vol. 51, no. 3 (January), 1985,
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
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