Academic journal article Journal of Economic Issues

Keynes' Economic Program, Social Institutions, Ideology, and Property Rights

Academic journal article Journal of Economic Issues

Keynes' Economic Program, Social Institutions, Ideology, and Property Rights

Article excerpt

Conventional economists view the economy as a set of relationships independent of any larger society. The prevailing position is to construct theory by building the argument on the basis of a non-socially determined, hypothetical individual. As one illustration of this position, consider the statement of Frank Knight, one of the discipline's most eminent twentieth-century economists:

I do not see how we can talk sense about economics without considering the economic behavior of an isolated individual. Only in that way can we expect to get rid by abstraction of all the social relationships... (1960, 71)

From this foundation, economists then develop policy prescriptions that are claimed to move us closer to the optimal outcomes that would obtain if we allowed economic laws to run their natural course. Social norms, institutions, and behavior should conform to economic standards which are predicated on good theory, theory that is developed independent of any specific social context. In this regard, economic theory is seen as akin to natural law, and the closer the laws of economics are to the laws of physics, the more scientifically based the policy recommendations of economics will be (Mirowski 1989).

Various economists have protested this view of things. One such economist was John Maynard Keynes, who saw the economy as embedded in larger society. The following argument attempts to specify portions of Keynes' policy program as integral to the maintenance of a specific propertied society that must be correctly understood if effective policy is to be implemented to save such a society from itself.

It is well known that Keynes' general theory has been vulgarized (or bastardized, in Joan Robinson's words) to accommodate the equilibrium strictures of orthodox economics (Davidson 1991, 22-9; Robinson 1980, 120-9). One consequence of this vulgarization has been the lifting of Keynes' theory out of the economy he was examining and the conversion of that theory into terms acceptable to neoclassical theorists. Keynes' theory (so-called) was separated from the specific institutional and social relations of a monetary economy in a specific stage of development and subjected to analysis and criticism as a purely ideological construct. What has remained is a program centered on mere fiscal and monetary tinkering at the edges of an economy that is, at best, unspecified.

One effect of this vulgarization process has been to place the terms of the debate squarely in the hands of the vulgarians. To be sure, protests have been made over the last fifty years, most notably those originating in Cambridge, United Kingdom, but these skirmishes clearly have not been able to win the war of ideas.

What follows is an attempt to specify portions of a Keynesian economy and to demonstrate the relationship between such an economy and his general theory. Perhaps the most important argument contained in this paper is the demonstration that it is impossible to separate Keynes' theory from the economy that it attempts to explain. Indeed, as I will attempt to show, one must go further than this: it is impossible to separate the economy from the larger society that contains it. Keynes was quite mindful that the economy was not a separate entity and that public policy bearing on the economy had to take non-economic factors into account. To do otherwise would be to risk establishing a policy that would be so damaging of the social order based on specific property rights and relations that it could lead to social turmoil and potential destruction. Keynes was an embedded economist: institutions and social relations not only mattered, they had to be understood and their relation to economic activity had to be included in the theoretician's analysis.

The Nature of the Economy

The starting point for specifying some of the features of a Keynesian economy is a description of Keynes' general position on the nature of a modern (mid-century) capitalist or monetary economy. …

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