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Reiterating Keynes and Segueing to Austrian Economics. A critique by Robert Skidelsky, Keynes’ biographer, of Joseph Stiglitz’s Making Globalization Work -- making it “fairer” for poor countries:

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reiterating keynes and segueing to austrian economics

Reiterating Keynes and Segueing to Austrian Economics

A critique byRobert Skidelsky, Keynes’ biographer, of Joseph Stiglitz’s Making Globalization Work -- making it “fairer” for poor countries:

However valid Stiglitz’s argument is in its own microeconomic terms, “the main problems of globalization lie in its uncontrolled macroeconomy…The relatively permissive attitude with regard to the so-called market failures displayed by the great 20th century economists Keynes and Hayek and their greater concern with the problem of securing macroeconomic stability, different though they set about it, are more relevant. They understood that uncertainty and the disappointment of expectation were inherent features of economic life. In Keynes’ economics, a loss of confidence, whatever its causes, leads to an increase in “liquidity preference,” or a flight from investment into money…This is happening today. The credit crunch in the US and the excess accumulation of reserves in East Asia are signs of an increase in liquidity preference. The need is to…provide a macroeconomic environment that reduces the chances of financial shocks that cause a flight into money.”

The New York Review of Books, April 17, 2008

(Skidelsky acknowledges comments by Paul Davidson)


Vienna  LSE  Chicago (Committee on Social Thought)

 Freiburg  Salzburg

Champion of von Mises in socialist calculation debate

Critic of Keynes: The Road to Serfdom

Founder of libertarian "Mont Pelerin Society"

Friedrich August von Hayek


Nobel Prize, 1976

Prices and Production (1931), in tradition of Wicksell’s monetary cycle theory:

Easy credit  I  forced saving  C  I

Expectations are disappointed.

What seemed like a good idea turns out to be malinvestment

Hayek’s prescriptions for stable money

1940s: Commodity reserve currency

1970s: Free banking  competitive monies  neutered central banks


Anarcho-capitalism or free-market anarchism (a form of

individualistic anarchism -- an anti-state political philosophy

that attempts to reconcile anarchism with capitalism.

It advocates the elimination of the state; the provision of law

enforcement, courts, national defense, and all other security

services by voluntarily-funded competitors in a free market

rather than through compulsory taxation; the complete

deregulation of nonintrusive personal and economic

activities; and a self-regulated market.

"I grew up in a Communist culture," Rothbard recalls.

1926 - 1995

Man, Economy, and State, 1962

The Panic of 1819, 1962

America’s Great Depression, 1963

For a New Liberty: A Libertarian Manifesto, 1973



An Austrian Perspective on the History of Economic

Thought (2 volumes), 1995

Columbia Ph.D.

Polytechnic University UNLV

von Mises Institute

Keynes’ complaint:
    • Financial capitalism inherently unstable (animal spirits reign)
    • The State to the rescue
  • Friedman’s complaint:
    • Too much, too late

 laissez - faire … just prevent landslide

  • Austrian’s complaint:
    • The State inhibits dynamism of free enterprise capitalism
    • Anarcho - capitalism: down with the State
  • Radical’s complaint:
    • The State is subservient to monopoly capital
    • Commitment is to sustained profits, not high employment
      • Kalecki: “…under a regime of permanent full employment, the ‘sack’ would cease to play its role as a disciplinary measure.”

Recession: “The pause that represses”


Leonard Rapping

1938 - 1991

Advisor, Theodore Schultz?

Human capital pioneer


Brunner - Meltzer / Sharpe - Pascal

PhD, Chicago

WWII Shipbuilding  Learning-by-doing

A “Radical” detour

Lucas - Rapping Supply Curve

Rand - Carnegie


Greenspan’s CEA


Crotty-Rapping, 1975 CEA Report: A Radical Critique

UNLV - Brandeis

“Naïve pluralism”: the assumption of shared

interest in price stability and high employment

Progressive Policy Institute

Labor - capital conflict

Govts seek to maximize profits of major corporations

  • Full-employment squeezes profit
  • Higher wages/Shirking/Strikes
  • Full-employment  financial instability

“Recession creates precondition for new expansion of profits”

International capitalist conflict

US as hegemon: maintain order, a la Kindleberger

$ as reserve currency  dominance financed by printing money

Vietnam /collapse of Bretton Woods  power vacuum

Macropolicies in defense of post-WWII system accelerated its demise

1974: The economy had to be purged.

Chicago radicalism: Applying free market lessons
  • Milton Friedman, Capitalism and Freedom (1962)
      • Money growth rule (3 – 5% per year)
      • Floating exchange rates
      • Negative income tax
      • School vouchers
      • End occupational licensure
      • “Why Not a Volunteer Army?” (1967) / Gates Commission (1968)

Ph.D., University of Chicago, 1955

Columbia University, 1957 - 1969

University of Chicago

Professor of Economics and Sociology

1969 -

Extending the Indifference Map

Incentives Matter

Economics of Discrimination

 Biases / ethnic preferences

Human Capital: Return to education

Gary Becker, 1930 -

Clark Medal, 1967

Nobel Prize, 1992

Home Economics

Allocation of time:

Time budget & Income budget

Marriage market

Cost of kids

Rotten kid theorem


Cost of divorce

Economic Imperialism

Economics Rocks

Crime and punishment: a cost - benefit analysis

Organ donor market

Politics: Interest group conflict

Linear gain / Exponential Deadweight Loss  Equil.


Theory of the Second Best:

Doing the “right” thing may be wrong in an

imperfect world.

Consumer Demand: A New Approach

People want attributes, not products.

Kelvin Lancaster

1924 - 1999

Goods are complementary

inputs to household production.

J. B. Clark Professor at

Columbia University

Why not whole spectrum of offerings?

Increasing returns to scale

Intra-industry trade theory