This post is in the spirit of “restoring the director’s cut” for a commercial film, except for a book review. Abba Lerner was given only two pages to review Hyman Minsky’s 1975 book John Maynard Keynes in the popular economics magazine Challenge. Lerner identified Minsky’s value-added to the Keynesian tradition of macroeconomics with the model of “how optimisim leads to a fragility of the financial economic structure through the accumulation of enormous ratios of debt to equity financing [and how] the ‘double risk’ of borrowers and lenders amplifies movement in both directions.” Lerner’s basic criticism of the “intractable instability” thesis of Minsky is that Lerner believes “an intelligent Keynesian monetary and fiscal policy would […] be able to prevent the normal myriad disturbances throughout the economy from developing into general expansions or contractions large enough to start up Minsky’s intractable oscillations.” [I’ve taken the liberty to drop Lerner’s double negative in the interest of simplicity of expression].
It turns out that Lerner had a further laundry list of objections and quibbles that I transcribe below.
Review of John Maynard Keynes by Hyman P. Minsky. New York: Columbia University Press, 1975. Challenge, May-June 1976, pp. 69-70.
At the time of publication of the review, Abba Lerner was Distinguished Professor of Economics at Queens College, City University of New York.
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Lerner’s Critical Laundry List
The following is a list of items which I had to omit from my review of Minsky’s “John Maynard Keynes” to keep it within the limits demanded by Challenge.
- The misunderstanding of user cost as if it were equivalent to the expected future return on capital or in some uses to the mark up over variable cost.
- The misunderstanding of Keynes’ repudiation of Viner’s argument in 1937 Journal of Political Economy where Keynes was not repudiating the logic of the neo-classical “synthesis” but rather was objecting to Viner’s confusion about “voiding” in particular Viner’s claiming that voiding could not be very important because there were no great changes in the quantity of money in existence. Keynes point was that it showed itself not in changes in the quantity of money, but in changes in the price of money for the rate of interest.
- Minsky’s toying with the Cambridge post-Keynesian tautologies. Minsky used these under the title of “Budget Constraints.”
- To object to his calling the marginal efficiency schedule a caricature. What is a caricature? is to suppose as Minsky does that this goes suppose not to move [sic].
- To point out that there is also uncertainty about the current demand and that there is essential part in explaining the setting of a price with a markup up in a society where the price is in about [sic, above?] the marginal cost which is why there exists the profession of salesmanship.
- A possible confusion between marginal user cost and average user cost
- A discussion of the relevance or irrelevance of the “joylessness” of American affluence.
- A discussion of what is meant by debt deflation sometimes it seems to be the argument that this is necessary for the health of the economy, and other times it seems to be merely pointing out that we have a depression in which some firms go broke. In this way some of the debts disappear. There is possible also a suggestion that the damage done by the accumulating debts could be washed away by inflation.
- The carrying over of the Cambridge post-Keynesian tautologies in the form of budget restraints to what becomes a repetition of the ancient tautologies of MV=PT especially where he uses delta M as being the cause of a change in income where delta M Keynes describes as being due either to a change in the quantity of money or to a change in the velocity of circulation. This becomes especially tautological in which it changes in [illegible] may changes in M or V.[sic]
- In reference to Keynes’ occasional stress on instability of the boom carrying in itself the seeds of its own destruction taken by Minsky as being a universal truth where as I understand it only as describing what happens in the absence of a policy for regulating the level of economic activity.
- In connection with the tautologies the use of the [a blank here] in places where they are not necessary at all when what he is proving is the same as the Robinson definition in which an excess of investment [over?] saving is not the cause or even the result of a change in income but merely another way of saying that there is or has been or will be a change in income. The result is [the difference?] between income [of the current?] period of the income of the next period and there is no meaning left to the distinguishing of the one [from the other?].
- Some comment on his declaration that “the fundamental unemployment is the unemployment of capital assets”
- The emphasis on the construction unions has been the moving element in causing stagflation. i.e. inflation in times of depression. This confuses the causes of inflation with the ideal of monopoly. A monopoly can raise a price or a wage relative to other prices and wages. It could conceivably be the beginning of an upward movement of prices when other prices and wages tried to keep up with an increase originally started by a monopoly but this is important only in the beginning. The further increases in the monopoly (construction workers) is now in the course of the progress of exactly the same kind as of the competitive wages which tried to keep up with the construction wages.
This is the end of my list of items omitted in my reviews of Minsky’s “John Maynard Keynes”.:
Abba P. Lerner
February 26, 1967 [sic, should be 1977].
Source: U. S. Library of Congress, Manuscript Division. The Papers of Abba P. Lerner. Box 15, Folder 4 “Minsky, Hyman P. 1972-76”.
Image Sources: Hyman P. Minsky page at the Levy Economics Institute of Bard College. Abba Ptachya Lerner chapter, web edition, in Biographical Memoirs, vol. 64, p. 208, The National Academies Press, 1994.