Economic Philosophy

Joan Robinson

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9780202309088, 9781138522596
• eBook ISBN: 9781351312462
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

"Economics has always been partly a vehicle" for the ruling ideology of each period as well as partly a method of scientific investigation. It limps along with one foot in untested hypotheses and the other in untestable slogans. Here our task is to sort out as best we may this mixture of ideology and science."With these provocative words, Joan Robinson introduces this lively and iconoclastic book. "In what follows, " she says, "this theme is illustrated by reference to one or two of the leading ideas of the economists from Adam Smith onwards, not in a learned manner, tracing the development of thought, nor historically, to show how ideas arose out of the problems of each age, but rather an attempt to puzzle out the mysterious way that metaphysical propositions, without any logical content, can yet be a powerful influence on thought and action."Robinson is responsible for some of the most austerely professional contributions to economic theory, but here in effect she takes the reader behind the scenes and cheerfully exposes the dogmatic content of economic orthodoxy. In its place, she offers the possibility that with obsolete metaphysics cleared out of the way economics can make a substantial advance toward science..

IV

THE KEYNESIAN REVOLUTION

SOME of Keynes’ contemporaries and seniors dislike the expression “the Keynesian Revolution.” There was nothing, they say, so very new in the General Theory.¹ Of course everything can be found in Marshall, even the General Theory. But we know what Marshall’s pupils who had gone into the Treasury believed, from the famous White Paper of 1929² which was an example of neo-classical theory in action. In the General Election of that year Lloyd George was fighting his campaign on a promise to abolish unemployment which had long been above 10 per cent (it rose later to 20 per cent) by a programme of public works. The Treasury (very improperly from a constitutional point of view) was asked to show why this was impossible. Their argument is very simple. The total fund of saving is given, and if more is used for home investment, foreign lending, and consequently the export surplus, would be reduced correspondingly; there would be no advantage to the economy as a whole.³

Nowadays this seems merely laughable. It is not necessary now to repeat the familiar tale of the hard-fought victory of the theory of effective demand; we are concerned rather to see the relevance of the new line to the themes that we have been discussing.

I

First of all, Keynes brought back something of the hard-headedness of the Classics. He saw the capitalist system as a system, a going concern, a phase in historical development. Sometimes it filled him with rage and despair but on the whole he approved of it or at any rate he felt it worthwhile trying to patch it up and make it work tolerably well. But like Adam Smith’s, his defence was based on expediency —

For my part, I think that Capitalism wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organization which shall be as efficient as possible without offending our notions of a satisfactory way of life.¹

Secondly, Keynes brought back the moral problem that laisser-faire theory had abolished. It is true that in Cambridge we had never been taught that economics should be wertfrei or that the positive and the normative can be sharply divided. We knew that the search was for fruit as well as light. But the anodyne of laisser faire had worked pretty thoroughly even in Cambridge. Marshall, certainly, was a great moralizer, but somehow the moral always came out that whatever is, is very nearly best. Pigou set out the argument of his Economics of Welfare in terms of exceptions to the rule that laisser faire ensures maximum satisfaction; he did not question the rule. Readjustments were needed here and there to make the distribution of resources between uses the most efficient possible. The inequality of the distribution of the product raised doubts, but they were easily deflected into Utopian daydreams. Even Keynes, as we have just seen, while he did not much like the profit motive, thought (in the Twenties) that it provided a better mechanism than any other “yet in sight” for operating the economic system, with the reservation that it did not necessarily make the best possible use of its resources.

In the Thirties a large part of its resources were not being used for anything at all; Keynes diagnosed the cause as a deep-seated defect in the mechanism, and thereby added an exception to the comfortable rule that every man in bettering himself was doing good to the commonwealth, so large as completely to disrupt the reconciliation of the pursuit of private profit with public beneficence.

The whole elaborate structure of the metaphysical justification for profit was blown up when he pointed out that capital yields a return not because it is productive but because it is scarce.¹ Still worse, the notion that saving is a cause of unemployment cut the root of the justification for unequal income as a source of accumulation.

What made the General Theory so hard to accept was not its intellectual content, which in a calm mood can easily be mastered, but its shocking implications. Worse than private vices being public benefits, it seemed that the new doctrine was the still more disconcerting proposition that private virtues (of thriftiness and careful husbandry) were public vices.

We have seen our way through this now. When full employment is going to be maintained in any case, saving is certainly more desirable than spending from a public point of view. Saving is only bad when investment fails to make use of it. But at the time Keynes seemed to be upholding a “licentious system” that was even more objectionable than Mandeville’s had been to Adam Smith. And, of course, Keynes, like Mandeville, was a dreadful tease. He preferred not to coat his tart pills with any soothing sugar. The nastier, the more good they would do.

By making it impossible to believe any longer in an automatic reconciliation of conflicting interests into a harmonious whole, the General Theory brought out into the open the problem of choice and judgment that the neo-classicals had managed to smother. The ideology to end ideologies broke down. Economics once more became Political Economy.

Thirdly, Keynes brought back time into economic theory. He woke the Sleeping Princess from the long oblivion to which “equilibrium” and “perfect foresight” had condemned her and led her out into the world here and now.

This release took economics a great stride forward, away from theology towards science; now it is no longer necessary for hypotheses to be framed in such a form that we know in advance that they will be disproved. Hypotheses relating to a world where human beings actually live, where they cannot know the future or undo the past, have at least in principle the possibility of being set out in a testable form.

2

Keynes was very sceptical of econometrics (it is by no means certain that the work done in the last twenty years would have laid his doubts); but it was he who made the new statistical work possible. In How to Pay for the War he used the first National Income tables set out in the modern manner by double entry, in a knock-up which Erwin Rothbarth made for him, and under his influence the method was officially accepted and is now universally established.

The descent into time has brought economic theory also into touch with history. Keynes himself lacked the scruple of a scholar. He would pick up any example to illustrate a thesis, and if one betrayed him he could always find another. He made wild suggestions, such as that Shakespeare’s genius could have flourished only in an age of inflation,¹ or that civilization cannot be found except where there were earthquakes to lead from time to time to a reconstruction boom.² These light-hearted arguments were only superficial ornaments to point the paradoxes of analysis. (He planned to take up economic history seriously at the age of seventy, and we cannot know how he would have turned out at it.) Though Keynes himself was no historian, the General Theory has opened up a great field for an analytical survey of economic history. Formerly there was almost no link between history and theory except the now discredited interpretation of price movements in terms of the supply of gold.

In history, we learned that the mainspring of development was technical inventions; in theory, most of the exercises were in terms of a “given state of knowledge.” Inventions were a special, difficult question; even when it was tackled, the argument was conducted by comparing two positions, with different states of knowledge, each already in equilibrium. (Schumpeter, who brought a bowdlerized edition of Marx into academic doctrine, made his system hinge on inventions, but he was some way from the centre of orthodoxy; it was only after Keynes had broken the bounds that he could find a place in it.) In history, we learned of the growth and decay of economic systems; in theory, there was one set of principles that governed life on Robinson Crusoe’s island, and among the mythical peasants who bartered cloth for wine, as much as in the City of London or in Chicago.

In history, nations are of various shapes and sizes, with various geographical features and social traditions; in theory there were only A and B, each with an endowment of factors identical in all respects except their relative quantities, trading in identical goods.

In history, every event has its consequences, and the question What would have happened if that event had not occurred? is only an idle speculation; in theory there is one position of equilibrium that a system will arrive at, no matter where it starts.

The General Theory broke through the unnatural barrier and brought history and theory together again. But for theorists the descent into time has not been easy. After twenty years, the awakened Princess is still dazed and groggy.

Keynes himself was not quite steady on his feet. His remark about the timeless multiplier¹ is highly suspicious. And the hard core of analysis, round which his flashing controversy wheels, is based upon comparisons of static short-period equilibrium positions each with a given rate of investment going on, though it purports to trace the effect of a change in the rate of investment taking place at a moment of time.

Keynes was interested only in very short-period questions (he used to say: “The long period is a subject for undergraduates”) and so for him the distinction between making comparisons of the structure of different positions and tracing the consequences of change was perhaps not so very important, though there was a tremendous amount of bally-ragging between him and Sir Dennis Robertson over the point.² But when it comes to long-run questions the distinction is indispensable, and those who learned to float in the smooth waters of equilibrium find the requirements of historical analysis very uncomfortable. We are still slipping and floundering about like ducks who have alighted on a pond and found it frozen over.

We have broken out of static equilibrium at least in connexion with the accumulation of capital. We have learned to distinguish the desire to save from the inducement to invest and both from the supply price of a stock of waiting. In other branches of economics the replacement of timeless equilibrium by historical development has still a long struggle before it.

Keynes himself was not interested in the theory of relative prices. Gerald Shove used to say that Maynard had never spent the twenty minutes necessary to understand the theory of value. On these topics he was content to leave orthodoxy alone. He carried a good deal of Marshallian luggage with him and never thoroughly unpacked it to throw out the clothes he could not wear. The Keynesian revolution is only now slowly fighting its way into this terrain.

3

Progress is slow partly from mere intellectual inertia. In a subject where there is no agreed procedure for knocking out errors, doctrines have a long life. A professor teaches what he was taught, and his pupils, with a proper respect and reverence for teachers, set up a resistance against his critics for no other reason than that it was he whose pupils they were.

We have a well-documented example in the case of Pigou and Marshall. Pigou’s review of the General Theory¹ was harsh and intemperate in tone and, as he afterwards admitted, incorrect in logic. The reason for this performance was that he was deeply grieved and outraged by the way Keynes attacked Marshall.

If he had wanted to be, it would have been easy for Keynes to be “generous” to Marshall, in the way Marshall was to Ricardo, that is to say, to saddle him with his own ideas; Marshall’s ambiguities lend themselves even better than Ricardo’s to various interpretations. But Keynes, who (unlike Adam Smith’s poets) was singularly free of spitefulness because his own self-assurance needed no external nourishment, went out of his way to pick out the interpretation of Marshall most adverse to his own views, to pulverize it, mock it and dance upon the mangled remains, just because he thought it a matter of great importance — of real, urgent, political importance — that people should know that he was saying something fresh. If he had been polite and smooth, if he had used proper scholarly caution and academic reserve, his book would have slipped down unnoticed and millions of families rotting in unemployment would be so much the further from relief. He wanted the book to stick in the gizzards of the orthodox, so that they would be forced either to spew it out or chew it properly.

Pigou spewed it out, not, I am sure, because disobliging remarks in it are made about himself, but because his loyalty to Marshall was outraged.

When he happened to pick the book up thirteen years later, and read it calmly, he was amazed to find that he agreed with most of it, and that his review had done Keynes wrong. He had retired, and Keynes was dead, but he asked to be allowed to give two lectures to the undergraduates, to make reparati...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• I. METAPHYSICS, MORALS AND SCIENCE
• II. THE CLASSICS: VALUE
• III. THE NEO-CLASSICS: UTILITY
• IV. THE KEYNESIAN REVOLUTION
• V. DEVELOPMENT AND UNDER-DEVELOPMENT
• VI. WHAT ARE THE RULES OF THE GAME?
• INDEX OF REFERENCES