[ Pobierz całość w formacie PDF ]
prosperity to return that much faster. Far from speculative
hoarding being a bogy of depression, therefore, it is actually a wel-
come stimulant to more rapid recovery.3
Such intelligent neo-Keynesians as Modigliani concede that
only an infinite liquidity preference (an unlimited demand for
money) will block return to full-employment equilibrium in a free
market.4 But, as we have seen, heavy speculative demand for
money speeds the adjustment process. Moreover, the demand for
money could never be infinite because people must always continue
consuming, on some level, regardless of their expectations. Since
people must continue consuming, they must also continue pro-
ducing, so that there can be adjustment and full employment
regardless of the degree of hoarding. The failure to juxtapose
hoarding and consuming again stems from the Keynesian neglect of
more than two margins at once and their erroneous belief that
hoarding only reduces investment, not consumption.
In a brilliant article on Keynesianism and price-wage flexibility,
Professor Hutt points out that:
No condition which even distinctly resembles infinite
elasticity of demand for money assets has even been rec-
ognized, I believe, because general expectations have
always envisaged either (a) the attainment in the not too
3
For more on the equilibrating effects of wage reductions in a depression see
the following section.
4
Some of the most damaging blows to the Keynesian system have come from
friendly, but unsparing, neo-Keynesian sources; e.g., Franco Modigliani,
Liquidity Preference and the Theory of Interest and Money, in Henry Hazlitt,
ed., The Critics of Keynesian Economics (Princeton, N.J.: D. Van Nostrand, 1960),
pp. 131 84; Erik Lindahl, On Keynes Economic System, Economic Record (May
and November, 1954): 19 32, 159 71. As Hutt sums up:
[T]he apparent revolution wrought by Keynes after 1936 has been
reversed by a bloodless counterrevolution conducted unwittingly by high-
er critics who tried very hard to be faithful. Whether some permanent
benefit to our science will have made up for the destruction which the rev-
olution left in its train, is a question which economic historians of the
future will have to answer.
W.H. Hutt, The Significance of Price Flexibility, in Hazlitt, The Critics of
Keynesian Economics., p. 402.
42 America s Great Depression
distant future of some definite scale of prices, or (b) so
gradual a decline of prices that no cumulative postpone-
ment of expenditure has seemed profitable.
But even if such an unlikely demand arose:
If one can seriously imagine [this situation] . . . with the
aggregate real value of money assets being inflated, and
prices being driven down catastrophically, then one may
equally legitimately (and equally extravagantly) imagine
continuous price coordination accompanying the emer-
gence of such a position. We can conceive, that is, of
prices falling rapidly, keeping pace with expectations of
price changes, but never reaching zero, with full utiliza-
tion of resources persisting all the way.5
WAGE RATES AND UNEMPLOYMENT
Sophisticated Keynesians now admit that the Keynesian theory
of underemployment equilibrium does not really apply (as was
first believed) to the free and unhampered market: that it assumes,
in fact, that wage rates are rigid downward. Classical economists
have always maintained that unemployment is caused precisely by
wage rates not being allowed to fall freely; but in the Keynesian
system this assumption has been buried in a mass of irrelevant
equations. The assumption is there, nevertheless, and it is crucial.6
The Keynesian prescription for unemployment rests on the per-
sistence of a money illusion among workers, i.e., on the belief
that while, through unions and government, they will keep money
wage rates from falling, they will also accept a fall in real wage rates
via higher prices. Governmental inflation, then, is supposed to
eliminate unemployment by bringing about such a fall in real wage
rates. In these times of ardent concentration on the cost-of-living
5
Hutt, The Significance of Price Flexibility, pp. 397n. and 398.
6
See Modigliani, Liquidity Preference and the Theory of Interest and
Money, and Lindahl, On Keynes Economic System, ibid.
Keynesian Criticisms of the Theory 43
index, such duplicity is impossible and we need not repeat here the
various undesirable consequences of inflation.7
It is curious that even economists who subscribe to a general
theory of prices balk whenever the theory is logically applied to
wages, the prices of labor services. Marginal productivity theory,
for example, may be applied strictly to other factors; but, when
wages are discussed, we suddenly read about zones of indetermi-
nacy and bargaining. 8 Similarly, most economists would readily
admit that keeping the price of any good above the amount that
would clear the market will cause unsold surpluses to pile up. Yet,
they are reluctant to admit this in the case of labor. If they claim
that labor is a general good, and therefore that wage cuts will
injure general purchasing power, it must first be replied that gen-
eral labor is not sold on the market; that it is certain specific labor
that is usually kept artificially high and that this labor will be
unemployed. It is true, however, that the wider the extent of the
artificially high wage rates, the more likely will mass unemploy- [ Pobierz całość w formacie PDF ]
zanotowane.pl doc.pisz.pl pdf.pisz.pl aikidobyd.xlx.pl
prosperity to return that much faster. Far from speculative
hoarding being a bogy of depression, therefore, it is actually a wel-
come stimulant to more rapid recovery.3
Such intelligent neo-Keynesians as Modigliani concede that
only an infinite liquidity preference (an unlimited demand for
money) will block return to full-employment equilibrium in a free
market.4 But, as we have seen, heavy speculative demand for
money speeds the adjustment process. Moreover, the demand for
money could never be infinite because people must always continue
consuming, on some level, regardless of their expectations. Since
people must continue consuming, they must also continue pro-
ducing, so that there can be adjustment and full employment
regardless of the degree of hoarding. The failure to juxtapose
hoarding and consuming again stems from the Keynesian neglect of
more than two margins at once and their erroneous belief that
hoarding only reduces investment, not consumption.
In a brilliant article on Keynesianism and price-wage flexibility,
Professor Hutt points out that:
No condition which even distinctly resembles infinite
elasticity of demand for money assets has even been rec-
ognized, I believe, because general expectations have
always envisaged either (a) the attainment in the not too
3
For more on the equilibrating effects of wage reductions in a depression see
the following section.
4
Some of the most damaging blows to the Keynesian system have come from
friendly, but unsparing, neo-Keynesian sources; e.g., Franco Modigliani,
Liquidity Preference and the Theory of Interest and Money, in Henry Hazlitt,
ed., The Critics of Keynesian Economics (Princeton, N.J.: D. Van Nostrand, 1960),
pp. 131 84; Erik Lindahl, On Keynes Economic System, Economic Record (May
and November, 1954): 19 32, 159 71. As Hutt sums up:
[T]he apparent revolution wrought by Keynes after 1936 has been
reversed by a bloodless counterrevolution conducted unwittingly by high-
er critics who tried very hard to be faithful. Whether some permanent
benefit to our science will have made up for the destruction which the rev-
olution left in its train, is a question which economic historians of the
future will have to answer.
W.H. Hutt, The Significance of Price Flexibility, in Hazlitt, The Critics of
Keynesian Economics., p. 402.
42 America s Great Depression
distant future of some definite scale of prices, or (b) so
gradual a decline of prices that no cumulative postpone-
ment of expenditure has seemed profitable.
But even if such an unlikely demand arose:
If one can seriously imagine [this situation] . . . with the
aggregate real value of money assets being inflated, and
prices being driven down catastrophically, then one may
equally legitimately (and equally extravagantly) imagine
continuous price coordination accompanying the emer-
gence of such a position. We can conceive, that is, of
prices falling rapidly, keeping pace with expectations of
price changes, but never reaching zero, with full utiliza-
tion of resources persisting all the way.5
WAGE RATES AND UNEMPLOYMENT
Sophisticated Keynesians now admit that the Keynesian theory
of underemployment equilibrium does not really apply (as was
first believed) to the free and unhampered market: that it assumes,
in fact, that wage rates are rigid downward. Classical economists
have always maintained that unemployment is caused precisely by
wage rates not being allowed to fall freely; but in the Keynesian
system this assumption has been buried in a mass of irrelevant
equations. The assumption is there, nevertheless, and it is crucial.6
The Keynesian prescription for unemployment rests on the per-
sistence of a money illusion among workers, i.e., on the belief
that while, through unions and government, they will keep money
wage rates from falling, they will also accept a fall in real wage rates
via higher prices. Governmental inflation, then, is supposed to
eliminate unemployment by bringing about such a fall in real wage
rates. In these times of ardent concentration on the cost-of-living
5
Hutt, The Significance of Price Flexibility, pp. 397n. and 398.
6
See Modigliani, Liquidity Preference and the Theory of Interest and
Money, and Lindahl, On Keynes Economic System, ibid.
Keynesian Criticisms of the Theory 43
index, such duplicity is impossible and we need not repeat here the
various undesirable consequences of inflation.7
It is curious that even economists who subscribe to a general
theory of prices balk whenever the theory is logically applied to
wages, the prices of labor services. Marginal productivity theory,
for example, may be applied strictly to other factors; but, when
wages are discussed, we suddenly read about zones of indetermi-
nacy and bargaining. 8 Similarly, most economists would readily
admit that keeping the price of any good above the amount that
would clear the market will cause unsold surpluses to pile up. Yet,
they are reluctant to admit this in the case of labor. If they claim
that labor is a general good, and therefore that wage cuts will
injure general purchasing power, it must first be replied that gen-
eral labor is not sold on the market; that it is certain specific labor
that is usually kept artificially high and that this labor will be
unemployed. It is true, however, that the wider the extent of the
artificially high wage rates, the more likely will mass unemploy- [ Pobierz całość w formacie PDF ]