The Keynesian revolution
Throughout the first three
decades of the 20th century, the neoclassical paradigm conquered the economic
theory “in a way, as full as the Inquisition to Spain” (8). But in 1929 happened
an event that directly put in check the neoclassical system: the famous Great Depression
of the American economy. It is in that difficult context that appears one of
the greatest geniuses of the economy: John Maynard Keynes.
Keynes was a multi-faceted
intellectual who achieved fame in mathematics, philosophy, and literature. In
his famous book General theory of
occupation, interest and money (1936) criticizes neoclassical economics (he
calls it “classical”) claiming that its postulates “are only applicable to a
particular case, and not in general, because the conditions posed are an
extreme case of all positions of equilibrium” and even more so because “the
characteristics of that special case are not the characteristics of economic
society in which today live us, reason why its teachings are deceptive and are
disastrous if we try to apply them to the real facts”. (9)
Moreover, being himself a
great mathematician, criticizes the “mathematization” of economic analysis
holding that “too much of recent mathematical economics is a simple mixture, as
vague as the original assumptions that sustain it, which allows the author to
lose sight of the complexities and interdependencies of the real world in a
maze of pretentious and unhelpful symbols”. (10)
In that sense, Keynes seeks
to recover the epistemological approach of the classics, ie political economy
recover and thereby writes that “the purpose of our analysis does not provide a
mechanism or method of blind manipulation to give us an answer infallible but
provide ourselves with an organized method of reasoning on specific problems”. (11)
The second neoclassical counter-revolution
After their first reaction
from radical rejection of the theory of Keynes, the neoclassical economists
were more “intelligent” and sought a containment mechanism considering all the General
theory as a particular case which could be seamlessly integrated in the
Walrasian schema. As Paul Davidson shows in Controversies in Post-Keynesian
Economics (1994), these reactions faced the different generations of
economists: “A more than one decade of the publication of the General theory
of John Maynard Keynes, a controversy arose in the economics profession among
the older neoclassical economists and the younger generation of advocates of
Keynesian policies. The oldest were experts in neoclassical theory. Recognizing
that the Keynesian analysis was logically incompatible with its own analytical
model, the old economists despised the Keynes’s analysis as imperfect. The new
generation had also been nourished by the neoclassical theory. They could have
wanted any action to guide the economy in the great depression and could have
looked for overthrowing their ancestors. But they did not want to entirely destroy
the analytical structure because they had spent many years at school learning
to know it. Therefore they tried to amalgamate the neoclassical theoretical
analysis with the activist policies of Keynes and to develop an analytical
framework which they called Neoclassical-Keynesian Synthesis. This synthesis
attempted to integrate economic policies of the 20th century proposed by John
Maynard Keynes with neoclassical theory of the 19th century that includes Say's
law and the axiom of neutrality of money as a proposal in the long term”. (12)
The result of this attempt -summed up in the famous
IS-LM diagram- maintained the exterior lines of the Keynes’s theory, but the
essence is lost. Even so, despite all these characteristics, which did not have
much to do with what Keynes had resulted in his General Theory, “it is told to the students, that they did not need
to read the difficult and tedious General
Theory, but that they could study the IS-LM model, which -as claim their
teachers- includes all the Keynes's main ideas”. (13)
Thus, the economists, rather than strive to understand
the complexity sobresimplificaron the Keynes’s ideas and, thus, they neutralized
all the elements that could mean a return to the political economy and its
multidisciplinary and realistic epistemology.
The conservative neoliberalism
The most famous episode of the origins of
neo-liberalism is the formation, in 1947, in Switzerland, under the leadership of
Friedrich von Hayek, of the Mont Pelerin Society, a group of large liberal
intellectuals, among them were tam well Karl Popper, Ludwig von Mises and
Milton Friedman, who were committed to the dissemination of the ideals of
liberalism around the world in order to combat the advance of socialism. (14)
In this context, it is convenient to define
politically neoliberalism comparing it historically with liberalism. When in
the late eighteenth century liberalism advocated the legitimacy of capitalist
society, it did from a revolutionary position against the status-quo, ie
against the feudal and mercantilist privileges. In contrast, when in the middle
oftwentieth century neoliberalism endorses the legitimacy of capitalist
society, it does from a conservative position in favor of the status quo, ie,
against any kind of society that could replace or overcome capitalism.
But neoliberalism is not only going to combat against
socialism but also -sometimes - against Keynesianism and the position of this
in favour of the intervention of the State in the economy. In this way, in the
1970s, the loss of dynamism in the developed economies, the fall of profit
rates and stagflation were the perfect opportunity to neoliberalism in order to
mount its attack on the welfare state. After years of Keynesianism,
neoclassical economic theory regained its dominant role. With their
mathematical models of growth and its macroeconomics models, also mathematical,
based on rational expectations, neoclassical economic theory returned to
"demonstrate" mathematically the self-regulating nature of the
market. Milton Friedman and Robert Lucas were the exponents of this successful
fight by the monopoly of the legitimate knowledge against Keynesianism and in
favor of monetarism and the New Classical Macroeconomics, with its assumption
of the “rational expectations”, did completely ineffective and unnecessary the
Government Intervention in the Economy.
References
8. John Maynard Keynes, General theory of employment, interest and money (1936), Fondo de
Cultura Económica, Mexico, 1992, p. 38
9. John Maynard Keynes, General theory of occupation, interest, and money, op. cit., p. 15
10. Ibid, p. 286
11 Ibid., p. 285
12. Quoted by: Mariel Manes, "Keynes method: an
analysis of the general theory in the light of its methodology", note of
class of the course of macroeconomics II, Universidad Nacional de la Plata , La Plata , August 2005, p.2.
13. Ibid.
14. See: R. M. Hartwell, A History of the Mont Pelerin Society, Ed. Liberty, Indianapolis,
1995.
You can contact the author of this article in: “Dante Abelardo Urbina Padilla” (Facebook) and dante.urbina1@gmail.com (email)
You can contact the author of this article in: “Dante Abelardo Urbina Padilla” (Facebook) and dante.urbina1@gmail.com (email)
