墨尔本代写-Keynesian Economics: the Beginning of the End

墨尔本代写Keynesian Economics: the Beginning of the End
Steven Kates
RMIT University
Melbourne Australia
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Let me begin with the point I wish to establish. The problem with economic policy is the economic theory that lies behind it.
Economic theory is based on explaining the cause of fluctuations in activity and
employment on variations in aggregate demand which leads to the conclusion that the
means to restore strong rates of growth and full employment is through raising
aggregate demand through increases in public spending.
Both the theory and the policy conclusions are wrong. As to the theory, fluctuations in
economic activity and employment are not caused by variations in aggregate demand.
And in terms of policy, raising the level of aggregate demand through increased levels
of public spending will not restore growth and full employment. Such policies will, in
fact, reduce real growth and keep unemployment higher than it otherwise would have
been.
Everything I say about theory and policy was perfectly well known to every
economist from the early decades of the nineteenth century through until the
publication of The General Theory of Employment, Interest and Money by John
Maynard Keynes in 1936.
But with the coming of Keynes and Keynesian theory, economics has been infested
by a conceptual disease that appears almost impossible to eradicate no matter how
many failures it has had and in spite of its total absence of success.
The bitter pill that will need to be swallowed by various governments will be matched
by the need for the economics profession to renounce at long last the Keynesian
infection that is burrowed deep within macroeconomic theory.
Governments can, of course, be thrown out and replaced by new ones who are happy
to denounce the policies of those who had come before. But how an entire discipline
can finally be made to recognise that resident at its very core has been a theory of
such devastating error that any policy judgement built from it is almost certain to be
wrong, how an entire discipline can be made to recognise that this is in fact the case, I
do not know. I suspect it cannot be done.
Say’s Law
What economic theory did in 1936 was discard what had until then been one of its
bedrock principles, a principle originally known as “the law of markets” but which is
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墨尔本代写assignment now almost universally referred to as Say’s Law. It was a principle which had been
guiding theory and policy by that time for more than a hundred years.
To economists, I point out that Keynes was at pains to demonstrate that his General
Theory was a full book-length effort to refute Say’s Law. That was the expressed
intent of the book and that is what it most assuredly did. And it is an either-or
proposition. Either Say’s Law is valid or Keynesian economics is valid.
They are mutually exclusive. If one is right the other is not. If you agree with Keynes
and reject Say’s Law, then you are a Keynesian because that is all that Keynes wanted
you to do. Everything in the General Theory was stitched together in the way it was in
order to show that Say’s Law was wrong. Therefore, if you think Say’s Law is wrong
and Keynes was right, then you are a Keynesian.
But before I go on to explain what Say’s Law is, I wish to clear one matter away.
Say’s Law is not a proxy for laissez-faire. Although it was the law of markets, it did
not in any way suggest there was no role for government. It is not a restatement of
laissez-faire. It is not a statement about the role of the state in economic affairs.
I make this point because I often come across statements in which Say’s Law is used
as a metaphor for free markets. I therefore wish to guard you against this. It is in no
way a political statement of any kind. It is a more or less technical conclusion about
how market economies work and from which there is much to learn about how to
manage an economy.
Let me also make one more observation. In March I had the honour of presenting the
Ludwig von Mises Lecture at the Mises Institute in Auburn. Until that time, I would
have said that while only a minority of the profession understand the meaning of
Say’s Law, a fairly sizeable proportion do.
Having presented my paper, however, I am now led to the conclusion that it is only a
very small minority who have any idea what the concept means and why it is so
important. Economists no longer know enough about Say’s Law even to lead them to
an informed rejection of its central message.
Economists can glibly repeat Keynes’s set of words, “supply creates its own demand”
– words which every single economist virtually without exception knows – but could
not give you an intelligent explanation why every single mainstream economist before
Keynes thought Say’s Law was utterly true and crucially important.
If you would like to see the presentation I did at the Mises Institute, you can find it on
Youtube under its title, “Why Your Grandfather’s Economics was Better than Yours”.
It explains how Keynes overturned this universally accepted conclusion in economic
theory and more importantly in my view, shows through the various propositions that
underlie the actual meaning of Say’s Law how it should be understood as a related set
of concepts.
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Defining Say’s Law
Let me therefore come to explaining the meaning of Say’s Law. And to do this, I will
invoke the classical pre-Keynesian words that were typically used to explain its
meaning. And there are two such forms of words:
• there is no such thing as a general glut
• demand is constituted by supply.
But even before I explain these, I have to point out one of the profound differences
between modern macroeconomics which is utterly Keynesian in its orientation and
classical economic theory as it was understood prior to the publication of the General
Theory.
Macroeconomics, like its Keynesian parent stem, is understood from above. There are
great lumps of abstractions that have dealings with other lumps of abstractions. There
are consumers, investors, governments who buy, invest and spend. This is the world
as seen from high above on Mt Olympus say, or amongst economists working on
economic questions inside a nation’s capital.
These are abstractions upon which data can be collected and such numbers can be fed
into a computer program. There are no actual people, no human motivations, no actual
effort or failures. There are just major groupings of abstract actions against a
colourless background of nondescript undifferentiated individuals none of whom do
anything more remarkable than anyone else.
Nothing in this approach will explain innovation, change or growth.
Classical theory was as different as different could be. Classical theory was
understood as a relationship amongst people. The focus was brought down to ground
level. The focus was brought down to a human scale, where actual individuals lived,
worked and strove to get what satisfactions they could from life. Economics was
based on individuals finding themselves within a set of circumstances with the
challenge at hand being to make the best of whatever hand they were dealt.
The crucially important difference was perspective. It was about real live people
trying to find ways in which to better themselves which, as the theory showed, also
tended to better their communities as well. This is Adam Smith:
“It is not from the benevolence of the butcher, the brewer, or the baker that we
expect our dinner, but from their regard to their own interest.”
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This is the essence of an exchange economy amongst producers. It makes no
difference if one is the butcher or the butcher’s assistant, the master brewer or the
brewer’s apprentice, each is helping produce something for someone else to buy so
that they can earn incomes to allow them to buy what others have produced and put
up for sale.
Now where are we? We talk about consumption is a function of income, while we
manipulate broad aggregates. The butchers, brewers and bakers have evaporated into
thin air. Even in micro we talk about supply and demand without ever mentioning that
behind every point on every curve there is an assumed human being with an assumed
set of motivations who are doing particular things for particular reasons.
All that is gone, and we are left with a desiccated dried out set of theories in which
there is not the slightest evidence that someone has thought past the mathematical
relationships to the actual human beings beneath.
No Such Thing as a General Glut
Say’s Law is part of the economics of the world of actual people behaving as real
people might be expected to behave. The first of the overall definitions of Say’s Law
was: there was no such thing as a general glut. In today’s jargon, this would be
translated as: demand deficiency is never the cause of recession.
What this meant was that an economy would never enter recession because people
did not want to buy more. It went further. It stated that it was inconceivable that an
economy would ever be able to produce so much that the population would have so
much already that to satisfy their remaining wants did not require everyone who