Lars P. Syll — On the non-neutrality of money

One of Keynes’s central tenets — in clear contradistinction to the beliefs of mainstream economists — is that there is no strong automatic tendency for economies to move toward full employment levels in monetary economies.

Money doesn’t matter in mainstream macroeconomic models. That’s true. But in the real world in which we happen to live, money does certainly matter. Money is not neutral and money matters in both the short run and the long run....

"New Keynesianism" isn't Keynesian. It is bastard Keynesianism if it is Keynesian at all. Paul Krugman self-identifies as "neoclassical," in accepting neutrality of money, banks as only intermediaries, equilibrium, and rational maximization. So do many if not most other Democratic Party economics heavyweights and advisors. Time for them to step aside and make room for the new wave. We don't have time to wait for funerals.

Lars P. Syll’s Blog
On the non-neutrality of money
Lars P. Syll | Professor, Malmo University

Uncertainty — Brian Romanchuk

The coronavirus news flow is getting worse, and generating corresponding news flow. I just want to make a couple comments that stick close to my limited expertise. From a markets standpoint, the market that matters is the credit market, and not equities. I am not plugged into the credit market news flow, but I do not see anything that indicates that anything is irreversibly broken. Otherwise, the situation underlines the big difference between randomness and uncertainty. This is a geeky distinction, but is one of the things that distinguishes post-Keynesian thinking from neoclassical....

Bond Economics
Uncertainty
Brian Romanchuk

Why Keynes was a socialist — Andrew Jackson

In an important new book Keynes Against Capitalism: His Economic Case for Liberal Socialism (Routledge, 2019) James Crotty argues that Keynes was a socialist who advocated a much more radical economic agenda than most mainstream economists and political analysts realize. Based on a very close reading of Keynes’ work, Crotty argues that core Keynesian economic ideas should inform democratic socialism today....

Progressive Economics Forum
Why Keynes was a socialist
Andrew Jackson

'Fridays for Keynesianism' — Peter Bofinger

Excellent summary of the recognition of the classical fallacy by Keynes, what followed, and why neoclassical economics is proving so difficult to dislodge even though it has been discredited.

Note: This is not the only fallacy that plays a part in neoclassical assumptions. The fallacy of composition is another, as Keynes also observed.

Social Europe
'Fridays for Keynesianism'

Peter Bofinger | Professor of Economics at Würzburg University and a former member of the German Council of Economic Experts

See also

Brave New Europe
Paul Romer: The Dismal Kingdom – Do Economists Have Too Much Power?
Mathew D. Rose

Michael Roberts Blog: blogging from a marxist economist — Minsky and socialism

Minsky’s journey from socialism to stability for capitalist profitability comes about because he and the post-Keynesians deny and/or ignore Marx’s law of value, just as the ‘market socialists’, Lange and Lerner, did. The post-Keynesians and MMTers deny/ignore that profit comes from surplus value extracted by exploitation in the capitalist production process and it is this that is the driving force for investment and employment. They ignore the origin and role of profit, except as a residual of investment and consumer spending.Instead they all have a money fetish. With the money fetish, money replaces value, rather than representing it. They all see money (finance) as both causing crises and, also as solving them by creating value!

In my view, far from Minsky providing the “necessary ingredients to a to a rethinking of Marxian theory of capitalist dynamics and crises”, as Bellofiore argues, Minsky’s theory of crises, like all those emanating from the post-Keynesian think tank of the Levy Institute, falls well short of delivering a comprehensive causal explanation of regular and recurring booms and slumps in capitalist production. By limiting the searchlight of analysis to money, finance and debt, Minsky and the P-Ks ignore the exploitation of labour by capital (terms not even used). They fail to recognise that financial fragility and collapse are triggered by the recurring insufficiency of value creation in capitalist accumulation and production.

Moreover, by claiming that capitalism’s problem lies in the finance sector, the policy solutions offered are the regulation and control of that sector, rather than the replacement of the capitalist mode of production. Indeed, that is the very path that Minsky took: from his socialism and ‘’socialisation of investment’’ in the 1970s to ‘stabilising finance’ in the 1990s.

Michael Roberts Blog — blogging from a marxist economist
Minsky and socialism
Michael Roberts

Lars P. Syll’s — The origins of MMT

More keeper quotes. The idea behind MMT is as old as the hills. But previously, it was only a possible scenario, whereas MMT describes the existing monetary system since 1971 — the "pure creditary system" that Knut Wicksell had envisioned as a thought experiment. 

Keynes said it would be useful to educated people in this in order to remove the shibboleths of the past that prevent proper fiscal response now. How prescient he was. Received knowledge is sticky even when it is shown to be wrong.

Lars P. Syll’s Blog
The origins of MMT
Lars P. Syll | Professor, Malmo University

Gold Reminds Governments That They're Still Not In Control — Jeffrey Snider

This is not your typical gold buggy "argument" against MMT although it is pro-gold standard. Jeffrey Snider goes through the history and lays out a case. It is worth a read. 

Edison was exactly right about the nature of gold as money. Everything boils down to who gets to control it. If you believe as Edison and Ford the government can be and most often is a force for good, then monetary restraint is a barbarous evil. But what if the government is populated, always, by bumbling incompetents masquerading themselves as technocratic geniuses?

Real Clear Markets
Gold Reminds Governments That They're Still Not In Control
Jeffrey Snider | Chief Investment Strategist of Alhambra Investment Partners

America Needs to Reexamine Its Wartime Relationships — John Quiggin

Another one calling for paradigm shift.

The National Interest
America Needs to Reexamine Its Wartime Relationships
John Quiggin | Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a member of the Board of the Climate Change Authority of the Australian Government

Keynes: socialist, liberal or conservative? — Michael Roberts

Interesting post. Michael Roberts argues that Keynes was all three–socialist, liberal and conservative at different times. But owing to his social status, Keynes was fundamentally a British upper-class conservative, or in Marxian terminology, a "bourgeois liberal." However, he was not hidebound and also had a sense of reality that made him open to accommodate changing circumstances.

Michael Roberts Blog
Keynes: socialist, liberal or conservative?
Michael Roberts

See also

The Political Economy of Development
Keynes against capitalism
Nick Johnson

Randy Wray — How To Pay For The War

Remarks by L. Randall Wray at “The Treaty of Versailles at 100: The Consequences of the Peace”, a conference at the Levy Economics Institute, Bard College, May 3, 2019.

I’m going to talk about war, not peace, in relation to our work on the Green New Deal—which I argue is the big MEOW—moral equivalent of war—and how we are going to pay for it. So I’m going to focus on Keynes’s 1940 book— How To Pay for the War—the war that followed the Economic Consequences of the Peace.

Our analysis (and the MMT approach in general) is in line with JM Keynes’s approach. Keynes rightly believed that war planning is not a financial challenge, but a real resource problem....

Excellent post — with a qualifier.

Economists are not qualified to material systems scientists. The latter alone can determine the real requirements for vast undertakings such as war and now a response to climate change that will involve restructuring energy use and energy resources.

History shows that after wars the situation returns to "normal," at least for some. However, there is no good reason to expect that the current environmental crisis will play out that way. Nothing like this has happened on such a vast scale in human history.

Randy says he is optimistic about this. Other say they are not.

As far as I can tell, the material systems folks are not, at least for the most part. Moreover, climate change is not just a domestic issue but an international one and the solution, to the degree that one is available, must be international. If it is not, it militaries warn that it likely to become a causal factor in rising conflict.

Of course, Randy is correct about affordability being a canard. The actual issue is availability of real resource and the knowledge and skill to deploy them at scale — and the scale is global. A daunting challenge.

Humanity needs to get busy on this and that won't happen until the crisis develops to the critical point. That may occur only after the tipping point was passed, as it turns out in hindsight for those to look back and reflect on history.

Randy's forecast may be a bit rosy.

In another important contribution—Economic Possibilities for our Grandchildren— written in 1930, Keynes speculated about our future– a time when “for the first time since his creation man will be faced with his real, his permanent problem—how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.”
By Keynes’s timeline, this should have been reached by 2030. We’ve timed our GND to be completed by 2030. We have 10 years to make Keynes’s vision become reality. The alternative is annihilation.

My view is that the US is facing political turmoil until at least after the 2032 general election as an "interregnum" (A. Gramsci) during which a realignment unfolds. It is as yet very uncertain what the future will look like and what political forces will prevail. It is by no means a foregone conclusion that the the outcome will be positive for either the US or the world. It looks to me like there may be a major culling in store.

New Economic Perspectives
HOW TO PAY FOR THE WAR
L. Randall Wray | Professor of Economics, Bard College

Lars P. Syll— Axel Leijonhufvud—the road not taken

A must-read (not least because of the interview videos where Leijonhufvud gets the opportunity to comment on the ‘madness’ of modern mainstream macroeconomics)!

Axel Leijonhufvud's On Keynesian Economics And The Economics Of Keynes: A Study In Monetary Theory is a free download at archive.org here.

Lars P. Syll’s Blog
Axel Leijonhufvud — the road not taken
Lars P. Syll | Professor, Malmo University

Dirk Ehnts — Keynes on the quantity theory and techniques of recovery (letter to FDR)

Changes in expenditure rather than changes in the money stock are causal in economic performance. Changes in money stock do not necessarily result in changes in expenditure. Velocity of money depends on liquidity preference. If the money stock increases while the population increasingly desires to save rather than spend, no change in economic performance will follow. A chief point of the General Theory is that spending as "effective demand" drives an economy. As a consequence fiscal policy is more influential economically than monetary policy in that it concerns spending which can be targeted through specific appropriations.

Here we are with MMT reiterating the point that Keynes was making to FDR in this letter.

econoblog 101
Keynes on the quantity theory and techniques of recovery (letter to FDR)
Dirk Ehnts | Lecturer at Bard College Berlin

Michael Emmett Brady — Keynes’s Theory of Measurement is contained in Chapter III of Part I and in Chapter XV of Part II of the A Treatise on Probability

Abstract

Professor Yasuhiro Sakai (see 2016; 2018) has argued that there is an mysterious problem in the A Treatise on Probability, 1921 in chapter 3 on page 39 (page 42 of the 1973 CWJMK edition). He argues that there is an unsolved mystery that involves this diagram that has remained unexplained in the literature.

The mystery is that Keynes does not explain what he is doing in the analysis involving the diagram starting on the lower half of page 38 and ending on page 40 of chapter III. In fact, the mystery is solved for any reader of the A Treatise on Probability who reads page 37 and the upper half of page 38 carefully and closely. Keynes explicitly states on those pages that he will give only a brief discussion of the results of his approach to measurement on pages 38-40, but will provide a detailed discussion of his approach to measurement in Part II, after which the brief discussion of the results presented on pp.38-40 will be strengthened.

The Post Keynesian (Joan Robinson, G L S Shackle, Sydney Weintraub, Paul Davidson) and Fundamentalist (Donald Moggridge, Robert Skidelsky, Gay Meeks, Anna Carabelli, Athol Fitzgibbons, Rod O’Donnell, Tony Lawson, Jochen Runde) schools of economics, as well as economists, in general, such as Jan Tinbergen and Lawrence Klein, have ignored chapter XV of the A Treatise on Probability. Keynes demonstrates on pp.161-163 of the A Treatise on Probability in chapter XV that his approach to measurement is an inexact approach to measurement using approximation to define interval valued probability, which is based on the upper-lower probabilities approach of George Boole, who discussed this approach in great detail in chapters 16-21 of his 1854 The Laws of Thought. Therefore, the only conclusion possible is that the “mysterious” diagram presented on page 39 of the A Treatise on Probability is an illustration of Keynes’s approximation technique using interval valued probability, since the problem on pages 162-163 of the A Treatise on Probability explicitly works with seven “non numerical” probabilities while the illustration of Keynes’s approach using the diagram on page 39 works with six “non numerical” probabilities and one numerical. It is impossible for the diagram on page 39 to support any claim, as has been done repeatedly for the last 45 years by the Post Keynesian and Keynesian.

Fundamentalist schools, that Keynes’s theory was an ordinal theory that could only be applied some of the time. This leads precisely to the wrong conclusion that Keynes was arguing that macroeconomic measurement, in general, was impossible in economics, which was G L S Shackle’s conclusion.

An understanding of chapter XV of the A Treatise on Probability explains the conflict that existed between J M Keynes and J Tinbergen on the pages of the Economic Journal of 1939 -1940.The major point of discussion, underlying all of Keynes’s major points, was that Tinbergen’s exact measurement approach, taken from macroscopic physics, using the Normal probability distribution’s precise, exact, definite, linear, additive, and independent probabilities, was not possible given the type of data available in macroeconomics. Only an inexact approach to measurement using imprecise and indeterminate interval valued probability was tenable.

An understanding of chapter XV of Part II of the TP explains the fundamental point of disagreement between J M Keynes and J Tinbergen over the issue of measurement. Tinbergen brought his physic background with him to the study of economics. Tinbergen believed that the exact measurement approach that he had absorbed in his study of statistical physics, using additive, linear, exact, precise definite probability distributions like the Normal or log normal, could be used in the study of macroeconomics that would provide a precise and exact explanation of business cycles. Keynes, of course, given his great, overall experience in academia, industry, business, government, the stock markets, bond markets, money markets, banking, finance, and commodity futures markets, had vast experience that Tinbergen, an academic only, did not have. Keynes saw that Tinbergen’s application was the wrong one, although the technique would be applicable to studies of consumption and inventories.

Wonkish.

SSRN
Keynes’s Theory of Measurement is contained in Chapter III of Part I and in Chapter XV of Part II of the A Treatise on Probability (1921;1973 CWJMK Edition): Keynes Stated That the Exposition in Chapter III of the a Treatise on Probability Was 'Brief', While the Exposition in Chapter XV, Part II, Of the a Treatise on Probability, Was 'Detailed'
Michael Emmett Brady | California State University, Dominguez Hills

Michael Roberts — MMT, Minsky, Marx and the money fetish

This is a good historical backgrounder and it should be read for that reason alone. But Michael Roberts also brings up other issues that follow upon this history that are relevant to the current debate, at least some of which that have been brought up previously in the comments here. Highly recommended.

As Maria Ivanova has shown, there remains a blind belief that the crisis-prone nature of the latter can be managed by means of ‘money artistry’, that is, by the manipulation of money, credit and (government) debt. Ivanova argues that the merits of a Marxian interpretation of the crisis surpass those of the Minskyan for at least two reasons. First, the structural causes of the Great Recession lie not in the financial sector but in the system of globalized production. Second, the belief that social problems have monetary or financial origins, and could be resolved by tinkering with money and financial institutions, is fundamentally flawed, for the very recurrence of crises attests to the limits of fiscal and monetary policies as means to ensure “balanced” accumulation.

None of the ‘money fetish’ schemes have worked or will work to get the capitalist economy going. Instead such measures have just created financial bubbles to the benefit of the richest. That’s because these “tricks of circulation” are not based on the reality of the law of value.

Now that we are in the midst of a debate over capitalism and socialism, these issues are coming to the fore. Michael Roberts provides perspective from a Marxian POV.

We are going to hearing a lot of Marx as this debate unfolds and also learn about the rich history of socialist thought. Here is a quick reference on socialism.

Michael Roberts Blog
MMT, Minsky, Marx and the money fetish
Michael Roberts

Lars P. Syll — The limits of probabilistic reasoning

This is an important issue and some background is needed.

This is a fundamental issue in epistemology. As such it involves not only mathematics and science but also philosophy and logic. It is not an exaggeration to assert that this debate has been going on for millennia around the world and it remains undecided, which implies the need for further exploration. To claim certainty under such circumstances is premature.

Furthermore, the certainty of models comes from the logic and math. This certainty is that of tautology, or logical necessity, and contradiction, or logical impossibility. This is endogenous to the modeling process.

The interpretation of the model as a representation of reality is a substantial matter that goes beyond the procedure of the modeling and stands in need of connecting the model and reality in a way that is exogenous to the model. Process does not include substance as a virtue of the model. The model must be connected with what it represents internally, of course, and philosophy of logic and philosophy of science explore how this may take place. This is still controversial.

This controversy was raging at Cambridge and Oxford when Keynes was there. He would have been aware of the issues involved and the horizon of knowledge at the time. He was incorporating his view this in his Treatise on Probability.

In addition, at least since Aristotle, science has been regard as the search for causes and the aim is to provide a causal account that accords with observation. As Hume pointed out, the concept of causality is a very slippery one indeed. This is also a controversial subject and presently the debate in our area of the world is largely between realists and instrumentalists.

For example, accounting rules establish identities that all who understand the rules and their application accept. Where disagreement arises is often in attributing causality to the identity to account for it in actual terms and to use it for forecasting. This is to move from accounting to theory and scientific theories must be "testable" to distinguish them from speculation. The meaning and criteria of "testable" are also controversial.

Disagreement in debate often comes down to such matters, which are presumptions acting as hidden assumptions, since the underlying frame is not articulated and when parties disagree over the framing, there is no path to reaching a decisive outcome for lack of agreement over fundamental criteria.

Such issues regarding economics encompass philosophical logic (including foundations of mathematics), ontology, epistemology, value theory, action theory, philosophy of science and philosophy of social science. This is before getting into sociology and economic sociology, anthropology and economic anthropology, and history and economic history. Oh, I almost forget system theory and information theory.

In short, most conventional approaches are naïve unless they take foundations into account.

Lars P. Syll’s Blog
The limits of probabilistic reasoning
Lars P. Syll | Professor, Malmo University

See also from Lars today

Simplification is a virtue in modeling. Oversimplification is a vice.

Equilibrium — an assumption making many theories inaccurate

Lars P. Syll — Keynes on the limits​ of econometric methods

Keynes quote.

Lars P. Syll’s Blog
Keynes on the limits​ of econometric methods
Lars P. Syll | Professor, Malmo University

Lars P. Syll — What is missing in Keynes’ General Theory

Hyman Minsky quote.

Lars P. Syll’s Blog
What is missing in Keynes’ General Theory
Lars P. Syll | Professor, Malmo University

Lars P. Syll — Polanyi and Keynes on the idea of ‘self-adjusting’ markets

Paul Krugman still wrong. The mainstream model of an economy based on general equilibrium, rational utility maximization, and money neutrality is one of a possible world that doesn't exist and can't exist in a monetary production economy.

There is nothing wrong with constructing models of possible worlds, and, in fact, all models exist in possibility space, not real space. But it is wrong to claim or imply that such models of possible worlds apply to the real world when there is evidence that they do not. This is what science is about, and it is the difference between doing science and doing mathematics.

Conventional economic theory is largely mathematical with an impeccable logic pedigree from axioms, but it not scientific in that it lacks an empirical warrant. The models are attractive but vacant.

Lars P. Syll’s Blog
Polanyi and Keynes on the idea of ‘self-adjusting’ markets
Lars P. Syll | Professor, Malmo University

Lars P. Syll — Kalecki and Keynes on the loanable funds fallacy

Banks are not intermediaries between savers and borrowers, and finance is not allocating existing savings to future investment.

The opposite is true. Bank credit is self-funding; in credit extension, loans (assets) create deposits (liabilities). In finance as allocation of capital, investment creates saving.

Lars P. Syll’s Blog
Kalecki and Keynes on the loanable funds fallacy
Lars P. Syll | Professor, Malmo University

Nick Johnson — Re-reading Keynes

Short synopsis of the General Theory.

The Political Economy of Development
Re-reading Keynes
Nick Johnson