Keynes and Hayek: The Money Economy

By G. R. Steele | Go to book overview

6

Keynes and SENIE macromodels

Is it not rather strange … that a model with wage-rigidity acknowledged to be its main distinguishing feature should become widely accepted as crystallizing the experience of the unprecedented wage-deflation of the Great Depression? And is the early Keynesian view that 'money is unimportant' the natural conclusion to draw from the worst banking debacle in U.S. history?

(Leijonhufvud 1968:49)


Keynes's theory of unemployment disequilibrium

Keynes's attack upon Say's Law may have been misleading. Contrary to popular interpretation, a case can be made that unemployment equilibrium is not the subject of The General Theory; that the true concern of The General Theory is with 'the nature of the macroeconomic process of adjustment to a disequilibriating disturbance' (Leijonhufvud 1968:50); and that, while there is no rationale to suggest that unemployment is likely to persist indefinitely, 'the short run of pre-Keynesian theory is not so short after all' (ibid.: 59).

In the 1930s, theory was weak in the area of disequilibrium processes. Contemporary analysis had deduced the characteristics of an economically efficient equilibrium under the assumptions of perfect competition: a myriad of identical producers benefit from perfect knowledge and incur zero transactions costs. In that austere microeconomics context, the formal manipulation of tautologies delivers 'a series of propositions which are necessarily true because they are merely transformations of the assumptions from which we start' (Hayek 1949:34). Whatever insights are gained, these can relate only to the intentions of a single mind. Formal solutions that beg the important issue of inter-agency coordination afford no understanding of the nature of competition. In the 1930s, the issues of knowledge acquisition and action coordination lay in uncharted waters.

Propositions about causal processes of readjustment from a disequilibrium position require the identification of empirical relationships whereby knowledge is acquired and disseminated. Although The General Theory explicitly addresses the issue of producers' expectations, Keynes's analysis of

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Keynes and Hayek: The Money Economy
Table of contents

Table of contents

  • Title Page v
  • Contents ix
  • Figures and Tables x
  • Preface xi
  • 1 - Introduction 1
  • 2 - Vision in Economics 19
  • 3 - Philosophy and Political Economy 37
  • 4 - Money Issues 61
  • 5 - Macrodisequilibrium 78
  • 6 - Keynes and Senie Macromodels 101
  • 7 - Value Theory and Monetary Theory 117
  • 8 - Capital, Money and Cycles 140
  • 9 - Austrians and Post-Keynesians 160
  • 10 - Economic Guidance 183
  • Notes 205
  • Bibliography 208
  • Index 219
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