Blog-Reference and Blog-Reference
Brad DeLong concludes: “Much of the history of macroeconomic thought is often taught as the rise and fall of alternative schools. Monetarists tend to write of the rise and fall of Keynesian economists rise during the Great Depression, and its fall in the 1970s under the pressure of stagflation and the theoretical critiques of Friedman, Phelps, Lucas, Sargent, and Barro.” (See intro)
Indeed, macroeconomic thought has to be taught as a sequence of theoretical failures and, by implication, as a sequence of scientifically unfounded policy prescriptions. To compare Keynesianism and Monetarism in great detail only obscures the fact that BOTH are fundamentally flawed.
Let us take the widest possible perspective. The fact of the matter is that neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionialists, nor Monetarists, nor MMTers, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor New Keynesians, nor New Classicals ever came to grips with profit (cf. Desai, 2008, p. 10). Hence, ‘they fail to capture the essence of a capitalist market economy’ (Obrinsky, 1981, p. 495). This is rather bad for an economist. Indeed, what could be worse?
Keynes, to his greatest honor, realized that there was something wrong with previous profit theories: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al., 2010, pp. 12-13, 16)
So, neither Keynesians nor Monetarists understand the two most important phenomena in the economic universe: profit and income (2014). Of course, there is complete ignorance among both sects that they are neither qualified nor entitled to give economic policy advice.
Newer Keynesians and Monetarists are united in error with regard to employment theory: “The belief that the natural rate of unemployment is inevitably close to the average rate of unemployment and thus that monetary policy cannot affect the average rate of unemployment is standard in modern macro models.” (See intro) This belief is provably false (2012). For the equally unjustified belief in the commonplace Quantity Theory see (2011).
“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)
For lack of the true theory, what Keynesians and Monetarists had to offer and still defend is proto-scientific rubbish. Brad DeLong does not seem to have realized this after all these years.
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2011). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL
Kakarot-Handtke, E. (2012). Keynes’s Employment Function and the Gratuitous Phillips Curve Disaster. SSRN Working Paper Series, 2130421: 1–19. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Obrinsky, M. (1981). The Profit Prophets. Journal of Post Keynesian Economics, 3(4): 491–502. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge, MA: MIT Press.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL
REPLY to Paul Mathis on Apr 15
I did NOT say that Keynes did not MENTION the ‘two most important phenomena in the economic universe: profit and income’ I clearly stated that he did not UNDERSTAND them. That Keynes was a rather confused thinker has been observed on more than one occasion: “But Keynes, too, sometimes gave the impression of not having fully grasped the logic of his own system.” (Laidler, 1999, p. 281)
You quote from the General Theory: “Thus the factor cost and the entrepreneur’s profit make up, between them, what we shall define as the total income resulting from the employment given by the entrepreneur.”*
This definition is provable false, see (2011a; 2011b; 2014).
Conclusion: Keynes did not understand profit and neither do After-Keynesians until this very day. The proof is in your post. Not to understand profit means not to understand how the market economy works. And that is rather bad for an economist in general and for Keynesians/Monetarists in particular, isn’t it?
Kakarot-Handtke, E. (2011a). Keynes’s Missing Axioms. SSRN Working Paper Series, 1841408: 1–33. URL
Kakarot-Handtke, E. (2011b). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Laidler, D. (1999). Fabricating the Keynesian Revolution. Cambridge: Cambridge University Press.
* This quote is already since 2013 on my website among other examples for how economists got profit wrong, see here.
You say: “There is a ‘god’ equation which fully describes the global economy and all of its mechanisms and interactions in at least a probabilistic sense.”
Of course, there is, see on Wikimedia. For the details see: ‘The Synthesis of Economic Law, Evolution, and History’
To be sure, neither Keynesianism nor Monetarism fits into the economic ‘god equation’.
You say: “And he [Friedman] in fact was a great admirer of John Maynard Keynes and had more in common with pre-Samuelson Keynesianism than most people either realise or want to admit.”
It is irrelevant who admired whom. Both Friedman and Keynes were political economists and used/abused economic theory for pushing their agendas. Their respective theories are methodologically defective and scientifically worthless.
BOTH approaches are thoroughly refuted, so there is no use at all to waste time with comparing their awkward details. See ‘Indeed, Keynesianism and Monetarism are basically the same proto-scientific rubbish’.
Related 'No ground to lose'.