Tag: Minsky

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Keynesian Economics Macroeconomics Washington University

Washington University. Case for McGovern’s Economic Policies. Minsky, 1972

The following manuscript was fished from Abba Lerner’s papers. The cover letter indicates that Hyman Minsky was going to be heading East for the Southern Economics Association meetings and was hoping to combine that with the search for new graduate students for Washington University and a bit of self-promotion of his support for the McGovern Presidential campaign. Minsky summons his inner-Joan-Robinson here.

In an earlier post we have unpublished scraps for the 1977 review by Lerner of Minsky’s Keynesian economics.

____________________________

WASHINGTON UNIVERSITY
ST. LOUIS, MISSOURI 63130

October 5, 1972

DEPARTMENT OF ECONOMICS

Professor Abba P. Lerner
Department of Economics
Queens College
Queens, New York

Dear Abba:

Enclosed you find my contribution in kind to the McGovern campaign. I would appreciate your views on my two lessons from The General Theory. I know there is a bit of Joan Robinson in it.

I am also enclosing the brochure we put out in an attempt to recruit graduate students. Our department is trying to improve the quality but not the quantity of our graduate students. In order to do this we feel we should try to get applications from schools where we have not been getting students. Queens College is one such place. One thing we are doing in this effort is to have members of our faculty visit these colleges in an effort to arouse faculty awareness and student interest.

I will be east for the SEA meetings and I have been thinking I will follow that up with a trip to New York, during which I would hope to be able to come up to Queens University and talk to you, your colleagues and students about the attractions of graduate work in Economics at Washington University. Let me know what you think of the feasibility of such a visit.

My best regards to Dahlia. Esther sends her love.

Sincerely,
[signed]
Hyman P. Minsky
Professor

HPM:ef
enclosures

____________________________

Economic Issues in 1972: A Perspective

By Hyman P. Minsky
Professor of Economics
Washington University

A Presentation to a Symposium on The Economics of the Candidates sponsored by the Department of Economics of Washington University, St. Louis, Missouri, October 6, 1972.

In 1972 the American people have a clear choice between economic purpose and economic drift. The great purpose of the American Revolution was and remains the creation of a society of free and equal men. In the past decades we have lost our direction. This year George McGovern is calling for us to come home again; McGovern is calling for an economic policy that will make the American Dream a reality.

The Lessons of Keynes

The great work that transformed economics into a policy science is Keynes’ General Theory. This work was published in 1936.

There are two lessons in Keynes’ General Theory. The first is that the economy can be managed so that depressions and serious unemployment do not take place: that is, full employment can be achieved and maintained. The second lesson is that once this is done the major economic policy issues become what type of output is going to be produced and for whom is it going to be produced: Income distribution and the contribution that economics can make to the quality of life are now the economic policy issues.

McGovern’s economics are in response to the second lesson; the first lesson is taken for granted. McGovern is calling for two policy thrusts: the benefits from production and the payoffs from economic growth are to be distributed more fairly than in the past, and the quality of life is to be improved as useful public goods replace the waste of ever increasing military expenditures.

It took the Democrats some 25 years to learn and accept the first lesson from Keynes. As a result the Kennedy-Johnson years were uninterrupted by anything that the official score keeper, the National Bureau of Economic Research, could call a recession. However, the Democrats in the 1960’s had not as yet learned the second, distribution and quality, lesson from Keynes. As a result the full employment of Kennedy-Johnson was achieved with the help of unfortunate tax changes which mainly benefited the well to do. The quality of life was adversely affected — to say the least — by the engagement in Viet Nam.

Nixon’s Recession

Aside from my comrade on this platform, Republicans are just naturally slower to learn than Democrats. When the unfortunate succession of Nixon to the presidency took place, the Republican leaders and policy advisors – Mr. Weidenbaum excepted – had not as yet assimilated the first lesson from Keynes. Therefore, while promising to take the inflationary pressure off of prices by a budget that is balanced and an even handed monetary policy, the Republicans succeeded in flinging the country into a full fledged recession; a rather protracted though not deep recession took place during 1970 and 71.

This experiment in “even handedness” was and remains expensive. In 1969 – when Nixon took office – unemployment was 3.5% of the labor force; in 1971 it was 5.9% – some 2.5% difference. A rule of thumb, used by economists to measure the output lost by unemployment, is that 3% of output is lost for every 1% excess of unemployment over full employment. By this rule, 1971’s full employment output was some 7.5%, more than $75 billion, greater than actual output. We the people – but most especially those who experienced this unemployment – paid a high price for the slowness of Republicans to learn.

Unemployment is the cruelest and most regressive form of taxation. It falls most heavily on those least able to pay. Nixon’s recession of 70-71 was unnecessary, it was a result of deliberate policy, and it made our poor, poorer.

Finally about a year ago the Republicans seem to have caught onto the first lesson. I believe at some point Mr. Nixon said that he was now a Keynesian.

Equity and the Quality of Life

Meanwhile within the Democratic Party, and in the economic policies of Senator McGovern, the second lesson of The General Theory was being assimilated. The McGovern objective is to develop policy instruments which transform the G.N.P. production machine into a more effective instrument for achieving equity in income distribution and for improving the quality of life.

The Republicans of course have no explicit policy toward income distribution and the quality of life. However we can infer their biases from positions taken. Republicans seem wedded to two propositions: Defense expenditures are sacred and the rich must get richer, so that their consumption can increase by 20% per head every five years.

Under Nixon and Laird the Defense budget is sacred, not just at its present level, but as a growing parasitic virus. It is my understanding that current projections call for a defense establishment that costs $100 billion within a few years. Republicans seem to be Leninists in the way they view the American economy. They seem to believe that wars, preparations for wars, and imperialist ventures are necessary if the American economy is to avoid crises and depressions.

The Republican Governor of Illinois attacked the McGovern defense budget because it will cause a loss of 40,000 jobs in Illinois. In this Republican model military expenditures are a boondoggle, but a good boondoggle. In the Republican view defense expenditures are to make jobs – and perhaps to take care of favorite firms, such as Lockheed, when they are in trouble. Defense expenditures are not undertaken by Republicans to defend the country against foreign foes.

A rational defense policy could certainly cut the 7% surcharge that defense levies on all output. Rich Japan and rich Germany do not spend 7% of their national income on defense. As an interim goal, I suggest the Military Brass should be rationed to 5% of G.N.P.. This would currently make $20 billion a year available for useful purposes.

Nixon’s Idea of Fairness

In the Economic Report of the President for 1970, Nixon’s Council of Economic Advisors engaged in an exercise on the “Future National Output and the Claims Upon It.” This exercise projected gross national product in 1975 and what would be done with it. The largest single claim upon Gross National Product is private “consumption.” Nixon’s council assumes that private consumption will grow at 3.25% per capita per year across the board. Nixon’s economists, when projecting consumption six years down the pike, blithly assume that it is just as worth while to use scarce resources to increase the personal consumption standard of a representative upper income family (now consuming at a rate in excess of $15,000 per person per year) by 20% over 6 years as it is to use resources so that the consumption standard of a representative poor or low income family – now consuming at a rate of $770 per person per year – increases by 20%.

Constraint upon the growth of upper income consumption will enable us to save some 5% of consumption expenditures as projected for 5 years hence; some $35 billion of resources can be freed by doing this. Thus McGovern’s economics will make available some $130 billion ($75 billion from the slack in the economy in 1971, $20 from defense and $35 billion from stabilizing the consumption of the rich) of wasted or misallocated resources which can be shifted to public purposes.

Let us look at the distribution of income and consumption, in a very rough and ready way. About 5% of the population lives in families with incomes above $25,000 per year. This 5% does about 25% of the total private consumption. The bottom 20% of the population in income does about 5% of the private consumption. A representative person in the top 5% consumes at the rate of $15,420 per year; a representative person in the bottom 20% consumes at the rate of $771 per year.

I personally believe it very worth while to raise the $771 as quickly as feasible. I do not believe it is worth very much to raise the affluent from $15,000 to $18,000 per year. In Nixon’s economics the two are equally worthy. The thrust of McGovern’s suggestions on taxation and employment is toward improving the distribution of consumption growth so that the lot of the poor and low income recipients improve relative to that of the opulent and the rich.

Policy For Equity

How can the distribution of income be improved? First of all by full employment. Sustained full employment will tend to raise low wages relative to high wages. The Republicans are moving toward redefining full employment so that 5% unemployment rate is labeled full employment. In this way Nixon’s sales force will be able to call recessions prosperity. Such high unemployment rate will widen the gap in wages.

Full employment is a 3.5% measured unemployment rate. The policy problem is to achieve and sustain a 3.5% unemployment rate without an inflationary rise in prices and wages. To do this, given the structures of product and labor markets, price, profit, and wage guidelines are necessary. Instead of standing idly by when contracts for high wage employees that call for 30% to 50% rise in wages over two or three years are negotiated – as Nixon did in 1969 and 1970 – guidelines limiting those wages which are substantially above the median income level to modest ‘productivity’ increases are necessary when labor markets are fully employed.

Given the cartelized nature of much of industry and the slowness of anti-trust procedures, effective profit and price constraints will have to accompany tight full employment.

However the tight full employment of the past was inefficient from the point of view of income equity and inflation. Demand was pumped in for defense, space, medicine and education. Demand increases started with high income specialists and then trickled down to the lower income workers. The direct employment of the unemployed in public service jobs – an employment program that takes the unemployed as they are and tailor makes jobs to their skills – has a much smaller inflationary bias than programs that first give tax rebates to the rich and then hopes they spend to create employment.

A word about poverty in America. Our poverty is only in part due to low private incomes. A good part is due to the low standard of the income the poor and those of modest income receive from public services in schools, hospitals, public safety, parks, etc. Given the unemployment rate in East St. Louis, in a rational and humane society, East St. Louis should have the safest and cleanest streets and parks, the largest number of teacher’s aides per teacher, the greatest number of nurse’s aides and orderlies per patient, etc….. But instead of looking at unemployment and underemployment as defects of the system, the Nixon’s of this world treat being unemployed as being either sick or evil; hence the demagogue talks about workfare as against welfare.

The second way to affect income distribution – an adjunct to employment policy and controls – is by way of taxation. There is no need to document the complexity and the blatent unfairness of our tax structure. A tax system based primarily on a straight forward progressive income tax is necessary. McGoverns’ proposals are bargaining chips in the right direction.

McGoverns’ economic proposals, therefore, by achieving useful employment for all, equity in taxation, and the elimination of waste in defense will truly tend to make all but the tax evader and the inside operators better off. The lot of the poor and those with modest incomes will be improved by substantially increasing their private incomes. The lot of the affluent will be improved by an increase in their public goods incomes. All of us will be able once again to walk the streets in safety.

Furthermore McGoverns’ policies will halt and reverse the drift toward two nations – a nation of the affluent and a nation of the workers and the poor. Aside from the dangers to liberty inherent in such a split society, it is inconsistent with the American ideal. Economic well being is not truly an end in itself once the most grinding of want is removed. Economic well being is meaningful as a handmaiden to a social vision. McGoverns’ economic policies are such a handmaiden; they are designed to help achieve “one nation, … with liberty and justice for all.”

Source: The Papers of Abba P. Lerner, Manuscript Division, Library of Congress. Box 15, Folder 4 “Minsky, Hyman P.”
A .pdf copy of Minsky’s manuscript is available at the Hyman P. Minsky Digital Archive.

Image Source: Hyman P. Minsky portrait posted in the “Hyman Minsky at 100” post at the Lars P. Syll blog.

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Economists

CUNY, Queens College. Reviewing Minsky on Keynesian Economics, Abba Lerner, 1977

 

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.

_____________________

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.

  1. 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.
  2. 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.
  3. Minsky’s toying with the Cambridge post-Keynesian tautologies. Minsky used these under the title of “Budget Constraints.”
  4. 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].
  5. 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.
  6. A possible confusion between marginal user cost and average user cost
  7. A discussion of the relevance or irrelevance of the “joylessness” of American affluence.
  8. 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.
  9. 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]
  10. 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.
  11. 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?].
  12. Some comment on his declaration that “the fundamental unemployment is the unemployment of capital assets”
  13. 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.

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Berkeley Suggested Reading Syllabus

Berkeley. Graduate Macroeconomics. Syllabus, 1959

 

The following reading list from the University of California (Berkeley), Spring 1959, was found in the papers of Martin Bronfenbrenner who as far as I can determine was at Michigan State at the time. Perhaps someone who looks at the reading list (formatted more-or-less to look like the original mimeo) could identify which of the instructors listed for the course (Papandreou, Scitovsky, Caves, Minsky) might have assembled the reading list. The capitalization of book titles is not common. It is also interesting to note that income distribution, typically part of the second term of price theory elsewhere, is covered before turning to more familiar (today) macroeconomics territory.  Something else worth noting is the use of “macro-statics” and “macro-dynamics”. Comments welcome!

_________________________

Course Announcement

Graduate Courses

Admission to graduate courses requires, in all cases, the consent of the instructor. Undergraduate courses are not prerequisite to graduate courses, except where indicated.

 

200A-200B. Fundamentals of Economic Theory. (3-3) Yr.

            [Harvey Leibenstein, Ph.D., Associate Professor of Economics, in residence, fall semester only, 1958-59; Tibor Scitovsky, M.Sc., J.D., Professor of Economics; Philip W. Bell, Ph.D., Associate Professor of Economics, in residence, fall semester only, 1958-59; Richard E. Caves, Ph.D., Assistant Professor of Economics; Hyman P. Minsky, Ph.D., Assistant Professor of Economics.]

200A. Micro-economics: the behavior of firms and households, and the determination of prices and resource allocation patterns in a decentralized economy. Mr. Bell, Mr. Leibenstein, Mr. Scitovsky.

200B. Macro-economics: general interdependence and the behavior of aggregates in a decentralized economy. National income and employment determination. The impact of fiscal and monetary policies on employment, national income and its distribution. [Andreas G. Papandreou, Ph.D., Professor of Economics (Chairman of the Department)], Mr. Scitovsky, Mr. Caves, Mr. Minsky.

Source:   Bulletin of the University of California 1958-59. General Catalogue. Announcement of Courses, Departments at Berkeley. Fall and Spring Semesters, 1958-59. (July 10, 1958), pp. 109, 114.

_________________________

UNIVERSITY OF CALIFORNIA
Department of Economics
Spring, 1959

Reading List
Economics 200B

 

It is suggested that students purchase the following works:

J. M. Keynes, THE GENERAL THEORY OF EMPLOYMENT, INTEREST, AND MONEY
U. S. Department of Commerce, 1954 NATIONAL INCOME SUPPLEMENT to the survey of CURRENT BUSINESS.

I. The Pricing of Productive Services and the Distribution of Income

G. J. Stigler, THE THEORY OF PRICE, chaps. 10, 15
J. R. Hicks, THE THEORY OF WAGES, chaps. 1-4
E. Rolph, “The Discounted Marginal Productivity Doctrine,” in American Economic Association, READINGS IN THE THEORY OF INCOME DISTRIBUTION, pp. 278-293
F. A. v. Hayek, “The Mythology of Capital,” READINGS IN THE THEORY OF INCOME DISTRIBUTION, pp. 355-383
D. H. Buchanan, “The Historical Approach to Rent and Price Theory,” READINGS IN THE THEORY OF INCOME DISTRIBUTION, pp. 599-637
F. H. Knight, “Profit,” READINGS IN THE THEORY OF INCOME DISTRIBUTION, pp., pp. 533-546
B. F. Haley, “Value and Distribution,” SURVEY OF CONTEMPORARY ECONOMICS, Vol. I (ed. H. S. Ellis), pp. 26-48
N. Kaldor, “Alternative Theories of Distribution,” REVIEW OF ECONOMIC STUDIES, XXIII (1955-56), pp. 83-100
M. Kalecki, “The Distribution of the National Income,” READINGS IN THE THEORY OF INCOME DISTRIBUTION, pp. 197-217

II. Macro-statics: National Income and Aggregate Demand

U. S. Department of Commerce, 1954 NATIONAL INCOME SUPPLEMENT
O. Lange, “Say’s Law: A Restatement and Criticism,” STUDIES IN MATHEMATICAL ECONOMICS AND ECONOMETRICS (ed. O. Lange, F. McIntyre, and T. O. Yntema), pp. 49-68

III. Consumer Behavior, the Consumption Function and Income Levels

J. S. Duesenberry, “Income-Consumption Relations and Their Implications,” in INCOME, EMPLOYMENT AND PUBLIC POLICY, ESSAYS IN HONOR OF ALVIN H. HANSEN, pp. 54-81.
J. Tobin, “Relative Income, Absolute Income, and Saving,” MONEY, TRADE, AND ECONOMIC GROWTH, ESSAYS IN HONOR OF J. H. WILLIAMS, pp. 135-156
M. Friedman, A THEORY OF THE CONSUMPTION FUNCTION, chaps. 2, 3
P. A. Samuelson, “The Simple Mathematics of Income Determination,” INCOME, EMPLOYMENT AND PUBLIC POLICY, pp. 133-155

IV. Business Behavior, the Level of Investment and the Rate of Interest

T. Scitovsky, WELFARE AND COMPETITION, pp. 216-226
J. Meyer and E. Kuh, “Acceleration and Related Theories of Investment,” REVIEW OF ECONOMICS AND STATISTICS, XXXVII, (August, 1955), pp. 217-230
A. P. Lerner, “On the Marginal Product of Capital and the Marginal Efficiency of Investment,” JOURNAL OF POLITICAL ECONOMY, LXI (February, 1953), pp. 1-15
J. R. Hicks, VALUE AND CAPITAL, chaps. 11-13
N. Kaldor, “Speculation and Economic Stability,” REVIEW OF ECONOMIC STUDIES, VII (October, 1939), pp. 1-27
J. Tobin, “Liquidity Preference and Monetary Theory,” REVIEW OF ECONOMICS AND STATISTICS, XXIX (May, 1947), pp. 124-130

V. Macro-static Models

P. Lerner, THE ECONOMICS OF CONTROL, chaps. 21-25
L. R. Klein, “Theories of Effective Demand and Employment,” JOURNAL OF POLITICAL ECONOMY, LV (April, 1957), pp. 108-131
J. R. Hicks, “Mr. Keynes and the ‘Classics’; A Suggested Interpretation,” READINGS IN THE THEORY OF INCOME DISTRIBUTION, pp. 461-476
F. Modigliani, “Liquidity Preference and the Theory of Interest and Money,” READINGS IN MONETARY THEORY, pp. 186-240
D. Patinkin, “Price Flexibility and Full Employment,” READINGS IN MONETARY THEORY, pp. 252-283

VI. Macro-dynamics and Economic Growth

E. D. Domar, “Expansion and Employment,” AMERICAN ECONOMIC REVIEW, XXXVII (March, 1947), pp. 34-55
R. Solow, “A Contribution to the Theory of Growth,” QUARTERLY JOURNAL OF ECONOMICS, LXX (February, 1956), pp. 65-93

VII. Inflation

A. C. L. Day, AN OUTLINE OF MONETARY ECONOMICS, CHAPS. 19-31

Source: Duke University, Rubenstein Library. Economists’ Papers Archive. Martin Bronfenbrenner Papers, 1939-1995. Box 26, Folder “Micro-econ + Distribution, 2 of 2, 1958-67, n.d.”.

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Chicago Courses Economists

Chicago Economics. Econ 332. Business Cycle Theory (Lange). Minsky Notes. 1942

Notes taken by Hyman Minsky in Spring, 1942, when he was an undergraduate at the University of Chicago. The notes are from the class, “Economics 332: Business Cycle Theory” taught by Oscar R. Lange.

I was going to send a graduate student of mine to check the notes in the Minsky Archive at Bard College. Imagine my delight when I was told that the kind folks there would scan the material and post it for all in their Bard Digital Commons. Note there are five files total.

________________

[Course Description]

E. MONEY, BANKING, AND BUSINESS CYCLES
[…]

332. Business Cycle Theory.–Historical and systematic analysis of business cycle theory. The main types of explanation. Equilibrium theory and analysis of economic processes. The role of time in the analysis of economic processes. The significance of anticipations. Theoretical and observed fluctuations. The factors which determine the general level of output and employment. The fluctuations of investment and of employment. The role of technical progress. Business-cycle policy. Prerequisite: Economics 211, 301, and 330, or equivalents. Spring, 2:30, LANGE.

Source: From The University of Chicago, Announcements,Vol. XLI, No. 10, April 25, 1941.   The College and the Divisions for the Sessions of 1941-1942. (p. 310).