I count it a great privilege to contribute the opening essay to this issue of The Economic and Labour Relations Review, which is celebrating its first 20 years. Over that time, the journal has been an outlet for independent and outspoken, often unfashionable views, upholding traditions steeped in the thoughts of Michal Kalecki and Maynard Keynes, and some of Australia's wisest economists. (Even Karl Marx gets a mention.) I am most grateful to the editors for asking me to be their opening bat.
Since the 1970s, we have seen the rise to dominance in theory and policy of what Joan Robinson (1964) aptly dubbed 'Pre-Keynesian theory after Keynes'. In the economics profession, these phenomena have been especially associated with the writings of Milton Friedman, Friedrich von Hayek and Robert Lucas, Jnr. They have spawned many surrogates in the USA, the UK, Continental Europe, Latin America, parts of Asia and, sadly, in the Antipodes as well. In the political sphere, President Reagan, Mrs. (as she then was) Thatcher and, in Australia, first, Bill Hayden and then Malcolm Fraser were instrumental in implementing monetarist policies and, more widely, backing deregulation of financial markets, freely floating exchange rates, lowering tariff barriers, and the removal of domestic and international capital controls. Nor did Bob Hawke, Paul Keating and their successors in the ALP avoid the virus. An era of international capitalism, red in tooth and claw, was ushered in. Ruthless swashbuckling capitalists (industrial, commercial and financial) combined with cowed and quiescent workforces often arising from labour markets euphemistically described as flexible, came increasingly to dominate economic and social life.
Commitment to full employment was downgraded or dropped altogether. (I have mentioned before the infamous meeting at Melbourne University in the late 1970s of eight or so Australian professors of economics, called by the late Heinz Arndt, in order to do just this in Australia.) On the surface, control of inflation through monetary policy became the dominant policy. Worship of the free market as the institution for all seasons and activities became the modern equivalent of the Golden Calf; Moses, the Law and the prophets (read Keynes and Kalecki) were argued to be discredited; they were despised or, at best, neglected.
Why did all this happen? There are many interrelated causes and events, intellectual, political and social. At the level of theory, a major factor in my view was the tragedy that post-war generations of students of economics, especially in the USA, were brought up on Paul Samuelson's (and Alvin Hansen's) textbook versions of Keynesian economics instead of on Lorie Tarshis's textbook, The Elements of Economics. An Introduction to the Theory of Price and Employment (1947).
Lorie's book was the first in the USA to contain an account of the economics of Keynes: about 250 pages which were true to Keynes's lectures when Keynes was writing The General Theory (Lorie, then an affiliated student at Trinity College, Cambridge, attended these lectures of Keynes in the early to mid-1930s). Lorie's account was true also to The General Theory itself. In particular, the central core of Keynes's analysis was presented in terms of Keynes's aggregate demand and supply analysis.
Lorie's book was cruelly done (almost) to death by right-wing forces led by Merwin K. Hart and, later, William Buckley, Jnr. so that many departments that had initially proposed to set it as the text got cold feet and reneged. (1) While the first edition of Samuelson's textbook (1948) still received the tail end of the right-wing backlash, it did not prevent his textbook from dominating economics courses for the next 30 years and more.
Had Lorie's book been the base on which the teaching of Keynes's ideas was erected, the stagflation episode of the 1970s could not have been said to have discredited Keynes's system. …