November 24, 2016

Who or what exactly did Keynes save?

Comment on Asad Zaman on ‘Methodology for (Re)-Reading Keynes’


Asad Zaman says: “It is always useful to absorb the insights of our predecessors, before trying to build upon them. Such a methodology is essential for the advancement, progress, and accumulation of knowledge. Our current stock of human knowledge is based on the collected insights and labors of hundreds of thousands of scholars, accumulated over the centuries. We would return to the stone ages if we were to reject it as being full of contradictions and errors (which it is). Instead, progress occurs by absorbing the past accumulated wisdom, and trying to remove the errors, or add missing insights, building on our heritage, rather than discarding it and starting over from scratch.” (See intro)

Asad Zaman’s complete lack of logic is again and again astounding. The fact that he is in charge of the WEA curriculum is a sure indicator of the imminent intellectual demise of RWER-Heterodoxy.

Imagine for one moment the famous dialogue between Galileo and Simplicio. Galileo, of course, refutes the Geo-centric theory which prevailed about 1500 years and Simplicio argues (in Asad Zaman’s words) “We would return to the stone ages if we were to reject it as being full of contradictions and errors (which it is).” We know today that Galileo’s rejection of 1500 years of orthodox astronomy did NOT lead to the stone age but to modernity.

Asad Zaman obviously does not understand the concept of a paradigm shift. He argues: “Our current stock of human knowledge is based on the collected insights and labors of hundreds of thousands of scholars, accumulated over the centuries.” This is true for the genuine sciences but NOT for economics because economics is a failed science like Ptolemaic astronomy.

It is remarkable for a heterodox economist to defend “our heritage” because to do the paradigm shift, to replace the obsolete Orthodoxy, to discard the worthless heritage, has always been the mission and raison d’être of Heterodoxy. As Joan Robinson put it: “Scrap the lot and start again.”#1

With regard to the current stock of economic knowledge it has often been observed: “Thousands upon thousands of scholars, as well as thousands of statesmen and men of affairs, have contributed their efforts to the attempt to understand the course of events of the economic world. And today this field of investigation is being cultivated more extensively, than ever before. How is it, then, that in all these years, and with all the undoubted talent that has been lavished upon it, the subject of economics has advanced so little?” (Schoeffler)

In order to understand the failure of economics in general and Keynesianism in particular one has, first of all, to realize that there is political economics and theoretical economics. The founding fathers called themselves political economists, that is, they left no doubt that their main business was agenda pushing. Economists never got out of political economics. In other words, theoretical economics (= science) ultimately could not emancipate itself from political economics (= agenda-pushing).

Keynes was first and foremost a political economist. Theoretical economics was a means to his political ends. Yet, it holds: “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)

Keynes NEVER had the true theory but many fast-changing opinions. Keynesianism has never been more than educated common sense.

Keynes’ approach has already been dead in the cradle. He defined the formal core of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This syllogism is defective because Keynes NEVER came to grips with profit: “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.)

Keynes had NO idea of the fundamental concepts of economics, viz. profit and income. Because profit is ill-defined the whole theoretical superstructure of Keynesian macroeconomics falls apart.#2

But things are even worse. Because economists in general and Keynesians, in particular, do not understand profit they do not understand what deficit spending really means: “When government is added to the pure consumption economy then it holds under the condition of zero investment of the business sector and zero saving of the household sector Qm≡G−T, that is, the overall monetary profit of the business sector is positive if the government sector runs a deficit and negative if the government sector runs a surplus.”#3 In simple terms: Public Deficit = Private Profit. This is, in a nutshell, the current business model of the United States.

We cannot read Keynes’ mind and cannot know whether he wanted to save workers from unemployment, or whether he wanted to save Great Britain from decline, or whether he wanted to save Europe from another war, or whether he wanted to save capitalism from secular stagnation. Whatever Keynes intended is irrelevant. Because he did not understand the elementary economic relationship between deficit and profit, Keynes de facto initiated the greatest profit boost in the history of humankind.#4 The actual distributional problems Post Keynesians so often point their fingers on are ultimately the handiwork of Keynes.

The absurdity of political economics consists in the fact that Keynes has always been praised from the left-wing of the political spectrum and condemned from the right-wing. This proves that the one thing that is equally distributed among economists is idiocy. Nobody has done more for the one-percenters than Keynes.

Economics will not become a science before the present generation of Walrasians, Keynesians, Marxians, Austrians, and all their offshoots have been retired.

Egmont Kakarot-Handtke

#1 From false micro to true macro: the new economic paradigm
#2 For details of the big picture see cross-references Keynesianism
#3 Wikipedia and the promotion of economists’ idiotism (I)
#4 Keynesianism as ultimate profit machine

Related 'Economists: the Trumps of science' and 'The economist as stand-up comedian' and 'Keynes’ message for contemporaries' and 'How Keynes got macro wrong and Allais got it right' and 'The economic machine is broken? Don’t call the heterodox repairman!'. For details of the big picture see cross-references Keynesianism.

Peter Bofinger, Feb 18, Fridays for Keynesianism

Source: Social Europe