vol. 51, no. 3 (January), 1985, pp. 949-951           


Macroeconomics After Keynes: A Reconsideration of the General Theory
by Victoria Chick
Cambridge, MA: The MIT Press, 1983, pp. x, 374

Victoria Chick's book reconfirms that the business of interpreting John Maynard Keynes and his General Theory is still a growth industry. Beginning no later than 1968—with the appearance of Leijonhufvud's book on Keynes—the readers of this literature are entitled to ask: Why does Keynes's book need so much interpreting? Chick does not address this question explicitly, but her opening chapters hint at an answer. Keynes's method of theorizing consists of an uneven mixture of conceptual abstractions and institutional history. (Aggregate supply is "Z(N)"; the wage rate is an historical accident.) Various interpretations of Keynes's theory can be produced by "cutting through" the General Theory at different levels of abstraction. One level gets you IS-LM analysis; another gets you Post-Keynesianism. The chosen level of abstraction will determine which chapters are key chapters; it will determine what, if anything, constitutes a revolutionary thought and what is to be dismissed as obiter dicta. There is probably room for a half-dozen such interpretations. The terminological ambiguities in the General Theory, coupled with Keynes's idiosyncratic writing style and bad organization (The "givens" of his theory are not stated until Chapter 18), have parlayed this would-be half dozen into a myriad of interpretations each with at least some exegetical justification.
        Chick leaves to the reviewers the task of locating this particular effort with respect to others. Three clearly established interpretations—as identified by Alan Coddington—are Fundamentalist Keynesianism (Shackle), Hydraulic Keynesianism (early Hicks), and Reconstituted Reductionism (Leijonhufvud). Although Chick dealt with Leijonhufvud in an earlier effort, her neglect of this brand of Keynesianism in the present work is enough to disassociate herself from it. Her own rendition of the General Theory has a kinship to each of the remaining two, but Chick is much closer to Keynes himself than to either Shackle or Hicks. She reasons, at times, within the IS-LM framework but always pays more attention to the shifting of curves than to the movements along them. She rejects Tobin's effort to save Keynes's theory of interest by splicing in some portfolio-balance theory. Plausible arguments are advanced for readopting Keynes's notion of a "normal" rate of interest. Excepting Part I, her book is more of a selective reiteration of the General Theory than an interpretation of it. But her reorganization of the ideas and her expository skills make the reiteration worthwhile.
        In the preface the reader is invited to skip Chapters 1-3 on the first reading. My own advice to the reader is: Read the first three chapters twice and the rest of the book once. These early chapters, which make up Part I, contain Chick's most insightful and original contributions. Her Synopsis of the General Theory, in which she outlines the book as if it were a lengthy and complex stage play, is invaluable to all students of Keynesianism. Her treatment of macroeconomic concepts, in which she arrays alternative formulations (based on the utility, durability, productivity, and sectoral approaches) against the standard macroeconomic aggregates (wealth, income, investment, consumption, and saving) is no less valuable. This "Eagle's Perspective" convinces the reader that Chick is in tune with the Cambridge lexicon and is sensitized to the nuances of Keynes's mode of analysis. For some, these two aids will have the effect of looking at the solution to a crossword puzzle after having had only partial success in solving it.
        These first three chapters lay the foundation for understanding Keynes. Here Chick argues "that time is the key: that the General Theory is a static model of a dynamic process, the process of production" (p. 11). She also recognizes that there is no mechanism in Keynes's theory that equilibrates the market for long-term capital: "Equilibrium relating to the investment decision would imply...that long-run expectations are met. This does not figure in our story..." (p. 22). Significantly, these two excerpts, almost by themselves, give rise to the Keynesian vision—the vision of an economy that muddles along between periodic crises. A general theory of capital is missing from the General Theory. It follows trivially that capital markets will be seen as a source of macroeconomic instability. It might be noted that this was the basis of the criticism that emanated (and still emanates) from the Austrian school. Readers who are familiar with the writings of the Austrians are sure to make the judgment that Chick could have strengthened many of her own arguments by drawing from this literature.
        After throwing out a critical link in the market mechanism, Chick—following Keynes—goes the long way around to show that the link is missing (and to show the implications for the links that remain). Parts II-IV deal with Keynes's treatment of the market mechanisms that, in his own view, do actually exist. The recurring distinction between statics and dynamics ties these chapters together. The two modes of analysis create a certain tension in the General Theory. Carefully distinguishing between them is what allows Chick to sort out the arguments. Relationships characterized by strict simultaneity are adequately depicted with IS-LM diagrams; matters of time and uncertainty require the recursive method of "looping back." (pp. 247-48. Also, see pp. 269-70 for a helpful exegesis of Keynes's two views [static and dynamic] of the multiplier.) There is a continual play-off, implicit in Keynes and explicit in Chick, between "getting the picture" and "telling the story."
        Chick's analysis is marred in two related ways. She quotes Keynes uncritically to the effect that the marginal efficiency of capital (and presumably the rate of interest) can and should be driven to zero (pp. 286 and 346). And at some points (but at no critical points) she argues in terms of "excess profits" (pp. 164, 167, 279, and passim). These Classical aspects of her analysis will be acceptable to Marxists and possibly to Cambridge capital theorists, but they are not likely to set well with most economists on this side of the Atlantic.
        When Chick turns to policy matters in the final three chapters, which make up Part V, those who have read both the General Theory and Chick's Reconsideration of it will be reminded of how broad the scope for interpretation really is. Chick takes the view that "Keynes's policy prescription was designed for a specific illness—unemployment and excess capital capacity.... The prescription, furthermore, was for a limited dose, designed to shock the patient into self-sustained recovery. It was not designed to sustain him over a long period" (p. 338). She constructs this view from an early part of the General Theory and neglects to compare it with the remarks in Keynes's final Chapter entitled "Concluding Notes on the Social Philosophy Towards which the General Theory Might Lead." In this important finale, Keynes seems to have been overtaken by candor: "I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment.... Moreover, the necessary measures of socialisation can be introduced gradually and without a break in the general traditions of society" (G.T., p. 378). Keynes suggests that the full-scale adoption of his policy schemes "would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive powers of the capitalist to exploit the scarcity-value of capital" (G. T., p. 376). The task of reconciling Chick's view of Keynes with Keynes own remarks on policy issues will be left to the reader.
        Chick does not win the day on all matters Keynesian, but she will win the respect from all those who have studied the Keynesian episode. It is a safe prediction that this book will become a standard for future students of Keynesianism; it is a safer prediction that more interpretations of the General Theory will appear in the years ahead.

    Roger W. Garrison
    Auburn University