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Mark G. Hayes, John Maynard Keynes: The Art of Choosing
the Right Model
Ca mb ri d ge: Pol i t y, 2019, p p .xv+195
Mark G . Ha ye s ’s Jo hn Mayna rd K ey nes : T he Ar t of C hoos i ng t he Ri ght
Model i s t he s econd book b y H a yes (19 56 – 2019) on Ke ynes (1883 – 1946),
one of the twentieth century’s great economists who made revolutionary advanc es i n eco no m i c t heori es and p ol i ci es . It cont ri but ed t o a new i nt erpret at i on and co ns t ruct i on of Ke yn esi an ec onom i c s and w as publ i s hed s hort l y be fore t he deat h of Ha yes, a Fel l ow of R obi n s on C ol l ege, C am bri dge. In cont r as t t o hi s fi rst book, T he Economi cs of K eynes : A N ew
Gui de t o t he G ener a l T heor y, whi ch dea l s wi t h Ke ynes i an e conom i cs and
i t s Mars hal l i an heri t age, i n hi s seco nd b ook on Ke ynes Ha ye s concent r at es on Keynes’s theory of money, i.e., the definition and nature of money, the dem and for m on e y, t he m eani n g of p ri ce l evel and l i qui di t y t heori es . It i s wri t t en i n s i m pl e non -t echni c al l an gua ge wi t hout m at hem at i c a l equat i ons as an i nt roduct or y b ook for be gi nne rs . N evert hel es s , e conom i s t s , t oo, wi l l discover new dimensions of Keynes’s ideas on modern economics on their wa y t hrou gh t hi s bo ok.
Hayes argues that Keynes’s economics, especiall y in his General Theory
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based on t he cl as s i c al e conom i c m od el . He fi nds a s i gni fi c ant pl ac e fo r Ke ynes i an econom i c t hought i n t he m odern worl d, es p eci al l y for an underst andi n g of t he m onet ar y p robl em s of t he European U ni on (EU) i n t he l i ght of Ke yn es ’s In t ernat i onal C l e ari n g Uni on ( IC U) propo s ed duri n g t he Breton Woods negotiations. Based on Keynes’s perspective, Hayes suggests real sol ut i ons for c om pl ex econom i c probl em s , whi ch m a kes t he book i nt erest i ng t o s chol a rs as wel l as st ud ent s of t he s oci al s ci en ce s .
The book i s r ead er- f ri endl y for t hos e m e et i ng Ke ynes for t he fi rs t t i m e as i t i ncl udes s evera l t abl es and fi gur es, gl os s a ri es , as wel l a s h o w-t o -re ad and furt he r r eadi n g s ect i ons . It consi st s o f 8 chapt e rs .
In C hapt er 1: Why St udy K eyn es ? , H a ye s out l i nes t he bo ok’s t hem e, i ncl udi ng a s um m a r y of ea ch chapt e r. In part i cul ar, he t ra ces out t wo fl ow chart s — one s howi n g c aus at i on i n t he cl ass i cal m odel , t he ot her ca us at i on in Keynes’s general model. The form er takes the form of a “real wage→employment→income→investment and consumption→real interest ” fl owcha rt . B y cont r a s t , t he l at t er s hows t he s uppl y o f m one y and dem and for m one y i n t he “m one y→i nt er est →i nves t m ent →i ncom e →cons um pt i on and employment→real wage ” flowchart with multiplier and uncertaint y (l ong -t erm ex pect at i on) e ff ect s. Th ese t wo ch art s h el p t o u nders t and how Ha yes cons t rues argum ent s re ga rdi n g Ke yn es ’s m on et ar y t ho ught .
C hapt er 2: T he C l as s i cal T heory of Empl oyment , Int eres t and Money
deal s wi t h t hi s t h eoret i c al app roach , and cont ras t s i t t o Ke ynes i an econom i cs . Int er es t i ngl y, Ha ye s pr es ent s t he cor n m odel as t he cl as s i cal m odel , wi t h t he l aw s of di m i ni shi ng ret urns and t he t heo r y of m argi nal
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product i vi t y, i n whi ch farm e rs deci de t o produce at t he m ax im um l evel of production. Additionally, Hayes explains Say’s market laws on the ex change of cons u m pt i on goods and servi c es i n t he m arket , whi ch em phas i z e t hat m one y i s neut ral i n t he co rn m odel of cl as s i ca l t heor y. Th e ex pl anat i on i s cl ea r and com pl em e nt ed wi t h an am pl e s et of t abl es and fi gu res .
In C hapt er 3 : T he Gener al T he or y of Empl oyment , Int e res t and Mon ey Hayes discusses the principle of effective demand in Keynes’s general t heor y o f em pl o ym e nt , i nt erest and m oney from a s t ock -deal e r ’s vi ewpoi nt , t he m ul t i pl i er m odel , t he t i m e s t ruct ure of i ncom e and t he s t at e of ex pect at i on. In hi s approa ch t o t he deal er ’s rol e i n t he s t ock m arket , Ke ynes cons i ders a m ul t i pl i er m odel bas ed on Kahn ’s argum ent s ; m one y i s not cons i der ed neut ral i n t he m ark et as a re s ul t . Ho wev er, Am eri c an Keynesian’s models, such as Hansen and Samuelson’s 45 di a gr am s , do not deal with the dealer ’s stock adjustment in great detail. In fact, the Am eri can m ul t i pl i er m odel s t hat ex pl ai n ri ppl e effe ct s wi t h ge om et ri c progres s i on are ove r s i m pl i fi ed . Aft er al l , Ke ynes ’s m ul t i pl i er effect i n t he Am eri can e conom i c t ex t book i s a di s t ort ed i nt erpr et a t i on , wi t hout i nt erm edi ar y o rgani z at i ons i n t he m arket .
In C hapt er 4 : T he Great C onf us i on H a ye s de al s wi t h t he cont rovers y over l oa nabl e funds t heo r y and l i qui di t y p ref er ence. H e s ugges t s t hat Keynes’s dichotom y is between the quantity of money and savings. By cont ras t , t he cl as s i c al di chot om y hol ds t hat real va ri abl es i n t he econom y are d et erm i ned pure l y b y r eal fact o rs an d not b y m on et ar y f act ors. H a yes
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al s o argues t hat t he IS – LM an al ys i s of e qui l i bri um does n’t cover Ke yn es ’s cont ri but i ons t o m onet ar y t heo r y, s u ch as l i qui di t y p ref er ence adequat el y.
In C hapt er 5: T he L ong St r uggl e t o Esc ape , Ha ye s a rgues t hat Ke yn es advocat ed t he C am b ri dge v ersi on o f t he quant i t y t heo r y of m one y al on g with what we call Marshall’s k and that he considered the quantity of m one y t o have a n i m port ant eff ect on pri ces. Ke yn es em phas i z ed t he rol e of m one y i n t he m arket s ys t em b y di sc ardi n g cl as s i c al t hought . Duri ng Worl d War II, Ke yn es t hou ght o f t he possi bi l i t y of re gul at i n g pri c e s and i n fl at i on t hrough com pul s or y s avi ngs . In t hi s c hapt er, w e fol l ow Ke ynes as h e s ought t o t a ckl e pri ce i ns t abi l i t y t hr ou gh t he t h eor et i cal c ont ent s of hi s t hree m aj or books : A Tr act on Mon et ar y Ref or m (1923 ), A Treat i s e on
Money (1930), and T he Gener al T he o r y of Empl oym ent , Int eres t and Money.
In C hapt er 6: Fro m Ver s ai l l es t o B ret t on Woods , H a ye s di s cus s es Keynes’s international economics. At Breton Woods, Keynes proposed a radi cal s ol ut i on for re gul at i n g t he bal ance of p a ym ent s , whi ch was an obs t acl e t o ful l em pl o ym ent , t hrou gh t h e IC U, t h e cur rent ac c ount , and t he absol ut e ne ces s i t y o f fo rei gn curr enc y r es erv es fo r n at i onal s over ei gnt y and survival. The immediate motive behind Keynes’s proposa l on ICU was t he ex pect ed pos t -war s hort a ge of dol l a rs. Ul t i m at el y t he A m eri can pl an draft ed b y H . D . W hi t e was adopt ed, and t he Int e rnat i onal M onet ar y F und (IMF) became the alternative to Keynes’s ICU. The IMF created special drawing rights (SDR) 25 years later, meeting the principles of Keynes’s banco r.
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In C hapt er 7: T he K eynes i an Er a , Ha yes s i gnpos t s s om e t urni ng poi nt s i n t he Ke ynes i an e conom i c er a: gol d s t andard, aus t eri t y, i nt erwar and neol i beral i s m . D es pi t e t he end of t he Ke yn es i an er a, neocl as s i cal econom i s t s s uch as M . Fri edm an, R . Luc as J r. and ot hers revi ved i t l at er i n t he 1960s . Ha yes c ons i der s Ke yn esi an econom i cs i m port an t i n res ol vi ng today’s monetary problems in the EU and the world at large. He argues that Ke ynes woul d h ave us ed m onet a r y pol i c y t o r educe t he l on g -t erm i nt e res t rat es and s t i m ul at e i nves t m ent s t o avoi d st agfl at i on.
Fi nal l y, K e ynes ’s l e ga c y i n t he m odern worl d i s di s cus s ed i n C hapt er 8:
K eynes f or Today . Ha yes consi ders Ke ynes as bel o ngi n g t o an
es t abl i shm ent el i t e a nd pol i t i cal l y a l i ber al i n t he Bri t i s h s en s e; t here for e, he was not s t ri ct l y al i gn ed wi t h t he wo rki ng cl as s . Ho w eve r, he w as al s o avers e t o hi gh un e m pl o ym ent and wor ked t owa rds es t a bl i s hi ng a good s oci et y.
Accordi n g t o Ha ye s , t he good s oci et y s ou ght b y Ke yn es requi res corpor at e gove rnan c e and l abou r ri ght s r eform s t o bri n g abo u t a s hi ft i n t he bal anc e of powe r. He wri t es t hat Ke ynes di d not abandon t he cl as s i cal t heor y; h e was a m arket - fri endl y e cono m i s t who s ought t o reform i t . He di s t i ngui s hes Ke yn e s from hi s fol l owers and wri t es t hat , i f he wer e al i ve, Ke ynes woul d s eek urgent re form of t he Euroz one s ys t em not on l y fo r t he EU but al s o for t h e pros peri t y of t he wo rl d.
We can dedu ce at l ea s t t hree i m port ant po i nt s from t he abov e di s cus s i on. The first point is Keynes’s monetary thought. Like many post-Keynesians, i ncl udi ng P aul Davi dson, H ym an Mi nsk y am on g ot hers , H a ye s pr esent s
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Ke ynes as a m onet a r y e conom i s t i n t he m odern econom i c worl d. Ha yes argues t hat m on et ar y t h eori es, s uch as l i qui di t y pr efe ren ce, are i m port ant i n t he m odern worl d of econom i c un ce rt a i nt y.
The second point is Keynes’s political and economic stance. In this book, Ha yes does not de al wi t h Ke yn es ’s l i fe work i n det ai l , but poi nt s out , as m ent i oned earl i e r, t hat Ke ynes di d not t hrow hi s wei ght behi n d t he worki ng cl as s ; rat h er, h e w a s a fol l ow er of t he C am bri dge t r adi t i on al on g wi t h ot hers l i ke Al f red M ars hal l , and hi s t hought w as pol i t i cal l y l i be ral i n t he Bri t i s h s ens e. The re fore, as on e of an es t abl i s hm ent el i t e, Ke yn es wei gh ed up t he chances of i nt el l ect ual s over com i ng and l i m i t i ng wi des p read s t upi di t y. We oft en s ee Ke yn es as a Bri t i s h nat i onal i s t , who was a n i m port ant part i ci pan t i n t he Br et t on Woods ne got i at i ons , but t hi s book s hows us Ke ynes as an i nt ernat i onal eco nom i s t res pons i bl e f or cr eat i n g an i nt ernat i onal m onet a r y s ys t em , and one who woul d have ha d an effe ct i ve pol i c y t o pr es er v e t he E U i n t h e i n t eres t s o f pe ac e, p ros peri t y, and ci vi l i z at i on.
The third point is the meaning of Keynes’s art to which Hayes refers in t he s ub -t i t l e of hi s book. Ha yes poi nt s out t hat Ke ynes s ho ws t he art of choos i ng t h e ri ght m odel i n t he cont ex t of not t r yi n g t o d em ol i s h but t o i m pl em ent t he wi s dom of Adam S m i t h. Ha yes di d not deve l op t hi s poi nt an y fu rt her t han t h a t , but we c an assum e t hat t h e a rt ow es m uch t o GE Moore’s intuitionism. We can also deduce Keynes’s art from the meaning of art ac cordi n g t o t he Engl i s h cl as si cal pol i t i cal econom y s cho ol of t hought . Ha yes con cl udes t ha t econom i cs was not onl y a sci en ce t ou t court but a
201 m oral s ci enc e fo r Ke yn es .
Thus , we m eet a n e w Ke ynes on r eadi n g H a yes ’ book. Ha ye s argues t hat read er s s houl d be s u ffi ci en t l y e qui pped t o form t hei r own co ncl us i ons o n what Ke yn es m eans t o us t oda y. The gl o bal econom y i s onl y ex pect ed t o recov er from t he C o vi d -19 rec es s i on b y l at e 2022, but i t wi l l pos s i bl y t ak e l onge r for re cove r y of t he l abour m arket . Toda y’s e conom i c pol i c y i s cl os e r to Keynes’s insight, but today's pure economic theory is far from Keynes’s. In c oncl us i on , Ha ye s ’s book m akes ex ce l l ent read i n g not onl y for s t udent s but al s o for pro fes s i onal econom i s t s .
Yuichi Kimura
College of Commerce, Ni hon Uni vers i t y, Tok yo, J apan
