Antoine Reverchon, “Keynes, Wake Up, They’ve gone Crazy,” (English translation), Le Monde
Translated, edited, and abbreviated
Very few of the articles written by the American economist Stephen Marglin have been translated into French. One of them, “What Do Bosses Do?” appeared in an abbreviated form in 1973 (and was republished in a complete version with a commentary by Bruno Tinel in 2004). The Harvard professor, who had begun as a brilliant neoclassical economist—he reached the summit of the academic hierarchy in 1969, one of the youngest Harvard professors ever granted tenure—took a diametrically opposed position to the then dominant economic theory, according to which the level of wages is fixed by the market equilibrium of the supply of and demand for labor. He showed that power relations were also important, indeed more important, becoming with this work a leader in what is called radical economics in the United States and heterodox economics in France.
Last summer Marglin published Raising Keynes: A Twenty-First Century General Theory, a work crowning his long career, in which he offers a new reading of the British economist John Maynard Keynes’s General Theory of Employment, Interest and Money… According to Marglin the usual interpretation has betrayed the true meaning of Keynes’s magnum opus…
This interpretation is the basis of policies deployed over the last 50 years to restore a “natural equilibrium “of prices, wages, and output: inflation targeting, labor-market flexibility, deregulation to unleash growth, etc. But for Marglin, Keynes in reality demonstrates that capitalism does not possess the capacity for self-regulation; its dysfunctions are intrinsically tied to its functioning… It is not a question of “externalities” which can be “internalized” by making markets work better, but a problem of how a market economy functions.
A liberal democratic state cannot therefore be just a regulator that corrects occasional market failures by budgetary stimulus or tax incentives, but must be a fully engaged economic actor, carrying out social investment for the common good. In fact the liberal democratic state already has taken on this role, without this being recognized in the dominant economic theory and the political discourse inspired by the theory.
Marglin had already observed in earlier publications like The Dismal Science how the concepts and representations of mainstream economics were translated into the neoliberal ideologies that dominated the political sphere over the last several decades. There is no Ronald Reagan or Margaret Thatcher without Milton Friedman. Today Marglin dreams of seeing progressive political movements in Europe and the US furnished with an economic theory capable of accounting for the reality and the needs of the 21st century. In the shadow cast by the great Keynes.
James K. Galbraith, “Dismal Economics, Revolt of the General Theory,” Project Syndicate
The defeat and suppression of the classical perspective – with its evolutionary, institutionalist, and developmental descendants – cleared the way for a dogmatic economics that exalted self-regulating competitive markets. Not incidentally, the new hegemony lent itself to the view that governments should intervene only to remove institutional rigidities – monopolies, trade unions, managed prices, food and fuel subsidies, and so forth – preventing realization of the competitive ideal.
As we have seen, this perspective soon ran into serious – but temporary – difficulties with the Great Depression, mass unemployment, and the rise of Keynes, whose theory is revived in Harvard University economist Stephen A. Marglin’s Raising Keynes. At 896 pages and with a minimalist red-lettered cover, those in charge of marketing Marglin’s book are evidently basking in the afterglow of Thomas Piketty’s global bestseller Capital in the Twenty-First Century. But make no mistake: Raising Keynes is a far better and more carefully composed book.
Marglin has carried out the daunting task of rewriting, almost chapter for chapter, Keynes’s 1936 General Theory of Employment, Interest, and Money – complete with myriad graphics and mathematical appendices. Moreover, he gives us what he believes would have been Keynes’s response to all of the subsequent interpretations, criticisms, and inversions of his work, most of which came from economists at MIT (including Samuelson, Franco Modigliani, and Robert Solow) and the University of Chicago (such as Friedman, Lucas, and George Stigler).
Marglin’s basic argument is stated in two parts. First, he focuses on the “Keynesian first-pass model” in the context of the static, general equilibrium framework favored by John Hicks (this is known in textbooks as the IS-LM model). He concludes that within that framework, Keynes’s theory is reduced to dealing with “frictions and rigidities,” implying that “if only” markets were competitive in the neoclassical mode, mass unemployment could not exist.
This view, overwhelmingly dominant among mainstream economists to this day, justifies what journalists call “Keynesian policies”: easy money and budget deficits to fight unemployment. The implication is that eliminating pesky rigidities is just too hard (unless done at gunpoint, as in General Augusto Pinochet’s Chile, or by external diktat, as in many later cases, notably Greece at the hands of the International Monetary Fund a decade ago).
In his “second-pass model,” Marglin resets Keynes in a dynamic frame, dealing with events and changes that occur through time – a manner of thinking that we know from Roncaglia to have been habitual among the classical economists. Crucial elements that can change over time include a business’s hopes and fears for future profits, investors’ desire for yield relative to the security of holding cash, and the willingness of banks to supply loans – thereby creating “bank money” – to those seeking economic gain. In this world – the real world – decisions with uncertain prospects are taken sequentially, and it is the decisions themselves that matter – not whether they happened to be based on “rational” forecasts or whether the course of events was disturbed by some unforeseeable shock.
