Still More On Why We Should Bury The Marginal Productivity Theory Of The Price Of Capital: A Supplementary Note

The purpose of this note is to supplement the author’s earlier remarks on the unsatisfactory nature of the neoclassical account of how the return on capital is determined. (See Strathclyde Discussion Paper 12-03: “The Marginal Productivity Theory of the Price of Capital: An Historical Perspective on the Origins of the Codswallop”). The point is made via a simple illustration that certain matters which are problematical in neoclassical terms are perfectly straightforward when viewed from a classical perspective. Basically, the marginalist model of the nature of an economic system is not fit for purpose in that it fails to comprehend the essential features of a surplus-producing economic system as distinct from one merely of exchange

THE TEXT BOOK BLACK MAGIC, or, how to make the Keynes theory disappear

This paper looks into the question of how it can come about that, not uncommonly, contemporary macro textbooks start their exposition in Keynesian fashion, but end up presenting an essentially classical account. Using a typical textbook for illustration, our diagnosis is that when the AD/AS model is introduced into the discussion, then things go wrong. The AS analysis rehabilitates a pre-Keynesian conception of the working of the labour market, while uncritical and ill-informed use of the AD function effectively ‘tames’ aggregate demand by making it manipulable in such a way as to accord with conditions of labour supply. Not surprisingly, Keynes’s vision of the functioning of the macro system gets lost along the way.AD/AS Model; Labour Market - Keynesian and Classical Models

An Issue With Own-rates : Keynes Borrows From Sraffa, Sraffa Criticises Keynes, and Present-day Commentators Get Hold of the Wrong End of the Stick

Scholars who in recent years have studied the Sraffa papers held in the Wren Library of Trinity College, Cambridge, have concluded from Sraffa’s critical (but unpublished) observations on Chapter 17 of Keynes’s General Theory that he rejected Keynes’s central proposition that the rate of interest on money may come to ‘rule the roost’, thus dragging the economy into recession. While Sraffa does indeed express dissatisfaction with Chapter 17, the commentators have, we believe, misunderstood his concern: we suggest that he was unhappy with the ‘own-rates’ terminology employed by Keynes rather than with the substance of the theory developed in Chapter 17

'Right Back Where We Started From' : From 'the Classics' to Keynes, and Back Again

The purpose of this paper is to highlight the curiously circular course followed by mainstream macroeconomic thinking in recent times. Having broken from classical orthodoxy in the late 1930s via Keynes’s General Theory, over the last three or four decades the mainstream conventional wisdom, regressing rather than progressing, has now come to embrace a conception of the working of the macroeconomy which is again of a classical, essentially pre-Keynesian, character. At the core of the analysis presented in the typical contemporary macro textbook is the (neo)classical model of the labour market, which represents employment as determined (given conditions of productivity) by the terms of labour supply. While it is allowed that changes in aggregate demand may temporarily affect output and employment, the contention is that in due course employment will automatically return to its ‘natural’ (full employment) level. Unemployment is therefore identified as a merely frictional or voluntary phenomenon: involuntary unemployment - in other words persisting demand-deficient unemployment - is entirely absent from the picture. Variations in aggregate demand are understood to have a lasting impact only on the price level, not on output and employment. This in effect amounts to a return to a Pigouvian conception such as targeted by Keynes in the General Theory. We take the view that this reversion to ideas which should by now be obsolete reflects not the discovery of logical or empirical deficiencies in the Keynes analysis, but results rather from doctrinaire blindness and failure of scholarship on account of which essential features of the Keynes theory have been overlooked or misrepresented. There is an urgent need for a critical appraisal of the current conventional macroeconomic wisdom

The Text Book Black Magic, or, How to Make the Keynes Theory Disappear

This paper looks into the question of how it can come about that, not uncommonly, contemporary macro textbooks start their exposition in Keynesian fashion, but end up presenting an essentially classical account. Using a typical textbook for illustration, our diagnosis is that when the AD/AS model is introduced into the discussion, then things go wrong. The AS analysis rehabilitates a pre-Keynesian conception of the working of the labour market, while uncritical and ill-informed use of the AD function effectively ‘tames’ aggregate demand by making it manipulable in such a way as to accord with conditions of labour supply. Not surprisingly, Keynes’s vision of the functioning of the macro system gets lost along the way

Did Keynes in the General Theory Significantly Misrepresent J S Mill?

It has been alleged that J M Keynes, quoting in the General Theory a passage from J S Mill’s Principles, misunderstood the passage in question and was therefore wrong to cite Mill as an upholder of the ‘classical’ proposition that ‘supply creates its own demand’. We believe that, although Keynes was admittedly in error with respect to, so-to-say, the ‘letter’ of Mill’s exposition, he did not mislead readers as to the ‘substance’ of Mill’s conception. The purpose of this paper is to demonstrate that J S Mill did indeed stand for a ‘classical’ position, vulnerable to Keynes’s critique as developed in the General Theory