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Keynes: General Theory, chapters 4-6
[Summary by Jotun Hein]
It is 35 pages but again is not easy
Chapter 4 “The Choice of Units”
The chapter is quite imprecise but JMK has some amusing formulations like ”To say that net output today is greater, but prize level lower, than then years ago or one year ago, is a proposition of similar character to the statement that Queen Victoria was a better queen but not a happier woman than Queen Elizabeth – a proposition not without meaning and not without interest, but unsuitable for differential calculus”
Chapter 5 “Expectation as Determining Output and Employment”
Keynes presents a very common sensical argumentation for the importance of psychology in economics. He has a distinction between short-term and long-term expectation where the former that is clear, but again very hard to measure exactly.
Chapter 6 “The Definition of Income, Savings and Investment”
Clearly a major concern of the book is how to keep up consumption, but I what you earn but don’t consume is Saving or Investment, but I can’t see the difference between the two. I can see a difference between putting in the bank and under the madras but I am not sure it coincides with this distinction.
Appendix on User Cost
For an outsider it is hard to understand why there is so much contention about seemingly simple concepts. And I haven’t ready anything I would call ingenious. And the lack of mathematics surprises me. And few well chosen examples would really have helped the book. Today we could easily have made a few simulations but this book came out the same year as Turing’s most famous publication and that was not an option.
This book might be much clearer upon 2nd reading if I ever goet so far.
Next time is October 13th 5.30 PM UK time and we will meet at University College, Oxford and we will discuss chapters 7-9 (The Meaning of Savings and Investment + The Propensity to Consume I+II)
Keynes: General Theory, introduction and chapters 1-3
[Summary by Jotun Hein]
It is 37 pages in a very large font. In principle it should be easy but there was a lot of high level description of the Classical Theory that I didn’t understand too well. This seems like an ideal book for this kind of intense discussion groups and a lot of issues became clear as we went through the pages. I am sure even more would dawn upon us by reading it a send time. But it is also a very tough read where we read single sentences aloud for each other and had quite a discussion of them.
Chapter 1
the general theory is 1 page and explains the word GENERAL and that his book is in contrast to CLASSICAL theory. I am surprised the JMK can describe it as one thing. Not that I know much about it, but there are Smith, Malthus, Richardo, Mills, Marx, Veblen, Marshall,….
Chapter 2
The postulates of the classical theory is 19 pages and starts with 2 tenets that JMK says characterize the CLASSICAL:
“I. The wage is equal to the marginal product of labour
II. The utility of the wage when a given volume of labour is employed is equal to the marginal disutility of that amount of employment.”
We would like to have had 2 illustrations here, showing how this defined two equilibrium points. JMK asserts that CLASSICAL does not allow for involuntary unemployment, but does have frictional [due to a shift in production from say potatoes to bananas] and voluntary when a worker prefers not work since salary too low. I think JMK then show that certain empiricial consequences of I-II above [basically how the equlibrium point shifts] are generally violated.
There are lots of fun and interesting comments, like that Richardo asserted that political economy could make no statement about absolute level of production, but only about value distribution. An interesting discussion about value-wage versus money-wage. JMK uses a Prof. Pigiu to illustrate all that is wrong with CLASSICAL. JMK say the CLASSICAL are as foolish as a Euclidian Geometer that faced with non-Euclidian Geometry would yell at the lines for not be being parallel in the right way.
Chapter 3
The principle of Effective Demand is 12 pages devoted to a preview of the whole book and the first simple equations appear. JMK defines aggregate supply and demand function defines a series of properties of the system. We were a bit tired at this point and i should read it again.
More enjoyable sentences like ” It could only live on furtively, below the surface, in the underworlds of Karl Marx, Silvio Gesell or Major Douglas.”
September 22nd time we take Book II [Definitions and Ideas] chapter 4-6 which is about 29 pages. I said we would be done by X-mas and somebody said that what the generals said in 1914 about WWI. But I hope this JMK wont last 4 years and have a similar loss of life.
On Politics: Rousseau
[This is a summary of our discussion of chapter 15 in Alan Ryan’s On Politics. It was written by Ulla S. Koch]
We discussed J.-J. Rousseau for half an hour and came to the conclusion that nobody understood him, least of all he himself. He led what seems to have been a miserable personal life, loosing his mother before he even got to know her, abandoning all his five children in his turn. He had had knack for making enemies and his books were burned in his home town of Geneva. Eventually he went mad. However, he was a gifted writer and composer and many of his ideas are today so engrained in our common consciousness that we take them for granted (p. 533).
In the Social Contract (1762) he outlined his idea of a perfect society, which was not the product of a revolution but was modelled on the Roman Republic and ancient Sparta. Despite being a reactionary politcal thinker, he became the inspiration for radicals. He was part of the French enlightenment subscribing to it’s ideals of rationality and the impartiality of laws, but was at the same time its prime contemporary critic, since he emphasized the importance of human irrational feelings and antisocial urges in the creation of society. In Discourse on the Arts and Sciences (1750) he claims that contemporary man was overeducated and in all respects inferior to his noble, unlettered, forebears.
Like Plato, R. was an idealist who took his starting point in his belief that man by nature is good. Mankind is characterized by two fundamental qualities, a “love of self”, or urge for selfpreservation, and empathy (pitié) for his fellows (i.e. not innately bad as Hobbes surmised, or burdened with original sin). This means that if uncorrupted by life in modern society our natural tendency would be to help, or at least avoid harming, any other sentient being. This was a radical break with earlier especially Christian theorists, paving the way for the discussions of nature vs. nuture in modern psychology and sociology. The source of all the miseries of modern society is, according to his work Discours sur l’origine et les fondements de l’inégalité parmi les hommes (1755), private property rights (p. 547). The reason why a state exists at all is to prevent civil war, which is latent in society – not because of the instincts of natural man but because of socialized man and his yearning for property and the concomitant estrangement from his fellow man. States originally emerged when populations increased and makind accordingly was driven to coordinate and develop language and other means of social interaction and organization (p. 544).
Again like Plato, Rousseau sees education as the means to enabling man to preserve his innate goodness even in the face of the detrimental forces of society. In Emile ou de l’education he describes how to develop a boy into a man by allowing him to live as close as possible to his original innocent state of nature. A tutor can gently guide and mould a young man by setting the scene for him to make his own discoveries and deductions. But the best solution remains to adopt the life of a hermit, free from competition, envy fear and admiration (he could also try attending the mindfulness seminars at Oxford).
With his break with the concept of original sin led him towards theories that approch the theory of evolution (p. 540), mankind was somewhere on the continuum along with the great apes. He builds on the ancient idea that mankind has developed through a series of stages (p. 545). What is interesting is that he sees technological advances, like farming and metal working as the drivers for change (and hence corruption) – as a modern day archaeologist I concur.
His ideas on the evolution of human society, on pedagogical principles (children should be treated as children) the importance of external factors on personality formation are at least part of his legacy.
On Politics: Hobbes, Locke, and Montesquieu
[This is a summary of our discussion of chapters 12-14 in Alan Ryan’s On Politics. It was written by Ulla S. Koch]
The three chapters were interesting and contained a lot of information – this is just notes on what I found interesting.
Hobbes (1588-1679) sets out with a thought experiment – what would a nation without government be like? Undoubtedly his answer was inspired by the current circumstances in England which was ravaged by civil war. He assumes that man is driven by a relentless desire for his own good and for the means of achieving it, i.e. power. Even though men are born with different degress of physical strength other abilities, such as skill and cleverness, can be gained by everybody and even out the playing field. This equality is not good, since it in turn leads to uncertainty. In the state of nature everybody fights everybody else, as he famously put it, life would be nasty, brutish and short.
In this state of nature, a basic right is to fight and do everything in your power to preserve life and limb. But it is not a right in any moral sense, it is more like an instinct. Natural laws are what serves to preserve life, and they are hypothetical not based on observation. A sense of right and wrong only exists in an ordered society. Evil and good are only meaningful in relation to laws. Hobbes’ concept of natural law is thus totally different from those we have read about earlier (e.g. the stoics) since it is not the expression man’s innate rational and moral character. However, man only has the right to what he needs to preserve his life, not violence against others. This smacks of a morality outside society, so he is not entirely consistent. Society springs from a (rational) longing for peace as a freedom from fear according to his Elements of Law. In Leviathan the driver is fear alone. In Leviathan, fear and rationality allows man to formulate laws and release some of his independence. Laws are dictates from a law-giver and are a restriction of rights. The given laws can not be measured as “just” or “unjust” – that would be meaningless since “just” and “unjust” are defined by the laws.
Hobbes thinks that language is a necessary prerequisite for any kind of society – and also for the existence of natural laws – because natural laws are rational and ratio demands language. He assumes that language is a means to understanding what goes on in the mind of another, which is impossible but a nice thought. The dependance of thought upon language is still a hot topic.
To Hobbes man is a-social, and only becomes social by reasoning (unlike Aristotle’s concept of man as a social animal). Even reason and fear is not enough to drive man to cooperate, only force can curb his appetite for power. The only way ahead is to transfer all power to a sovereign, who imposes law on his subjects who must submit – with the exeption of accepting the death penalty. If the state seeks to kill a citizen it has reverted to being a part in the state of nature. Absolute power can be divided between all (democracy), few (aristocracy) and one (monarchy) – the most efficient is monarchy, because the monarch’s and societies interests are one and the same (no competition between equals). Fear of death makes man want government rather than the state of nature. People have no right to rebellion under any circumstances.
Locke (1632-1704) Two Treatises (1679-80 published anon. 1690). According to Locke natural law dictates that man look after his own interests but not to the detriment of others. Man is born in the state of nature – in the state of nature everybody is equal and free – and reasonable. This rhymes more with the Stoics – natural law as an inate moral codex. Locke is more positive when it comes to human nature. In nature man posses things and has a right to defend them. Locke does not believe that god gave the earth to Adam but to mankind. Personal ownership rights are based on his labour, which he alone owns. If he adds his labour to a thing in a natural state, he adds considerable value and it is only reasonable that he owns it (foreshadows of Marx and Ricardo). Surplus can be stored as money.
He critizes Filmer saying that political power does not stem from the patriarchy of Adam, it is not a right but a duty to take care of your off-spring. However, the moral obligation to honour your parents is not a political obligation – it is absurd to suppose that the Bible can prove a moral obligation to obey the powers that be. To obey is a free choice, the state is created by man to serve man’s purposes.
The state has three kinds of power: the right to pass laws and sentences, the right to enforce the laws, and the right to defend society (foederal). Man seeks society and a state in order to protect his life and goods. He gives up certain rights in order to do so. This he can do silently merely by availing himself of the services society and the laws provide, e.g. the roads and other infrastructure. The powers that be have no right to take anything that is not willingly given – that is a breach of the social contract. Overtaxation for instance may lead to rebellion since it is not in the interest of society. e
Montesquieu (1689-1755) Spirit of the Laws builds on Locke’s division of power and changes them to: lawgiving, judging, and law enforcing, dividing Locke’s first group in two since this ensures impartiality better (executive, legislative, and judicial functions of government) which in turn stabilizes the state.
Harrington Glorified Cromwell in the utopia Oceana (1656). A balance between political and economic power is necessary otherwise civil war or revolution ensue. Those who own the most should also have the most power – anything else creates an imbalance.
Filmer was a proponent of absolute monarchy (Patriarchia). He argues against Hobbes’ man-made society (based on fear) and claims that society derives from Adam, whom god gave the earth and everything on it as a gift. All societies are based on that first family. As a father has universal power over his children (because he has produced them himself, hmpf) a sovereign has power over his subjects. Man is never born free but always into a society (he has a valid point there). According to the Bible, Adam owned everything, nothing was ever held in common. Only absolute monarchy serves god’s purpose and man is not free by nature. Filmer was “politically correct” at the time but was critizesed nonetheless.
We plan to meet again January 18th and do Rousseau, Founding of American & French Revolution.
On Politics: Humanism, Reformation, and Machiavelli
[This is a summary of our discussion of chaptes 9-11 in Alan Ryan’s On Politics. It was written by Jotun Hein]
For some reason it was easier to get an overview over today’s 3 chapters.
Again OP shies away from definitions/concepts and there is much biographical and historical description. Readable, but I get lost in Florentine intrigues which seems key to both Dante’s and Machiavelli’s life.
All three chapters are variants on a common theme: A shift from the God/Church governed universe towards having the individual as key player. At the personal level, at the relationship of the individuals relation to God and in politics. We had a lot of discussions of how this transition came about. Explanations invoking the Black Death [150 years before], which created labour shortage and greater internal mobility, the rise of cities and artisan trade, the appearance of printing and more general ability to read as a result of secular education.
Over time, I have read a lot on these topics, but I regret that I haven’t read the primary literature like THE PRINCE, UTOPIA, PRAISE OF FOLLY…. They seem like fun little readable books.
I should like to read more about the Münster rebellion. We will meet again December 14th and discuss Hobbes-Locke-Republicanism.
HEIN RESEARCH 