Over twenty-five years have been wasted praising the efficiency of free markets and running econometric tests to prove that economic policies are either ineffectual or even irrelevant, reflecting an academic scene still dominated by the macroeconomics of anti- or pre-Keynesian inspiration that took hold between the 1970s and 1980s. Increasingly sophisticated models were developed to support the argument that government intervention to stabilize the economy was not only unnecessary but actually harmful. The idea of the centrality of changes in aggregate current income (both with positive and negative signs) and its distribution in fuelling or dampening economic growth were forgotten. It is time that we brought Keynes’s ideas back.
The Cowles Foundation for Research in Economics was, in the first decades after its establishment at Yale in 1955, closely associated with the Keynesian economics of James Tobin and his “Yale school” approach to monetary economics. Its predecessor, the Cowles Commission, was not at first Keynesian: a few papers on Keynes were presented at the Cowles summer conferences in Colorado in the late 1930s but Harold Davis’s Analysis of Economic Time Series (Cowles Monograph No. 7, 1941) dismissed Keynes’s General Theory in a footnote, focusing instead on theories of fluctuations as truly periodic cycles, including Jevons on sunspots. But in the 1940s Oskar Lange and Jacob Marschak took the lead at the Cowles Commission in promoting a distinctive formulation of Keynesianism: Keynesian economics as a small general equilibrium system of simultaneous equations suitable for guiding aggregate demand management. Key works were Lange’s 1938 articles and 1944 Cowles monograph on Price Flexibility and Employment, a joint paper that Lange and Marschak submitted to the Economic Journal responding to Keynes’s critique of Tinbergen, and Marschak’s Chicago lectures, published as Income, Employment and the Price Level (1951), as well as articles by Marschak’s doctoral students Franco Modigliani (1944) and Don Patinkin (1947 to 1949). This approach contrasted with the emphasis on fundamental uncertainty in Keynes’s 1937 QJE reply to reviews of his General Theory, but not with the system of four simultaneous equations in the concluding lecture of Keynes’s Michaelmas 1933 lectures (an approach that Keynes did not carry over into the General Theory). Lawrence Klein, author of The Keynesian Revolution (1946) and a 1950 Cowles monograph on Economic Fluctuations in the United States, was at Cowles 1944-47. This view of the Cowles Commission, after Marschak became research director in January 1943, as Keynesian but in a distinctive way differs from the interpretation by Philip Mirowski, “The Cowles Commission as an Anti-Keynesian Stronghold 1943-54” (2012).
Keynes and Paley are two names rarely conjoined in the literature of either figure. Keynes, however, made significant references to Paley in four of his essays. Most commentators treat these as historical ephemera, but closer investigations reveal that they illuminate key aspects of his thought. These include whether Paley or Malthus was the first Cambridge economist, methodological issues concerning the nature of economic theorising and how best to disseminate economic thought, and relationships between scientific and religious explanations. They also serve the useful task of clarifying and correcting certain errors in Keynes’s essays due to exaggeration or inaccuracy. In these contexts, Keynes’s remarks on Paley repay investigation.
The multiplier effect of fiscal spending has long been an object of study. The great recession of 2007-9 and the US fiscal stimulus program revived empirical studies on the multiplier, showing the wide range its value can take. This paper explores the effects of the fiscal multiplier in the context of a Keynesian business cycle theory, emphasizing the regime dependence of the multiplier. It is, as Keynes, Minsky and Kindleberger suggest, the state of the business cycle, the flow of credits, financial fragility and financial stress that are of importance for the size of the fiscal multiplier. But the multiplier effect is also essentially dependent on the monetary policy stance, which affects the financial stress, the interest rate and risk premia. Thus, one can observe that the size of multiplier is not only dependent on the state of the business cycle, financial fragility and financial stress, but also subject to the extent of fiscal action as well as the accompanying type of monetary policy. Lastly, human behavior driven by uncertainties about the future, as holds for the recent Pandemic Recession, can also significantly affect the fiscal multiplier.
This paper focuses on the unit of account function of money that is emphasized by Keynes in his book A Treatise on Money (1930) and recently in post-Keynesian endogenous money theory and modern Chartalism, or in other words Modern Monetary Theory. These theories consider the nominality of money as an important characteristic because the unit of account and the corresponding money as a substance could be anything, and this aspect highlights the nominal nature of money; however, although these theories are closely associated, they are different. The three objectives of this paper are to investigate the nominality of money common to both the theories, examine the relationship and differences between the two theories with a focus on Chartalism, and elucidate the significance and policy implications of Chartalism.
In this paper, we analyze the macroeconomic effects of the coordinated fiscal and monetary stabilization policy in the manner of MMT by using a dynamic Keynesian model that has been developed by ourselves and others. The MMT (Modern Monetary Theory or Modern Money Theory), which was proposed by L. R. Wray, W. Mitchell, M. Watts and others, has the following remarkable characteristics. (1) The role of the central bank is completely passive in the financing of government expenditure, which is actively determined by the government. (2) The amount of government debt is not subject to the constraint of fiscal policy, its only constraint being the rate of inflation. In this paper, we construct a mathematical model that incorporates these characteristics and study the dynamic stability/instability of the coordinated fiscal and monetary stabilization policy.
We explore the connections between the Treatise on Money by JM Keynes and the monetary macroeconomics of Bernard Schmitt. The link is shown to be the role of the bank. Secondly, we define a Keynes-Schmitt equilibrium without market clearing. We derive a comparative static result: an increase in the money wage raises the level of output. Finally, we provide a rendition of Keynes’ General Theory plan to determine the level of output as a whole.