Selgin, Lawrence H. White, and Steve Horwitz accept that negative velocity shocks can cause recessions. Almost the only major features of Keynes’s theory that aren’t incorporated in New Keynesian approaches are an interest-inelastic consumption function, full price rigidity, and a self-generating deflationary cycle.
I still consider the best exposition of Keynes’s views is in Roger Garrison’s Time and Money: The Macroeconomics of Capital Structure. It is the only exposition I’ve seen (I haven’t read Skidelsky) that shows how the more socialist parts of The General Theory smoothly integrate with the rest of Keynes’s views. Garrison also offers one of my favorite quotations about Keynes, not in his book, but in an article. He writes that Keynes argued:
Wage rates (1) will not fall because of unions or wage rigidities inherent in the market process, or (2) will fall but without making matters any better and possibly making matters worse because of the accompanying fall in the price level, or (3) should not be allowed to fall because of considerations mentioned in (2).
And then in a footnote, Garrison adds:
Keynes appears to be adopting a strategy usually confined to the legal profession: “My client didn’t borrow your urn; it was in perfect condition when he returned it: and it was already broken when you lent it to him.