- June 6 2:24am | Permalink
"Mr. Keynes and the Classics" could be the title for my most recent reflections that can be linked to Gavyn Davies's expression, "out of ammo". What does it mean, let us ask, to be "out of ammo"? Who is out of ammunition, and what precisely is that "ammunition"? Obviously, for there to be "ammunition", somebody must be "shooting" or "targeting" something - and obviously the referent here are "the monetary authorities", the "target" they are aiming at is "growth" or "output utilisation" and the "ammunition" is the "liquidity" or broad money that they can "inject" into the economy. Those who believe that such liquidity injections have or can have a lasting effect (more than a so-called "first round" effect) on the economy through the "monetary transmission mechanism" must believe in the "non-neutrality" of money whether in the short or the long term.
I think Milton Friedman was right to insist that Keynes's emphasis on "liquidity preference" meant that he believed that most of his "revolution" in the 'General Theory' had to do with "the liquidity trap" - the infinitely elastic demand for money even when interest rates are at "the zero bound". What this means is that ultimately, despite what much Keynes "hagiography" has to say, the
But remember that for a scientist like
Jevons and Walras belong together. Marshall and Keynes preferred the short run: but all four were in the neoclassical camp - no matter what Minsky and others had to say about it! So where was "the Keynesian Revolution"? Simple. It was in the role of the State in the capitalist economy. The whole "classical" notion of Political Economy (Ricardian or neoclassical) consisted precisely in this "homologation" or "equiparation" of the s e p a r a t e spheres of Politics (the State) and Economics (the market). The one was not supposed to interfere or intervene in the latter - the "self-regulating" market. But Keynes, who knew that Marshall 's pragmatism had led him to write an "economics of industry", had the good fortune to witness what could happen if Politics truly began to tamper with Economics in the guise of "Rooseveltian Resolve" - the New Deal. The 'General Theory' without the New Deal is unthinkable.
What's that I hear? We have "run out of ammo"? Not ifRoosevelt had anything to do with it!! And I hear that Ben Bernanke is a great admirer (like me) of FDR. Let's see what happens...
What's that I hear? We have "run out of ammo"? Not if
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