Krugman’s introduction to Keynes’s General Theory

by on March 7, 2006 at 5:36 pm in Books | Permalink

Brad DeLong reproduces a big chunk of it.  I do have a few caveats...

Krugman writes:

A reasonable man might well have concluded that capitalism had failed,
and that only…the nationalization of the means of production – could
restore economic sanity….Keynes argued that these failures had
surprisingly narrow, technical causes…

It is well-known that Keynes called for the socialization of investment and euthanasia of the rentier.  Although I do not think he meant it by the 1940s (for background read this paper, or Keynes’s preface to the German-language edition of GT, which is Department of Uh-Oh material), it is odd for Krugman to ignore these passages and present Keynes as an outright enemy of government control or ownership of investment.  Next, Krugman writes:

  1. Economies can and often do suffer from an overall lack of demand, which leads to involuntary unemployment
  2. The economy’s automatic tendency to correct shortfalls in demand, if it exists at all, operates slowly and painfully
  3. Government policies to increase demand, by contrast, can reduce unemployment quickly
  4. Sometimes increasing the money supply won’t be enough to persuade
    the private sector to spend more, and government spending must step
    into the breach

To a modern practitioner of economic policy, none of this – except,
possibly, the last point – sounds startling or even especially
controversial. But these ideas weren’t just radical when Keynes
proposed them; they were very nearly unthinkable. And the great
achievement of The General Theory was precisely to make them

Arthur Marget and other historians of thought have shown that such ideas were commonplace in pre-1936 macroeconomics, albeit not in Hayek and Robbins.  The American tradition in particular pushed for activist fiscal policy, read for instance Jacob VinerSeveral books document the popularity of this approach, again before the General Theory.

Matt McIntosh March 7, 2006 at 6:24 pm

I was going to say, that last point where Krugman says those ideas were “unthinkable” sounds like a howler to me; though I don’t have the knowledge of economic history, according to von Mises much of what he reccommended was already being put into practice (in the UK at least) before the book was published. Keynes just provided a more rigorous theoretical justification.

Wow, thanks for the pointer to the preface to the German edition. Straight from the horse’s mouth: “Nevertheless the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.”

paul March 7, 2006 at 9:42 pm
Zubon March 8, 2006 at 8:03 am

I would suggest that, rather than “ideological blinders,” that would be more of a direct quote. Try Googling ["euthanasia of the rentier" Keynes] and see what you get. I am, of course, open to the proposition that there are 286 instances of ideological blinders, ranging from EconLog to the Socialist Review, that produce identical results.

Barry March 8, 2006 at 9:57 am

“…in spite of the fact that all economists
viewed them as disastrous. ”

That’s a strong statement, if you get my drift.
Perhaps all Austrian economists, or all fanatically
laissez-faire economists, or some other subset of

neil March 8, 2006 at 11:52 am

Although upon posting that comment I noticed that Tyler linked ‘euthanasia of the renter’ to the same e-text. Shame on Robb, Zubon and me!

kharris March 8, 2006 at 12:33 pm

JK Galbraith points out that some of Laughlin Currie’s work also anticipated Keynes. Apparently, Canadian’s had this Keynesian stuff underway before Keynes got around to writing it down. Galbraith also describes Currie as a Keynes’ disciple, so Currie must have thought more of Keynes work on Keynesian theory than of his own.

kharris March 8, 2006 at 12:54 pm

Pointing to Keynes’ “rentier” quote in a review of Krugman’s review of Keynes as somehow evidence against Krugman’s view isn’t quite fair, if you fail to mention that Krugman’s review also includes the “rentier” line. Bad on two counts. Shouldn’t pretend Krugman was all one way on Keynes’ views on private ownership. Shouldn’t pretend you dug the quote out memory for your own argument when Krugman dug it out first. “It is well known that…” No. “As Krugman himself notes…”

Dean Moriarity March 9, 2006 at 8:37 am

“Keynesian “pump-priming” CAN work, but has hidden as well as obvious costs as does all other Government action. I believe that the recent history of low taxes, low tariffs, and monetary policy to adjust for recessions has proven itself to be a far better instument.”
Right, because the only costs with that so far are massive budget and trade deficits. No biggie.

linda October 10, 2006 at 9:25 am
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