The General Theory Chapter 3 (part seven of seven parts)

The last of Chapter 3 by guest blogger BF

The last section (section 3) of Ch 3 contains a well known Keynesian swipe at David Ricardo and his ilk.  It’s here that JMK tells us how much better the field of economics would have been if only Malthus had prevailed over Ricardo in the General Glut debate.  JMK was prone to citing Malthus as a proto-Keynesian, conveniently neglecting the point that in Malthus’s model of General Gluts, a high level of investment was the cause of the problem, not the cure.  (If you want to put Malthus’ General Gluts theory in a Keynesian perspective it probably comes closer to the Harrod-Domar growth model than it does to the short run model of GT.)  JMK says that “Ricardo conquered England as completely as the Holy Inquisition conquered Spain” (and as we know, nobody expects the Spanish Inquisition).  There is, as we’ve noted earlier, an irony here given how firmly Ricardian JMK’s disciple Joan Robinson became, in her association with Pierro Sraffa and Michal Kalecki.

Keynes also blames Ricardian theory for what he terms the celebrated optimism of classical economic theory.  Ok, Adam Smith was an optimist, although not for the reasons Keynes suggests and Nassau Senior was more optimistic than Malthus on the population front, but as for the classical Ricardians, a model driven by the assumption that in the long run wages will be driven to the subsistence level (a Malthusian idea) and the belief that investment opportunities would eventually run out, leading to stagnation, could only be called optimistic if optimism is defined as expecting full employment and not worrying about the fact that at full employment in the long run the wage would be at the biological subsistence level.

So who did JMK approve of, besides Malthus?  Well, he cites Karl Marx (was it Paul Samuelson who referred to Marx as a minor Post-Ricardian?) , Silvio Gessel and Major Douglas. These guys were intellectual successors to the pamphleteers of the earlier Mercantilist era, and were they around today they’d be bloggers, making a name for themselves as heterodox theorists, being written up in the Economist, with their lack of publications in professional journals being cited as evidence that the economics mainstream is ideologically biased against daring new ideas.  Kind of the way JMK cited them.  Don’t feel bad if you don’t know two of the three names, but Canadians should know of Major Douglas (Canadian content ahead), who developed an economic system called Social Credit, which was adopted in Canada (at least until the Supreme Court of Canada called a halt) by the depression era premier of Alberta, Bible Bill Aberhart.  Bible Bill Aberhart’s successor as Social Credit premier was Ernest Manning, whose son was Preston Manning, who founded the party led by Stephen Harper which eventually merged with the remnants of the Progressive Conservative Party of Canada and at this writing forms the Canadian federal government.  The bits of Social Credit theory of which JMK approved got somewhat watered down in the transition.  Pierre Berton, in one of his books on the Depression years, wrote approvingly of Keynesian economics and scathingly of Social Credit theory, apparently not noticing (certainly not commentating on) the fact that the bits of Social Credit theory that he was panning were pretty much identical to those bits of Keynesian theory that he was praising.  Major Douglas (unlike Keynes) was not what you’d call a polished character.  Reading Berton (and on the whole his popular histories are great reads) you can’t escape the sneaking suspicion that the author would really have enjoyed having dinner with Keynes, but probably not with Major Douglas.

BF