postmodernism and neoclassical economics

Roger Odisio rodisio at igc.org
Wed Feb 3 07:36:31 PST 1999


At 06:35 AM 2/3/1999 -0500, Michael Yates wrote:
>Friends,
>
>Actually, though, doesn't supply-side economics go back to the arguments
>of J.B. Say? And is not the labor conomics notion that educating
>workers, training them, etc. will get them jobs and higher wages a
>supply-side notion too?
>
>michael yates

Sure. There has been a thought cycle followed that can be crudely summarized as follows. J.B. Say: supply creates its own demand. More particularly for capitalism, saving creates investment which creates growth. The central accomplishment of Keynes was to show that there was no automatic link between savings and investment that would serve to keep things functioning smoothly, ever expanding output and profits. He introduced time into the neoclassical static equilibria (as explained by GLS Schackle). The neoclassical theory of smooth adjustments, he said, was merely a special case of his "General Theory". Besides being a mindless fantasy, that is. Capitalism needed adjustments from the outside (government, e.g.) if it were to avoid liquidity traps and depressions. Ultimately, he thought, for the system to really work, it was probably necessary to have social control of investment.

Then the "bastard Keynesians" (Joan Robinson's apt name) cleverly translated Keynes into static ISLM curves, while retaining some of the trappings of his work (liquidity, focus on money supply changes). They took time back out of theory. Tinker a little with the money supply here, encourage investment there (poor people have too much money and rich people not enough, so reduce taxes on higher incomes), and everything will be all right. That created the opening, and it was a short step back to Say, Arthur Laffer, and political supply side "theory".



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