Redeeming Keynes
Stephen A. Marglin - Harvard University (smarglin@fas.harvard.edu)
Class time: Tues/Thursday 13.00 - 15.30
Classroom: San Basilio Aula 1D
Course Description
This course explores the birth, death, and resurrection of The General Theory of Employment, Interest and Money from the Great Depression (1929-1939) to the Great Recession (2008-?). A major goal is to lay out a coherent argument that, for all its theoretical innovation, The General Theory did not deliver: the argument why a market system, even an idealized system with all of the warts removed, may fail to provide jobs for willing workers. In the process we will examine the orthodoxy that Keynes attacked and that resurfaced in the 1960s and '70s; the key concepts underlying the models implicit in The General Theory; and the attempts of the "Keynesian" mainstream to make peace with both Keynes and orthodoxy. We will also explore the applicability of The General Theory to the long run. A final section will view the present economic difficulties through a Keynesian lens.
Prerequisites: introductory economics at the level of Economics 10 or US & W 17; a year of college calculus allowing students to understand mathematical notation and concepts (derivatives, maximization, etc) even though mathematics will be used very sparingly.
Required Readings
**Most readings can be found online in pdf. and will be made available on the course isite (Harvard webpage that all Ca' Foscari students will be granted access to by June)
One: Introduction (June 19)
Then and Now: The Great Depression (1929-1941) and the Great Recession (2008-?).
1. *G Orwell, The Road to Wigan Pier, ch 5-6 (pp 75-104 in the first American edition, 1958).
2. R Evans, The Coming of the Third Reich, "The Great Depression" and "The Crisis of Democracy," pp 232-265.
3. D Kennedy, Freedom From Fear, ch 2, 6, pp 43-69, 160-189. Optional: ch 7-8, pp 190-248.
4. P Temin, "The Great Recession and the Great Depression," Daedalus, Fall, 2010, pp 115-124.
5. *L Thomas, "Middlesbrough, a Faded Industrial Town, Is Feeling the Budget Cuts in Britain," New York Times, March 11, 2011
Is This Resurrection Necessary?
1. R Skidelsky, Keynes: The Return of the Master, ch 3, pp 55-74.
2. *J Schumpeter, Ten Great Economists: From Marx to Keynes, ch 10, pp 260-291.
3. P Samuelson, "Lord Keynes and the General Theory," Econometrica, 14:187-200, 1946.
4. Veritas Foundation, Keynes at Harvard: Economic Deception as a Political Credo, ch 4-6, pp 41-85.
5. Time, "The Economy: We Are All Keynesians Now," December 31, 1965. http://www.time.com/time/magazine/article/0,9171,842353,00.html
6. D Laidler, Fabricating the Keynesian Revolution, ch 1, pp 1-24.
7. R Backhouse and B Bateman. "Keynes, John Maynard (new perspectives)." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 06 May 2011
8. S Marglin, Raising Keynes, A General Theory for the 21st Century, Introduction.
Two: What is "Mainstream Economics"? What was Keynes's Critique? (June 21)
Economics BeforeThe General Theory
Is the Economy Self-Regulating? Why Doesn't the Economy Get to Full Employment?
1. A C Pigou, The Theory of Unemployment, Part 5, ch 3, pp 252-256.
2. J K Galbraith, A Life in Our Times, ch 5, pp 61-70.
Can Government Stimulate the Economy?
3. R Hawtrey, "Public Expenditures and the Demand for Labour," Economica, 13:38-48, 1925.
4. G Peden, "The 'Treasury View' on Public Works and Employment in the Interwar Period," Economic History Review, 37:167-181, 1984.
How is The Price Level Determined?
Before The General Theory
5. D Hume, "Of Money," in Political Discourses, pp 27-39. http://ia600407.us.archive.org/31/items/humespolitical00humeuoft/humespolitical00humeuoft.pdf
6. I Fisher, "Recent Changes in Price Levels and Their Causes," American Economic Association 1:37-45,1911.
7. *J. L Laughlin, "A Theory of Prices," Publications of the American Economic Association, 3rd Series, 6:66-83, 1905.
8. J. L Laughlin, "Causes of the Changes in Prices Since 1896," American Economic Review, 1:26-36, 1911
9. "Money and Prices: Discussion," The American Economic Review 1:51-70, 1911.
And After
10. M Friedman, "The Quantity Theory of Money," The New Palgrave Dictionary of Economics, v 4, pp 3-20
11. *M Friedman, "The Role of Monetary Policy," American Economic Review 58:1-17, 1968.
12. *H Johnson, "The Keynesian Revolution and the Monetarist Counter Revolution," American Economic Review, 61:91-106, 1971.
13. J B De Long, "The Triumph of Monetarism?," Journal of Economic Perspectives, 14:83-94, 2000.
Perspectives on the Macroeconomy: New Classicals and New (and old) Keynesians
1. R Lucas, "Methods and Problems in Business Cycle Theory," Journal of Money, Credit and Banking, 12: 696-715, 1980
2. D Romer, "The New Keynesian Synthesis," The Journal of Economic Perspectives, 7: 5-22, 1993.
3. R Solow, "Toward a Macroeconomics of the Medium Run," Journal of Economic Perspectives 14:151-158, 2000.
4. *V Chari and P Kehoe, "Modern Macroeconomics in Practice: How Theory is Shaping Policy," Journal of Economic Perspectives, 20:3-28, 2006.
5. *R Solow, "The State of Macroeconomics," Journal of Economic Perspectives, 22:243-249, 2008.
What Was Keynes Struggling Against?
1. S Marglin, Raising Keynes, ch 2.
The Ambiguous Argument of The General Theory
1. J M Keynes, The General Theory of Employment, Interest and Money, ch 1-3, pp 3-34; ch 18, pp 245-254.
2. D Laidler, Fabricating the Keynesian Revolution, ch 10, pp 247-276.
3. D Laidler, "Keynesian Revolution," in The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 06 May 2011
4. A Lerner, The Economics of Control, ch 22, pp 271-281.
5. S Marglin, Raising Keynes, ch 3
Three: Countercritique (June 26)
The Ambiguous Argument of The General Theory, continued
1. J Hicks, "Mr. Keynes and the Classics: A Suggested Interpretation," Econometrica, 5:147-159,1937.
2. F Modigliani, "Liquidity Preference and the Theory of Interest and Money," Econometrica, 12:45-88,1944.
3. A Lerner, The Economics of Control, ch 22, pp 281-284; ch 23, pp 285-301.
4. S Marglin, Raising Keynes, Ch 4.
Four and Five: The General Theory Without Rigid Prices and Wages (June 28 and July 3)
The Price Mechanism: Gospels According to Marshall and Walras
1. A Marshall, Principles of Economics 8th edition, Book 5, ch 3, pp 337-350.
2. L Walras, Elements of Pure Economics, Definitive Edition, trans. W Jaffe, Lessons 5-6, pp 83-106.
3. K Arrow, "Toward a Theory of Price Adjustment," in The Allocation of Economic Resources: Essays in Honor of Bernard Haley, ed. Moses Abramovitz, pp 41-51.
4. S Marglin, Raising Keynes, ch 6.
A Model for Chapter 19 of The General Theory
1. J M Keynes, The General Theory, ch 19.
2. S Marglin, Raising Keynes,, ch 5.
3. J Tobin, "Price Flexibility and Output Stability," Journal of Economic Perspectives, 7:45-65, 1993.
4. J Hicks, The Crisis in Keynesian Economics, ch1, pp 22-30 (on flexprice vs fixprice markets).
5. I Fisher, "The Debt-Deflation Theory of Great Depressions," Review of the International Statistical Institute, 1:48-65, 1934.
6. A C Pigou, "The Classical Stationary State," Economic Journal, 53: 343-351, 1943.
7. M Kalecki, "Professor Pigou on 'The Classical Stationary State,' A Comment," Economic Journal, 54:131-132, 1944.
8. D Patinkin, "Price Flexibility and Full Employment," American Economic Review, 38:543-564, 1948.
Six and Seven: The Basic Elements of The General Theory (July 5-9)
The Propensity to Consume
1. J M Keynes, The General Theory, ch 8-9.
2. P Samuelson, "Full Employment After the War," in S Harris (ed) Postwar Economic Problems, pp 27-54.
3. R Kosubud, "Relative Income Hypothesis," New Palgrave, v 4, pp 134-136.
4. M Darby, "Consumption Function," New Palgrave, v 1, pp 614-616.
5. M Browning and T Crossley, "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, 15:3-22, 2001.
6. S Marglin, Growth, Distribution, and Prices, pp 355-365.
Investment Demand
1. J M Keynes, The General Theory, ch 11-12.
2. R Koppl, "Animal Spirits," Journal of Economic Perspectives, 5:203-210, 1991.
3. H D Henderson, "The Significance of the Rate of Interest," Oxford Economic Papers 1:1-13, 1938.
4. G Smith, "Tobin's q." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan <http://www.dictionaryofeconomics.com/article?id=pde2008_T000070> doi:10.1057/9780230226203.1714
Interest Rates and Money
Liquidity Preference
1. J M Keynes, The General Theory, ch 13-14.
2. J Hicks, Value and Capital, ch 11-13.
3. J Tobin, "Liquidity Preference as Behavior Towards Risk," Review of Economic Studies, 25:65-86, skip sections 3.3-3.6, pp 74-85; 1958.
4. C Panico, "Liquidity Preference," New Palgrave, v 3, pp 213-216.
What is Left of Liquidity Preference in a World in Which the Central Bank sets (short term) Interest Rates?
5. B Friedman, "The Future of Monetary Policy: The Central Bank as an Army With Only a Signal Corps?" International Finance 2:321-338, 1999.
6. *J Campbell, "Some Lessons from the Yield Curve," Journal of Economic Perspectives, 9:129-152, 1995.
The Quantity Theory of Money and Keynesian Theory
7. D Hume, "Of Interest," Political Discourses, pp 39-50. http://ia600407.us.archive.org/31/items/humespolitical00humeuoft/humespolitical00humeuoft.pdf
8. M Friedman, "A Theoretical Framework for Monetary Analysis," Journal of Political Economy, 78:193-238, 1970.
9. J Tobin, "Friedman's Theoretical Framework," Journal of Political Economy, 80:852-863, 1972.
10. *D Patinkin, "Friedman on the Quantity Theory and Keynesian Economics," Journal of Political Economy, 80: 883-905, 1972.
11. *P Davidson, "A Keynesian View of Friedman's Theoretical Framework for Monetary Analysis," Journal of Political Economy, 80:864-882, 1972.
12. *M Friedman, "Comments on the Critics," Journal of Political Economy, 80: 906-950, 1972.
Eight: No New Readings (Midterm Exam, July 10)
Nine and Ten: What Policies Emerge From The General Theory? (July 12-17)
Monetary Policy and Its Limits
1. M Bordo, "A History of Monetary Policy," The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. <http://www.dictionaryofeconomics.com/article?id=pde2008_H000180> doi:10.1057/9780230226203.1124D
2. Robertson "Theories of Banking Policy," Economica 23:131-146, 1928. Reprinted in Robertson, Essays in Monetary Theory, ch 2.
3. M Friedman and A Schwartz, A Monetary History of the United States, pp 691-695.
4. C Walsh, "Central Bank Independence," The New Palgrave Dictionary of Economics. Second Edition. Eds.: Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan.
Fiscal Policy and the National Debt
"Functional Finance" and its Limits
1. A Lerner, "Functional Finance and the Federal Debt," Social Research, 10:38-51, 1943.
2. R Barro, "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, 3:37-54, 1989.
3. R Barro, "Voodoo Multipliers," Economists' Voice, www.bepress.com/ev February, 2009.
4. R Gordon and R Krenn, "The End of the Great Depression 1939-41: Policy Contributions and Fiscal Multipliers," NBER Working Paper 16380, http://www.nber.org/papers/w16380, pp 1-4.
5. R Gordon, "What Can Stabilization Policy Achieve?" American Economic Review, 68:335-341 (1978).
6. J Duesenberry, "Are These Trade-Offs Necessary," in E Nell and M Forstater, Reinventing Functional Finance, pp 129-138.
7. J Taylor, “An Empirical Analysis of the Revival of Fiscal Activism in the 2000s,” Forthcoming in Journal of Economic Literature (http://www.stanford.edu/~johntayl/JEL_taylor%20revised.pdf
What is the Problem with the National Debt?
1. A Lerner, The Economics of Control, ch 24, pp 302-322.
2. D Colander, "Functional Finance, New Classical Economics, and Great-Great-Grandsons," in E Nell and M Forstater (eds) Reinventing Functional Finance, pp 35-51.
3. B Friedman, Day of Reckoning, ch 1, pp 3-27.
4. N Ferguson, "An Empire at Risk," Newsweek, December 7, 2009.
5. National Commission on Fiscal Responsibility and Reform, The Moment of Truth, pp 10-13.
6. US House of Representatives, Committee on the Budget, Path to Prosperity, "Deficits and Debt," pp 18-23.
7. C Reinhart and K Rogoff, "Growth in a Time of Debt," NBER Working Paper 15639, January 2010.
8. J Boughton, "Was Suez in 1956 the First Financial Crisis of the 21st Century?" Finance and Development, 38 (2001)
Eleven: The General Theory as Growth Economics (July 19)
First Steps into the Long Run: Harrod, Domar, and Solow
1. R Harrod, "An Essay on Dynamic Theory," Economic Journal, 49:14-33, 1939.
2. E Domar, "Expansion and Employment," American Economic Review, 37:34-55, 1947.
3. R Solow, "A Contribution to the Theory of Growth," Quarterly Journal of Economics, 70:65-94, 1956.
4. S Marglin, Resurrecting Keynes, ch 9.
Keynes in the Long Run
Alternative Long Run Visions
1. A Hansen, "The Stagnation Thesis," in A Smithies and K Butters (eds), Readings in Fiscal Policy, ch 34, pp. 540-557.
2. J Schumpeter, "Economic Possibilities in the United States," in A Smithies and K Butters (eds), ibid, ch 33, part 5, pp 533-539.
A Model of the Long Run in the Spirit of Keynes
3. W A Lewis, "Economic Development With Unlimited Supplies of Labor," The Manchester School, 22:139-191, 1954.
4. J Duesenberry, Business Cycles and Economic Growth, ch 14 part II ("Adjustment of Labor Supply to Demand"), pp 309-315.
5. S Marglin, Resurrecting Keynes, ch 10.
Economic Possibilities for Our Grandchildren
1. T Malthus, An Essay on the Principle of Population (P. Appleman, ed.), preface, ch 1-2, pp vii-viii and 1-11. Also www.esp.org/books/malthus/population/malthus.pdf
2. J S Mill, Principles of Political Economy, book 4, ch 6 ("Of the Stationary State"), pp 746-751 in the Ashley edition. Also www.econlib.org/library/Mill/mlP61.html#Bk.IV,Ch.VI
3. G Foster, "Peasant Society and the Image of Limited Good," American Anthropologist, 1965, pp. 293-315.
4. J M Keynes, "Economic Possibilities for Our Grandchildren," in Essays in Persuasion, pp 358-373.
5. D Meadows and others, "The Limits to Exponential Growth," in The Limits to Growth (1972), ch 2, pp 53-94. An updated version is available as "The Limits: Sources and Sinks," in Beyond the Limits (1992), ch 3, pp 44-102, but the earlier edition is preferred.
6. T Jackson, Prosperity Without Growth? Summary, pp 6-13. www.sd-commission.org.uk
Twelve: The Crisis of 2008 (July 24)
1. Financial Crisis Inquiry Commission, Financial Crisis Inquiry Report, (majority's conclusions) pp xv-xxviii; (minority dissent) 413-419: (separate minority dissent) 443-447.
2. R Shiller, The Subprime Solution, ch 2-3.
3. R Rajan, Fault Lines, ch 1.
4. L Kendall, "Securitization: A New Era in American Finance," in L Kendall and M Fishman, A Primer on Securitization, ch 1, pp 1-16.
5. E Benmelech and J Dlugosz, "The Alchemy of CDO Credit Ratings," Journal of Monetary Economics, 56:617-634, 2009.
6. M Lewis, The Big Short, ch 6.
Thirteen: Final Exam (July 26)
