閤 Keynesian Economics: The search for First Principles OR。 Alan Coddington Journal of Economic Literature, Vol. 14, No. 4.(Dec, 1976), pp. 1258-1273 Stable url: http://inksistor.org/sici?sic0022-0515%028197612%02914%3a4%03c1258%03aketsff%03e2.0.co%03b2-q Journal of Economic Literature is currently published by American Economic Association Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/about/terms.htmlJstOr'sTermsandConditionsofUseprovidesinpartthatunlessyouhaveobtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the jsTOR archive only for your personal, non-commercial use Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at Each copy of any part of a JSTOR transmission must contain the same copyright notice that ap on the screen or printed page of such transmission STOR is an independent not-for-profit organization dedicated to and preserving a digital archive of scholarly journals. For more information regarding JSTOR, please contact support @jstor. org http://www.jstor Thu Mar1521:42:052007
Keynesian Economics: The Search for First Principles Alan Coddington Journal of Economic Literature, Vol. 14, No. 4. (Dec., 1976), pp. 1258-1273. Stable URL: http://links.jstor.org/sici?sici=0022-0515%28197612%2914%3A4%3C1258%3AKETSFF%3E2.0.CO%3B2-Q Journal of Economic Literature is currently published by American Economic Association. Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/about/terms.html. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/journals/aea.html. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is an independent not-for-profit organization dedicated to and preserving a digital archive of scholarly journals. For more information regarding JSTOR, please contact support@jstor.org. http://www.jstor.org Thu Mar 15 21:42:05 2007
Keynesian Economics The Search for First Principles By ALAN CODDINGTON Queen Mary College University of London I would like to acknowledge various forms of indebtedness in con nection with this paper: to, among others, Thanos Skouras, Alan Peacock, David Currie, and an anonymous referee of this journal for helpful comments on an earlier draft; to Michael Kennedy and Co- lette Bowe for indispensable guidance at various stages; and to the University of Manchester for the Hallsworth Fellowship in Political Economy, which made this work possible I. Introduction n The General Theory of Employment, method consisted of analyzing markets or Interest and Money [13, 1936]and else- the basis of the choices made by individual where, Keynes attacked a body of theory traders. Thus, the resulting theory oper that he designated"Classical "In posing ates at two distinct levels-that of in a threat to the"Classical"system-or at dividual choice, and that of market least to a recognizable caricature of it- phenomena-even though the connection Keynes also called into question the between the two levels may be provided method of analysis by which this system only by an analysis of the choices of a"rep- was constructed The purpose of this arti- resentative"trader. Moreover, in order to cle is to inquire into the various ways in provide a basis for a manageable analysis which methods of economic analysis have of market phenomena, the analysis of in- come to terms with this threat, either by dividual choice has to be of a particularly esponding to it or by reinforcing it with stereotyped and artificial kind. This tion: " What has to be changed or sacrificed based on choice theory of a type that al in order to accommodate Keynesian ideas lows the two levels to be connected i will within standard methods of analysis?"Its refer to as"reductionism, "on the grounds theme will be the variety of ways in which that the central idea is the reduction of this may be done: three broad types will market phenomena to (stylized)in- be presented and the contrasts between dividual choices them explored Considerations of tractability impose The first task accordingly is to charac- restrictions on the kind of choice theory terize the method of analysis of that body on which the market theory can be based of theory in opposition to which Keynes the theory cannot deal with choices in all presented his own. Very broadly, this the idiosyncratic detail in which actors 1258
Coddington on Keynesianism 1259 conceive of them, nor in terms of the elu- gram, I will refer to as"fundamentalist sive and wayward manner in which actors Keynesians. "It is the purpose of this sec make up their minds; stable objectives and tion to expound such an interpretation, to vell-defined constraints are needed to consider some of the diffculties in sustain- provide a firm enough foundation for mar- ing it, and briefy to discuss its significance ket theory. And just as the choice theory for economic theorizing. has to be restricted in the interests of Like the interpretation of the work of building up to market theory, so the mar- any active mind, the interpretation of ket theory has to be restricted in the inter- Keynes's writings requires the use of se ests of working back to choice theory. lection and emphasis: it requires a view as Overwhelmingly, reductionist theorizing to what is central and what merely periph has confined its attention to situations of eral, what is essential and what merely in market equilibrium; for these situations a cidental, in his writings; in this way appar choice theory basis is relatively straight- ent inconsistencies and obscurities may forward. There may be, in accordance readily be resolved, at least to the satisfac- with the standard schedules, a gap be- tion of those adhering to that interpreta tween market demand and market sup- tion. For fundamentalists, what is central ply, but the choice theory from which and essential in Keynes's writing is to be each of these schedules is derived sup- found primarily in his article"The Gen poses that all choices are realizable; ac- eral Theory of Employment"[14, 1937] in cordingly, the standard schedules can tell the Quarterly Journal of Economics of us nothing about what will happen when 1937, an article concisely restating the ar- the traders attempt to do what, in the ag. gument of the general Theory in response gregate, is impossible; nor are the to various critics; in the General Theory schedules likely to persist as the traders itself, the essence is said to lie in chapter become aware of the difficulty of doing 12, " The State of Long-Term Expecta- what they had regarded, in making their tions, "and, to a lesser extent, in chapter (intended) choices, as straightforward. 17, "The Essential Properties of Interest Overwhelmingly, therefore, reductionist and Money. "The kind of considerations to theory has been concerned with the con- be found in these places can be traced nection between equilibrium states of back at least to the work of ten years ear- market phenomena and the choice logic lier in The End of laissez- Faire [12, 1926 from which these states could be gener- and, with hindsight, still further back. ated. It should be noted, however, that An early statement of the fundamental this concern with market equilibrium is ist position was provided by Hugh Town not a defining characteristic of reduction- send [28, 1937]. He argued that the kind ism: it is rather a way in which reduction. of considerations raised by Keynes in his ist theorizing has been rendered manage- theory of liquidity preference have quite able devastating consequences for reductionist II. Fundamentalist Keynesianism price theory if they are allowed to apply to all assets. Once all prices are seen as If Keynes's ideas are to be hreat to the reductionist program, the liquidity premium, price theory becomes question naturally arises of how serious a enmeshed in the same tangle of expecta threat they are: of how fundamental the tional and conventional elements that aspects are that are threatened. Those characterizes Keynes's theory of the rate who have seen Keynes's work as a frontal of interest. On this view, the hope of ex assault on the whole reductionist pro- tracting"real"(relative) prices from their
1260 Journal of Economic Literature monetary context looks bleak; although the clearly specified and stable objectives we should not, as Hicks [ 9, 1946, chap. 12] and constraints required by reductionist has pointed out, confuse Keynes's innova- theorizing, Keynes emphasises that the analytical procedure(in dealing basis of choice lies in ith the rate of interest in association with and shifting expectations of future events money-holding decisions rather than with and circumstances: expectations that have borrowing and lending) with his sub- no firm foundation in circumstances, but stantive contributions. Nevertheless, the that take their cues from the beliefs of oth- threat to the reductionist program does, ers, and that will be sustained by hopes, on this view, indeed appear to be a funda- undermined by fears and continually buf- mental one feted by"the news. " He was drawing at Perhaps the most uncompromising, and tention to both the importance and the certainly the most tirelessly eloquent, elusiveness of the state of business conf- ponent of fundamentalist Keynesianism is dence, and the way it unfolds. Keynes G. L. S. Shackle [25, 1967; 26, 1972; 27, focused on the conventional element in 1974]. His own work has centered on the valuation: the way in which valuations irreducibly creative element in human may persist to the extent that they are choice: its basis in constructs of the choos- shared, but are thereby rendered sustaina- ing mind. His appreciation of Keynes's ble in the face both of minor events and contributions to economic theory has, ac- of changes in circumstances, but vulnera- cordingly, centered around this same con- ble to anything that threatens this conven- cern, and naturally he sees these matters tional basis. In the course of a riot, for ex- of expectation, uncertainty, and ignorance ample the moods and feelings of the -matters of the provision of knowledge rioters may be widely shared until, at a surrogates in e face of knowledge defi- later stage when the riot has lost its force, ciency-as of the essence. A most succinct the moods and feeling may generally and distillation of Shackle's reading of Keynes rapidly revert to normal. The coordina- has recently been provided by B J Loasby tion of such crowd behavior and its charac [17,1976] teristic dynamics arise from the fact that One further line of thought must be the participants are taking their cues di mentioned in the present context: this is rectly from one another. Reductionist one that has attempted to use the funda- choice theory as it has been developed mentalist aspect of Keynesianism as a way does not shed any light on decisions in- of clearing the ground to permit a return volving such immediate and strong inter- to a certain cluster of doctrines and con- dependence as thi cerns that are variously referred to as Once its choice-theoretic foundations classical"(as distinct from"neoclassical") are threatened, the whole reductionist or"Neo-Ricardian. "The objective of this program is called into question; for with school, whose most distinguished practi- out them the market theory would have tioner is Joan Robinson, is to produce a nothing on which to stand, nothing to hybrid of Keynesianism with those aspects which it could be reduced. The concept of of Ricardos work that were appropriated market equilibrium is in this way left ex- by Marx: Ricardo minus Says law and the posed to attack. For without a clearly quantity theory of money specified and stable basis in choice logic, Keynes's QJE paper of 1937, to which the ide Un fundamentalists attach such great impor- longer connected to the realizability of in- tance. is first and foremost an attack dividuals intentions in the aggregate. This the kind of choice theory that is required does not mean that market equilibrium for the reductionist program. As against cannot be rehabilitated; what it means is
Coddington on Keynesianism 1261 that the sustainability of equilibrium must from the restrictions that it imposes on our depend on conditions that are confined to thinking This, however, is not so much a the level of the market. For the funda- matter of what Keynes said, as of what we mentalist, however, Keyness ideas re- are led to if we follow his line of thought, quire the rethinking and reconstruction of taking the QJE article as the definitive the whole body of reductionist theory: its guide to its direction choice-theoretic basis and the equilibrium where we are led by a line of thor theory of markets that rests on it. depends a great deal, of course, on w The objections to equilibrium theoriz- we are disposed to go. Fundamentalists ing have been elaborated by fundamental- have, correspondingly, contributed freely ist Keynesians. Joan Robinson has shown of their own preoccupations in arriving at that if the idea of equilibrium is pursued interpretations of Keynes's thought. at relentlessly, then as the concept becomes their most uninhibited, fundamentalist all-embracing it becomes paralyzed by its Keynesians have presented Keynes's ideas own logic: equilibrium becomes a state of as an escape from the essential"timeless- airs that is, strictly, unapproachable: un- ness"of the modes of thought he attacked less it already exists, there is no way of More concretely, they have presented his attaining it [20, 1953]. Similarly, in the central message regarding employment as ork of G. L S Shackle, the idea of gen- concerning the existence of a liquid asset eral equilibrium is shown to require the in a world of uncertainty, thus providing pre-reconciliation, one with another, of all a retreat from the holding of real assets present and future choices of all economic and the associated commitment to(em actors (26, 1972]. On either ground it ployment-generating) production of a par would follow that the standard use of the ticular output. This theme has been much method of comparative statics(or, better, elaborated by Shackle and is concisely ex omparative equilibria") to analyze the pounded by Loasby; in Joan Robinsons effects of changes in circumstances, is work, however, we find its place taken by strictly unwarranted and illegitimate. of a preoccupation with the heterogeneity course, this line of thought would have ni- capital goods: the fact that individual hilistic consequences for the entire corpus items of the capital stock that history be- of economic theory and in particular for queaths to us cannot be costlessly trans- its applicability; in this respect, the line of formed into one another, but exist in thought reaches a purist and impractical particular forms, embodying particular conclusion that is in marked contrast to techniques, reflecting the superseded ex Keynes's own highly eclectic approach to pectations of the past. The problems mic th raised by the existence of liquid assets and The concept of equilibrium is accord- durable, functionally specific capital as- ingly seen by fundamentalists not as a sets, are not, however, unrelated; the na- useful simplification for economic theo- ture of capital goods means that holdi rists, but as a distraction. 2 The essence of them involves a kind of commitment Keynes's thought is seen as the liberation while the nature of liquidity allows an es from equilibrium theorizing, as an escape cape from that particular commitment Fundamentalist Keynesianism, in see This argument is elaborated in Coddington [3, ing Keynes's ideas as a wholesale on- 1975] and Loasby [17, 1976, chap 3] a Thus: "The hushes ft- stops when slaught on the reductionist program, does not see those ideas as providing a substi- n, 1964, p. 80]. But this sopori tute for that program. Rather, it sees " The co of course, is an indis- Keyness own ideas as a first step in a thor o时m56 ough-going revision of economic theor