Category: Piero Sraffa

Cheryl Misak’s Ramsey: Notes on his association with Harrod, Dobb, and Sraffa

Frank Ramsey was in Cambridge at the same time as John Maynard Keynes, Arthur Pigou, and Piero Sraffa, some of the most influential economists of the twentieth century. Ramsey died on 19th’January 1930, six years before The General Theory of Employment, Interest and Money’(1936), ten years after The Economics of Welfare(1920), and around the same time as the central propositions in Production of Commodities by Means of Commodities’(PCMC) was worked out. While an earlier blog post had examined Ramsey’s views on the rate of interest, the present one narrates his intellectual association with Maurice Dobb, Roy Harrod, and Sraffa, and a forthcoming one will focus on his intellectual association with Pigou and Keynes. The present and future posts are primarily based on Cheryl Misak’s new biography of Ramsey (2020, Oxford University Press). This post supplements the observations found in Misak’s Ramseywith those found in the books on Harrod and Sraffa published as part of the Palgrave Macmillan ‘Great Thinkers in Economics’ series by Esteban P’rez Caldentey (2019) and Alessandro Roncaglia (2009) respectively and the book on Dobb by Timothy Shenk (2013) published as part of the ‘Palgrave Studies in the History of Economic Thought’ series.

HARROD

While Harrod today is probably most well-known for his contributions to growth theory, he made important contributions to the fields of trade cycle theory, imperfect competition, and international economics. While there are 14 references to Harrod in Misak’s Ramsey, there are only eight references to Ramsey in Caldentey’s Harrod’(2019). [If there are two or more mentions of Harrod in a single page, I treat that as one reference.]

Ramsey and Harrod were friends (p. xxxi). Ramsey had known him ‘since 1922, when Harrod spent part of the year at King’s. Frank had taken Harrod under his wing then, introducing him to [G. E.] Moore and others’ (p. 195). After Ramsey was elected a fellow of King’s College, Cambridge in 1924, he renewed his friendship with Harrod, ‘a young left-leaning economics don at Oxford ‘ and they travelled between Oxford and Cambridge for intellectually rich weekends’ (p. 195). Caldentey mentions Harrod experiencing ”tremendous stimuli” after meeting Ramsey in Cambridge as opposed to his ‘frustrating Oxford experience’ (p. 10).

Although Harrod’s paper on the concept of marginal revenue curve was eventually published in the Economic Journal’as ‘Notes on Supply‘ (1930), on Ramsey’s advice, its editor, Keynes, had initially rejected the article in 1928 and had asked for revisions on the treatment of cartels (p. 305). In the meantime, according to Harrod, others had ‘discovered’ his concept and therefore he failed to receive credit for inventing it. Caldentey informs us that Harrod’s initial paper submitted in 1928 was titled ‘Notes on Monopoly and Quasi-competition’ wherein ‘he derived the increment of aggregate demand curve which was later re-baptized, the marginal revenue curve by Joan Robinson’ (p. 18). Moreover, Caldentey notes that in the foreword to the first edition ofThe Economics of Imperfect Competition’(1933), Robinson acknowledges the following individuals for teaching her about the marginal revenue curve: C. H. P. Gifford, P. S. Sloan, and T. O. Yntema (p. 101, n. 30). Also see Caldentey (pp. 18-19, 100-1) for a recounting of the refereeing episode between Ramsey and Harrod, which also makes reference to the three-volume work, The Collected Interwar Papers and Correspondence of Roy Harrod’published by Edward Elgar in 2003 under the editorship of Daniele Besomi.

DOBB

Dobb’s contributions to Marxist economics are well established. I was introduced to his work during my Master’s in Economics at the University of Hyderabad where we read selected parts from Theories of Value and Distribution Since Adam Smith: Ideology and Economic Theory’(1973). His collaboration with Sraffa in editing and producing The Works and Correspondence of David Ricardo’has also been noteworthy. In Shenk’s Dobb, surprisingly, there is not even a single reference to Ramsey while there are 21 references to Dobb in Misak’s Ramsey.

Dobb was Ramsey’s friend from their undergraduate days (1920-3) at Cambridge (p. 94). They had started their degrees at the same time (p. 79); Ramsey enrolled for mathematics at Trinity College and Dobb for economics at Pembroke College. And during this time, ‘Dobb had considerable influence on Ramsey, both by engaging with him about the kind of socialism that would be best, and by introducing him to workers’ meetings’ (p. 299). While Ramsey was finishing his secondary education at Winchester in 1920, in addition to reading the economics books by Alfred Marshall and Keynes, he also read works by Karl Marx and V. I. Lenin (p. 47). However, according to Misak, it isn’t clear how much they associated with each other after completing their undergraduate studies (p. 87).

In his 1925 doctoral thesis, Dobb tried to bring Marx and Marshall together (p. 300). Shenk points out that Dobb had been trying to synthesize Marx and Marshall even before he started his PhD at the London School of Economics (LSE): ‘Dobb, too, sought to integrate marginalism with classical political economy, but with Marx substituting for Ricardo as the standard-bearer for political economy. ‘ In Dobb’s vision, Marx appears as a theorist of the social, Marshall of the economic’ (p. 36). Dobb’s PhD thesis was published in 1925 as Capitalist Enterprise and Social Progress, and Shenk provides us with its outline: ‘Dobb dedicated the first section to economic theory, the second to economic history, and the third to evaluating contemporary economic practices from the perspective developed over the course of the book’ (p. 38). Since Ramsey ‘was considered (and considered himself) a socialist’ (p. 301), Misak argues that Ramsey’s use of utility theory in his paper on optimal saving needs to be seen in the light of the synthesis Dobb had attempted between Marxism and marginalism (p. 302).

Ramsey’s view of the use of mathematics in economics was similar in spirit to that of Dobb (and Keynes): ‘Like Dobb, he thought that one ignores mathematics at one’s peril, for the mathematics has to be right in order for progress in the real world to be made. And some real-world issues are going to be solvable by doing the maths’witness Ramsey’s response to the Douglas Proposals. But he did not think that the mathematician could step in and solve all problems. He agreed with Keynes that we mustn’t be so taken with the precision of mathematics that we erase the outlines of the very thing we are examining. As Ramsey so often put it, one mustn’t be woolly, but one mustn’t be scholastic either’ (p. 326).

SRAFFA

Sraffa has made significant contributions to price theory and capital theory and deserves high praise for his editorship of the collected works and correspondence of Ricardo. I have written on Sraffa earlier.’ While there are only two references to Ramsey in Roncaglia’s Sraffa, there are 18 references to Sraffa in Misak’s Ramsey. Given this scant attention to Ramsey in Roncaglia’s Sraffa, I make use of Heinz Kurz and Neri Salvadori’s essay ‘Sraffa and the Mathematicians: Frank Ramsey and Alister Watson’ first published in 2000 in Piero Sraffa’s Political Economy: A Centenary Estimate, a volume edited by Terenzio Cozzi and Roberto Marchionatti (as republished in Classical Economics and Modern Theory: Studies in Long-Period Analysis, an edited volume by Kurz and Salvadori in 2003).

As Sraffa writes in the preface to his 1960 classic, ‘the central propositions had taken shape in the late 1920’s’ (p. vi). In the following paragraphs, he expresses his gratitude to Ramsey (along with Alister Watson) for ‘invaluable mathematical help’at different periods’, and his greatest debt is reserved for A. S. Besicovitch. Kurz and Salvadori examine Sraffa’s diaries to identify the number of his meetings with Ramsey; according to the dairy entries, they met twice in 1928 (28 June and 11 November) and thrice in 1929 (10 May, 30 May, and 29 November) (p. 190).

The main outcome of their first meeting is capably captured by the following excerpt from Kurz and Salvadori: ‘At first Sraffa appears not to have explicitly distinguished between the quantity and the price or value of a commodity, a fact to which Ramsey immediately seems to have objected. Sraffa then appears to have introduced the distinction during the conversation with Ramsey’. Ramsey then reformulated the system first by putting the system of homogeneous linear equations in its canonical form, then by setting the determinant of coefficients equal to zero in order to get a non-trivial solution’ (p. 197). The key aspects of this meeting are not as ably captured in Misak and it is also incorrectly stated that Sraffa’s famous work related to ‘the determination of prices and’outputs’ (p. 305; emphasis added) whereas the size and composition of output is a given in PCMC.

Ramsey died in the middle of writing his book on truth and probability. Misak draws attention to the fact that after his death the philosopher R. B. Braithwaite published some of Ramsey’s essays in 1931 under the title The Foundations of Mathematics and Other Logical Essays’(p. 273). According to Misak, John von Neumann and Oskar Morgenstern had reached very similar conclusions in their 1944 Theory of Games and Economic Behaviour’(p. 274). And Misak further notes that, the similarity was so striking that John Hicks went to the extent of writing to Sraffa on 3rd’September 1960 asking if Ramsey’s ideas were transmitted to von Neumann through him (and his ‘mathematical friends’) but Sraffa didn’t reply (p. 274; although a draft of Sraffa’s response is available, it is not clear whether he actually sent it to Hicks). However, after consulting the letter (available here), it is clear that Hicks is actually asking Sraffa how von Neumann arrived at a similar theoretical outlook as Sraffa; and it is not about the similarities between Ramsey and von Neumann as Misak claims.

ON VALUE THEORY

This blog post ends with some critical observations on Ramsey’s engagement with value theory. According to Misak, Ramsey ‘blended neo-classical economics and socialism’ (p. 303). Despite his ‘scepticism about the utility theory of value’, as Misak notes, ‘his two famous papers were written in the neo-classical framework of individuals maximizing utility’ (p. 302). The two important pieces of evidence Misak provides for the former are given in the following excerpt: ‘In his 1924 Apostles paper, he castigated Mill for putting all his eggs in the utilitarian basket. During 1927’28, when his two important papers in economics were written, he was also working on a book in which he hoped to carve out a subtle, naturalist theory of value’ (p. 302). Since this book was not completed, it is difficult to state whether Ramsey would have stood closer to the neoclassical or the classical theory of value. However, Sraffa’s position on the marginalist (or neoclassical) value theory is clear: it is futile. Therefore, unlike Misak, who writes that ‘It’s clear that Ramsey,’like’Dobb and Sraffa, had a complex, pluralistic, view of value’ (p. 302; emphasis added), I would be very reluctant to conjecture a similarity between Ramsey and Sraffa on the question of value theory.

 

Arun Bose: An Introduction to His Life and Work

This blog post introduces you to the economist Arun Bose (1919-2003) who made important contributions to Sraffian and Marxian literature. Bose was called a ‘Sraffian Marxist’ alongside Ronald Meek and Ian Steedman by Samir Amin in a 2015 article in the Monthly Review. Despite his substantial corpus of published writings, his work seems to have been largely forgotten within India. Therefore this essay provides an introduction to his life and work and ipso facto is a modest attempt at generating interest in Indian economic thought specifically (and more generally in the history of economic thought). In the past, blog posts which fall into this theme dealt with the economics of Krishna Bharadwaj and VKRV Rao. And what follows is a condensed version of Section II of my article ‘Arun Bose on Sraffa: Value Theory and Demand‘ published in Artha Vijnana as part of a 2018 special issue dedicated to the ‘Indian Reception of Piero Sraffa’s Economic Contributions’.”

Born in Calcutta, Bose had become interested in Marxian political economy by the end of high school. He completed his undergraduate studies (Tripos) at Cambridge University between 1937 and 1940. One of Bose’s recollections of Cambridge is the following: ‘During extra-curricular sessions, both Maurice Dobb and Piero Sraffa discussed economic theory and Marxian political economy, leaving an indelible impression on my mind’. Moreover, Bose was actively involved in student movements there and also joined the Communist Party of Great Britain. In the decade following this, Bose worked as a full-time activist in the Indian communist movement.’

Around 1957, Bose decided to resume his study of economic theory. Under the Commonwealth Universities Interchange scheme, he spent a year at Trinity College, Cambridge in 1960-1. Subsequently, he was asked to join the newly founded Kirori Mal College in Delhi at the behest of the economist B. N. Ganguli and the English professor Sarup Singh. B. N. Ganguli is the author of Indian Economic Thought: Nineteenth Century Perspectives (1977), one of the handful of books dedicated to Indian economic thought. In memoriam, the Economics Department at Kirori Mal has organised public lectures under the auspices of Arun Bose Memorial Lectures.’

Between 1963 and 1965, Bose closely engaged with Sraffa’s Production of Commodities by Means of Commodities (1960). Bose published a comment in Economic Weekly (now Economic & Political Weekly) in response to Krishna Bharadwaj’s review of Sraffa’s book entitled ‘Value through Exogenous Distribution’. Bose also published responses to the reviews of Sraffa’s book by Roy Harrod and David Collard respectively in the Economic Journal, one of the main international vehicles for the dissemination of economic ideas. And in 1965, he published an article on Sraffa’s book in the Economic Journal. And during this period, they corresponded; Bose sent Sraffa five letters to which he received responses to all but one (more details about the correspondence is available at the online archives of Trinity College).’

Bose’s next publication was after six years: an essay on Marx in the 1971 volume of the History of Political Economy; it continues to be an important journal devoted to the history of economic thought. Next year, he published another essay on Marx in Science & Society. After another brief hiatus from publication, he published a book in 1975 titled Marxian and Post-Marxian Political Economy; he gave a series of lectures at the Indian Statistical Institute (ISI), Calcutta with the same title. Bose acknowledges Sukhamoy Chakravarty for reading the book draft and for familiarising him with modern linear economic theory (Chakravarty had also reviewed Sraffa’s book which had appeared in 1961 in Arthaniti, the journal of the Department of Economics, University of Calcutta). I reproduce an excerpt from the book’s preface where Bose describes his reason for being impressed with Sraffa’s work:

‘Piero Sraffa impressed me with his conviction that it was perfectly possible, though difficult, to develop a theory of political economy into an exact science, based on absolute precision of concept ‘ however much we may approximate in empirical work ‘ which would be wielded as effectively as a surgeon’s or a welder’s tools, to dissect or dismantle, and then reassemble the ‘unseen’ interconnections of the economic process, whose cognition is essential for revolutionary political action’ (p. 11; also reproduced in my Artha Vijnana article on p. 29).’

He went on to publish two follow-up books: Political Paradoxes and Puzzles (1977) and Marx on Exploitation and Inequality: An Essay in Marxian Analytical Economics (1980). While a visiting fellow at the Delhi School of Economics (DSE) during 1976-7, Bose delivered lectures on capital theory. (Today, in India, to the best of my knowledge, capital theory is a full course (albeit elective/optional) only at the University of Hyderabad; Bharadwaj had played an important role in designing their MA Economics curriculum along with Amiya Bagchi, Amit Bhaduri, and K. L. Krishna.) A year before his retirement from Kirori Mal College in 1985, Bose published a letter in the Economic & Political Weekly titled ‘Piero Sraffa’; this was in response to P. R. Brahmananda’s obituary of Sraffa in 1983, also in the form of a letter. Brahmananda had himself engaged with Sraffa’s book in a set of three articles in 1963 in the Indian Economic Journal; these were later reproduced in the first volume of the 4-volume Piero Sraffa: Critical Assessments edited by J. C. Wood (1995, Routledge).’

After his retirement, Bose employed his ‘Sraffian Marxist’ approach within a wider social scientific framework to explain India’s socioeconomic condition. In this period, he published the following: an article each in Economic & Political Weekly (1986) and International Review of Sociology Series I (1987); and two books in 1989 titled Theories of Development of Material and Human Resources and Education: Requiem or Rethinking’ and India’s Social Crisis: An Essay on Capitalism, Socialism, Individualism and Indian Civilization. In his Idea of India, Sunil Khilnani identifies India’s Social Crisis as an important contribution to ‘historical sociology’ (p. 218).’

To conclude, there are enough published works by Arun Bose for someone who is interested in writing a dissertation or thesis in the area of Indian economic thought. Moreover, his notes, manuscripts, and correspondence are available for purposes of research at Nehru Memorial Museum & Library (NMML) although I personally found them to suffer from poor penmanship. It is extremely vital that we engage with the ideas of economists such as Arun Bose who provide an alternative way of understanding our economic surroundings.’

Frank Ramsey and the Rate of Interest

I first came across Frank Ramsey in the preface to Piero Sraffa’s classic Production of Commodities by the Means of Commodities: Prelude to a Critique of Economic Theory (1960). My recent interest in Ramsey is primarily motivated by the following news. Cheryl Misak, a philosopher based at the University of Toronto has recently completed a biography of Ramsey. This blog post provides an introduction to Ramsey’s life and his contribution to the growth theory literature. [It was reassuring to notice that I first blogged about History of Economic Thought (HET) explicitly more than 10 years ago.]

Ramsey was born in 1903. In the year 1920, he read around 45 books, which included Karl Marx’s Capital, Sidney Webb and Beatrice Webb’s The History of Trade Unionism, J. A. Hobson’s The Industrial System, J. S. MiIl, and Alfred Marshall’s Industry and Trade. At the age of 19, he was commissioned to review Ludwig Wittgenstein’s Tractacus Logico-Philosophicus (1922), a significant treatise in philosophy, for the journal Mind; the review was published in 1923. Subsequently, he was commissioned to translate Wittgenstein’s work into English. In Wittgenstein’s later work, Philosophical Investigations, there is an explicit acknowledgement of Ramsey. He was acknowledged for his critique/interventions of Bertrand Russell’s and Alfred Whitehead’s Principia Mathematica in a new introduction by the authors. Sraffa, in his PCMC, had acknowledged Ramsey for mathematical help. In 1929-30, Ramsey met with J. M. Keynes, Sraffa, and Wittgenstein to discuss the theory of probability advanced by Keynes and Ramsey and also to discuss Freidrich Hayek’s theory of business cycles. Ramsey also had a close engagement with AC Pigou, a leading marginalist economist who was also the target of criticism in Keynes’s General Theory. Ramsey died in 1930.’

Under the patronage of Keynes, who was the editor of the’ Economic Journal, Ramsey published in it articles on the ‘theory of taxation’ (1927) and the ‘theory of saving’ (1928). In my 2019 article which critically evaluated the Nobel contributions of Paul Romer and Nordhaus, I had highlighted that Nordhaus employs a marginalist growth model drawing from Ramsey (without further comment). Ramsey’s question was the following: how much should a nation save today for future consumption tomorrow so as to maximise consumption across generations’ Nordhaus employs the optimal growth model with environmental protection as an important constraint. And, the rate of interest is seen as a price which equilibrates the society’s time preference. In other words, the rate of interest equilibrates the society’s preference for the future with that of the present. The policy implication when marginalist economists have a significant say in practical matters is as follows. Since the (actual) rate of interest captures the time preference of the society, this rate can be used to decide how much of current gross domestic product (GDP) should be devoted to environmental protection. In effect, not enough resources are being allocated to mitigate climate change and undertake environmental protection.’

Ramsey’s optimal growth theory also underlies Thomas Piketty’s position on economic growth. In his 2015 article in the American Economic Review, he writes that in the standard model ‘where each individual behaves as an infinitely lived family, the steady-state rate of return is well known to be given by the modified ‘golden rule’ r = ‘ + ‘ g (where ‘ is the rate of time preference and ‘ is the curvature of the utility function)’ (p. 2). The reciprocal of ‘ is the intertemporal elasticity of substitution which captures how much the representative family wishes to smoothen consumption over time. He uses this to point out that in general (marginalist) economic theory, we arrive at the r>g result–the focal argument in his book Capital in the Twenty First Century (2015; for a critical assessment see Thomas 2017). Furthermore, ‘in steady-state each family only needs to reinvest a fraction g/r of its capital income in order to ensure that its capital stock will grow at the same rate g as the size of the economy, and the family can then consume a fraction 1 ‘ g/r‘ (p. 3). To a marginalist (or neoclassical) economist, as Joseph Stiglitz wrote in an article in 1974, ‘interest rates are just intertemporal prices’ (p. 901).’

Therefore, for both Nordhaus and Piketty, interest rates are ‘intertemporal prices’ which allocate today’s income between today’s consumption and tomorrow’s consumption (today’s saving). As Ramsey (1928) writes, ‘The more we save the sooner we shall reach bliss, but the less enjoyment we shall have now, and we have to set the one against the other’ (p. 545). It is also interesting to note that their use of optimal growth models yields vastly different policy suggestions. While Nordhaus is conservative in his proposals for environmental protection, Piketty is progressive in his proposals to tax wealth.’

The rate of interest in Ramsey, as in Alfred Marshall, is a reward for waiting. Therefore, inequality in Ramsey necessarily arises from the heterogeneity of tastes or preferences; if a family is (relatively) more patient, it saves more than the (relatively) impatient one, and ends up owning all the capital stock (Attanasio 2015). How does this conception differ from the notions of interest rate found in Marx and Keynes’ For Marx, the rate of interest is the part of surplus value which is expropriated by the financial capitalist; the source of it is from the value added by labour. Keynes views the rate of interest as an expression of the preference for liquidity. To conclude, is the conception of the rate of interest found in Ramsey satisfactory for understanding a competitive economy’

REFERENCES

Attanasio, Orazio P.’ (2015), ‘Frank Ramsey’s Mathematical Theory of Saving’, The Economic Journal, 125 (March), pp. 269’294. https://doi.org/10.1111/ecoj.12229

Duarte, Pedro (2017), ‘Frank Ramsey’, In: Robert Cord (ed.) The Palgrave Companion to Cambridge Economics, Palgrave Macmillan, vol. 2, pp. 649’671.

Monk, Ray (1990), Ludwig Wittgenstein: The Duty of Genius, London: Vintage Books.’

Stiglitz, Joseph E. (1974), ‘The Cambridge-Cambridge Controversy in the Theory of Capital; A View from New Haven: A Review Article,’ Journal of Political Economy, vol. 82, no. 4, pp.’ 893‘903.

Further reading

Collard, David (2011), ‘Ramsey, saving and the generations’, Generations of Economists, London: Routledge.’

[Most of the contents of this post was informally discussed with my Economics colleagues at Azim Premji University on 19th February 2020.]

 

Short Introductions to Keynes: Skidelsky vs Clarke

The recent global financial crisis has led to a renewed interest in the works of John Maynard Keynes. In part, this is motivated by the intellectual failure of contemporary economics and the search for important insights into the working of the real and financial sectors. Another part owes to the dissatisfaction with conventional economics and restoring the research programme of Keynes seems to point at a better alternative. Together, revisiting the works of Keynes does assume great importance in the current economic and political climate. Two books stand out in this regard: Robert Skidelsky’s Keynes: The Return of the Master and Peter Clarke’s Keynes: The Rise, Fall, and Return of the 20th Century’s Most Influential Economist. Both of them were published in 2009. This blog post is a critical examination of these two books.

Skidelsky

According to Skidelsky, ‘the root cause of the present crisis lies in the intellectual failure of economics’ (p. xiv). To avoid such crises in the future, Skidelsky encourages economists to think of economics ‘as a moral, not natural, science’ (p. xvi). We are quite aware of the affinities between Malthus and Keynes, on the role of consumption. Besides this, Malthus had a similar vision of economics (political economy as it was known then) as Keynes. That is, Malthus also views economics as a ‘science of moral and politics’; For Keynes, economics is a ‘moral science . . . it deals with introspection and with values . . . it deals with motives, expectations, psychological uncertainties’ (p. 81). Keynes’s economics and broader ideas, argues Skidelsky, aids in contemporary economic thinking and policy making. In particular, the role of uncertainty is emphasised.

The intellectual stature of Keynes is something that is well-established. Skidelsky provides the readers with a statement from the philosopher, Bertrand Russell: ‘Keynes’s intellect was the sharpest and clearest I have ever known. When I argued with him, I felt that I took my life in my hands, and I seldom emerged without feeling something of a fool’ (p. 57). In any case, Keynes was extremely active in academic and policy discussions.

Keynes argues that investment is determined by expectations and depending on the state of confidence, investment would increase or decrease. This renders investment unstable, as a policy variable. In addition, if savings are greater than investment, it diverts resources ‘from the wider economy into financial speculation and conspicuous consumption’ (p. 69). Consumption is seen as the stable component of demand. Keynes also clarified the very important distinction between decisions to save and actual saving. Firstly, ‘If everyone wants to save more, firms will sell less and therefore output will fall, unless the inducement to invest is increasing at the same time (p. 91). This is the paradox of thrift, a simple enough idea but very powerful which had not been presented clearly so far. Therefore, if increases in saving are not matched by increases in investment, it will cause a fall in output and employment. In short, ‘It is spending, not saving, which creates output and employment; and when spending falls short of earnings, unemployment results’ (p. 91). Skidelsky captures the most important conclusion of Keynes’s General Theory which is ‘that a decentralized market economy lacks any gravitational pull towards full employment’ (p. 97).

So far, so good. However, when it comes to Keynes’s views on classical economics, Skidelsky falls prey to the conventional view. The conventional view being that Keynes attempted to disprove the economic theories of classical economissts such as Smith, Ricardo and Malthus. This view is far from the reality. (For a concise account of this, see my short article in the DSE Journal.) In fact, Skidelsky, being very faithful to Keynes’s words calls Arthur Pigou a classical economist (see p. 104). Suffice it to say here that classical economists such as Smith, Ricardo and Malthus maintained that unemployment could be a permanent feature of capitalistic economies. By classical economists, Keynes actually meant the (neoclassical) economics of Marshall and Pigou. In the following paragraphs, we will see that Clarke deals with this issue in a more satisfying way.

Clarke

We need to read Keynes today, says Clarke, because of his ‘lifelong commitment to the strategy of institutional reform through reasoned argument’ (p. 23). This means that we need to understand the historic and political context in which he lived. Also, reading ‘Keynesian economics’ is no substitute for understanding Keynes. In fact, as Clarke informs us: ‘After dining with a group of American Keynesian economists in Washington, DC, in 1944, Keynes said at breakfast the next morning: ‘I was the only non-Keynesian there” (p. 168).

Similar in spirit to Brtrand Russells’ comment, Clarke shares with us that ‘Friedrich von Hayek, Keynes’s most formidable academic opponent, wrote that ‘he was the one really great man I ever knew, and for whom I felt admiration” (p. 10). Clarke sheds light on the not often discussed aspect of Keynes’s life ‘ his training in economics. Alfred Marshall, Keynes’s family friend, taught economics to Keynes. ‘It was the usual Cambridge system of individual supervision, one hour a week for the eight weeks of the teaching term ‘ the only formal instruction in economics that Keynes ever received’ (pp. 24-25). In any case, this doesn’t matter and clearly, it didn’t matter. For him, economic theory was not an end in itself (like the classical economists). ‘The whole point lies in applying them to the interpretation of current economic life’ (p. 49). In this quest, there are no roles for dogmas. Hence, he expressed his dissatisfaction with both anti-capitalist as well as free trade dogmas. However, the latter emerged as his primary target (p. 68). On the free trade system, Keynes writes the following: ‘It is not intelligent, it is not beautiful, it is not just, it is not virtuous ‘ and it doesn’t deliver the goods’ (p. 72). To this end, by writing the General Theory, Keynes wanted to change the thinking of economists first and foremost. This is why the General Theory is ‘a concentrated assault on inside opinion as the necessary prelude to converting outside opinion’ (p. 77). Given those difficult times, the theoretical and policy oriented intervention of Keynes was essential. For, ‘Many people [were] trying to solve the problem of unemployment with a theory which is based on the assumption that there is no unemployment’ (p. 148).

We have already pointed the crucial distinction between saving and investment. Clarke puts forth the importance more clearly. ‘At the time, saving remained prized and honoured as the key to economic recovery. Keynes’s serious point is to distinguish saving (or thrift), which is essentially negative, from the real motor of economic growth, investment (or enterprise)’ (p. 106). Furthermore, Keynes is correct when he states: ‘I think it makes a revolution in the mind when you think clearly of the distinction between saving and investment’ (p. 107). Too much saving diminishes income. ‘It is a paradox because it seems natural to suppose that if individual saving enriches the individual concerned, it must also enrich the community’ (p. 152). Despite these crucial differences between saving and investment, much of the modern theories of economic growth seems to take the equality for granted; thanks to the single-good models and continuous production functions.

The commentary by Clarke on Keynes’s view of classical economics is historically accurate and therefore more satisfying than that of Skidelsky. The following extracts bear testimony to this. ‘Keynes later took him [Pigou] as representative of the ‘classical school’, devoting seven pages of the General Theory to a demolition of Pigou’s The Theory of Unemployment (1933)’ (p. 108). ‘Orthodox economics assumed that the system reached its own equilibrium through the effect of interest rates in reconciling the level of investment to the amount of saving available ‘ through flexible prices, of course’ (p. 131). ”Classical’ economics ‘ really Marshallian orthodoxy ‘ said an infinitely adjustable price mechanism will deliver equilibrium via interest rates’ (p. 134). Finally, Keynes’ friend and a reviver of classical economics, Piero Sraffa, is said to have brought the terms ‘effective demand’ to the attention of Keynes. ‘Keynes decided to salute Malthus as yet another brave Cambridge pioneer by purloining his term ‘effective demand’ to describe his own theory of output as a whole’ (pp. 143-4).

Concluding thoughts

The two introductory books on Keynes by Clarke and Skidelsky attest to the intellectual and practical relevance of his work. A few points are in order. First, a perfectly competitive economy does not have intrinsic forces that result in full employment. Secondly, saving and investment are conceptually distinct variables. Finally, economic theory is a means to understanding contemporary society and not an end in itself. I let Clarke have the last word: ‘Keynes’s name is thus rightly invoked to license fresh approaches to the novel economic difficulties of our own era ‘ to tackle them actively rather than take refuge in inert doctrinal purity‘ (p. 180).