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Über dieses Buch

This volume of essays contains 16 papers the author has written over the last 40 years on various aspects of the life and work of John Maynard Keynes and Nicholas Kaldor. It covers both theoretical and applied topics and highlight the continued relevance of Keynesian and Kaldorian ideas for understanding the functioning of capitalist economies.




Ever since I read Keynes’s The General Theory of Employment, Interest and Money (1936) as a graduate student in the United States in 1962, I have never lost faith in Keynes’s economics for an understanding of the functioning of capitalist economies, from what causes booms to what causes severe slumps. It is true that for the most part, The General Theory is comparative static analysis and deals with a closed economy, but nonetheless the foundations of macroeconomic theory were laid for the first time with far more subtleties than textbook versions of Keynes’s economics portray There is a difference between Keynesian economics and the economics of Keynes (Leijonhufvud, 1968). The most revolutionary aspects of the book were: making saving a function of the level of income (rather than the rate of interest as in classical theory); the income multiplier which brings savings and investment back into equilibrium following a disturbance but not necessarily at the full employment level of income; making the supply of labour a function of the money wage and not the real wage; introducing the demand for money as an asset (liquidity preference) and hence the non-neutrality of money, and emphasising the role of expectations in the determination of investment.

A. P. Thirlwall

1. Keynesian Economics after Fifty Years

Keynes’s General Theory of Employment, Interest and Money is undoubtedly regarded as the most important book on economics in the twentieth century and this view would be shared, I think, by those who are wholly opposed to its teaching as well as by its adherents. Nearly 50 years after its appearance controversy still rages around its basic ideas and prescriptions, and I do not think that any major economist in the West would regard the issues raised by Keynes as finally settled. In this respect Keynes’s General Theory is in sharp contrast to all the previous pathbreaking books on economics — such as Adam Smith’s Wealth of Nations or Ricardo’s Principles or Marshall’s Principles — whose main tenets have not given rise to violent controversies in the same way as Keynes’s. The possible exception is Karl Marx’s Capital, but then Marx was a revolutionary which Keynes was certainly not — Keynes’s avowed purpose was to save the capitalist system, not to destroy it.

Nicholas Kaldor

2. A “Second Edition” of Keynes’ General Theory

It was a splendid idea of Geoffrey Harcourt and Peter Riach (1997) to bring together so many distinguished economists who have studied and followed my work—including a few whom I knew as young men—to write a “second edition” of my General Theory of Employment, Interest and Money (hereafter, GT). The effort has been prodigious, with thirty-nine chapters in two volumes all written with insight and erudition, drawing also on the thirty volumes of my Collected Writings (CW— Moggridge, 1971–89). I feel deeply honored that there should still be so much interest in the simple ideas that I enunciated more than sixty years ago.

John Maynard Keynes

3. Keynesian Employment Theory Is Not Defunct

In the last few years it has become increasingly common to hear and read the claim that Keynesian employment theory is irrelevant for understanding the recent high levels of unemployment in the United Kingdom and other countries, and that governments can no longer spend their way out of unemployment. There have been several lines of argument and attack, but three main camps or schools of thought are discernible which I shall call ‘the technological’, ‘the monetarist’ and ‘the old classical’. The technological school see the high unemployment as of the structural variety caused by technological change which is not amenable to Keynesian demand management policy. It is this school that is particularly worried about the future, and the unemployment consequences of the micro-processor revolution. The monetarist school, to which the present Conservative government subscribes, believes that government spending is the enemy of employment in two ways. First, government borrowing is inflationary which destroys confidence in the private sector. Secondly, government expenditure ‘crowds out’ private expenditure. This latter belief is essentially a return to the old Treasury view, originally based on the classical assumption of full employment, that there is a fixed quantum of resources, and that more spending by the government must inevitably mean less spending in real terms by other agents.

A. P. Thirlwall

4. The Renaissance of Keynesian Economics

Not so long ago, Keynesian economists had the distinct feeling of being members of an endangered species, with the prospect of extinction in the face of the onslaught of Monetarism Mark 1 (the monetarism of Milton Friedman) and Monetarism Mark 2 (the new classical macroeconomics, led in America by Professor Robert Lucas). It looks now, however, that the tide is beginning to turn. The new classical macroeconomics seems to be dying a slow death; the empirical evidence from the behaviour of the British economy and the world economy seems to be on the side of the Keynesians, and papers are being written on the rise and fall and rise again of Keynesian economics.2 There is also a revival of interest in Keynes the man with the publication of two new biographies by Professors Moggridge3 and Skidelsky.4

A. P. Thirlwall

5. The Relevance of Keynes Today with Particular Reference to Unemployment in Rich and Poor Countries

The world has masses and masses of surplus labour. According to the International Labour Organization (ILO) in Geneva, over one billion workers, or one-third of the world’s total labour force, are either openly unemployed with no work at all, or disguisedly unemployed in the sense that they work a suboptimal number of hours and would like to work more, but can’t. Job creation for all those who want to work at the prevailing money wage is one of the great economic and social challenges of the twenty-first century. Not only is unemployment an economic waste, it is also a cause of poverty, stress-related illnesses, marriage breakdown and sometimes civil unrest. Indeed, for survival and basic human dignity, it could be argued that in a civilized society, everyone should have the right to work, just as Yunus Muhammad (2003), in the context of developing countries, has argued that everyone (not just the rich) should have the right to credit as a means of escaping from poverty.


This is not a new sentiment. Adam Smith (1776) expressed it in the

Wealth of Nations


The property which every man has in his own labour, as it is the original foundation of all property so it is the most sacred and inviolable. The patrimony of a poor man lies in the strength and dexterity of his hands, and to hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbour, is a plain violation of this most sacred property, (p. 136)

A. P. Thirlwall

6. Keynes, Economic Development and the Developing Countries

By almost any measure one cares to take, there are deep economic and social schisms in the world economy. Moreover, there are powerful ‘natural’ and institutional mechanisms perpetuating and even widening these divisions. The largest rift is undoubtedly between average living standards in the industrialised countries of the northern hemisphere and those prevailing the majority of countries in the southern hemisphere in Asia, Africa and Latin America — aptly called the North-South divide. According to the latest statistics from the World Bank (World Development Report, 1985), the average level of per capita income in the developed industrialised countries is over US$11,000 per annum compared to $260 in 35 very low income countries and $1,300 in 59 middle income countries. There are poor people in the developed countries, but there need not be; this is largely the result of social and political choices. There are rich people in the poor countries, but relatively few, and a radical redistribution of income by itself would make very little direct difference to the economic destiny of the average citizen. There are nearly three billion people in the world today living in primary poverty, and one billion of them suffer various states of malnourishment. As far as one can tell, the situation is deteriorating rather than improving. It is true that in most countries average living standards are rising slowly, but because of population growth the absolute numbers in primary poverty are increasing, and the world distribution of income shows no sign of equalising.

A. P. Thirlwall

7. Keynes and Economic Development

Keynes was not a development economist as the description is used today. He did not address directly issues of national or international poverty and income distribution; only indirectly through his focus on unemployment which has always been, and remains, a major cause of poverty in both developed and developing countries. It is no accident that the one billion workers identified by the International Labour Organisation (ILO) in Geneva as unemployed and underemployed matches almost exactly the one billion people measured by the World Bank as living in extreme poverty on less than $1 a day. They are more or less the same people.

A. P. Thirlwall

8. A Keynesian View of the Current Financial and Economic Crisis in the World Economy: An Interview with John King

A. P. Thirlwall

9. Nicholas Kaldor: A Biography, 1908–1986

Professor Lord Kaldor, who was elected a Fellow of the Academy in 1963, and who gave the Academy’s Keynes Lecture in 1982,1 died at Papworth Hospital near Cambridge on 30 September 1986, aged 78. He was one of the most distinguished economists of the twentieth century who will be recorded in the history of economic thought as a brilliant theoretician and applied economist, surpassed in originality only by Keynes and Harrod among British economists this century. He was a dominant influence in economic debates on the world stage for over fifty years, and hardly a branch of economics escaped his pen. At the London School of Economics (LSE) in the 1930s, while still in his twenties, he emerged as one of the country’s leading economic theoreticians making fundamental contributions to controversies in the theory of the firm and in capital theory; to trade cycle theory and welfare economics, and to Keynesian economics by ‘generalizing’ Keynes’s General Theory, which nearly fifty years later led Sir John Hicks to remark: ‘I think that your (1939) paper was the culmination of the Keynesian revolution in theory. You ought to have had more honour for it.’2 His reputation was such that in 1938, and still only thirty, he was offered a Chair by the prestigious University of Laussane—the home of Walras and Pareto—which he reluctantly declined.

A. P. Thirlwall

10. Kaldor as a Policy Adviser

What made Kaldor so fascinating as an economist was his sparkling originality, his wide diversity of economic interests, and the many facets of his long and distinguished career which sometimes took him out of academic life into the public domain and into political controversy. Even within academe he was a controversial figure, holding unorthodox views on a variety of subjects. He was not only a first rate theorist and applied economist, but he was also involved in policy making at the highest level in the United Kingdom and in many other countries. Kaldor followed Keynes from King’s College to Whitehall, and they had many other characteristics in common. Both treated economics as a moral science—as a branch of ethics in the Cambridge tradition of Marshall, Pigou and Sidgwick—as a means to the end of attempting to make the world a more humane and civilised place. Both men shared the urge to protest against stupidity and injustice. Keynes described graphically in his Essay to the Memoir Club (Keynes, 1933) his own ‘impulse to protest, to write a letter to The Times, call a meeting in the Guildhall etc. etc. I behave as if there really existed some authority or standard to which I can successfully appeal if I shout loud enough.’ Kaldor was the most prolific letter writer to The Times of any economist this century, airing his views and leading campaigns on a wide variety of economic, social and political issues.

A. P. Thirlwall

11. Kaldor’s Vision of the Growth and Development Process

Nicholas Kaldor is perhaps best known in the economics profession for his contribution to growth and distribution theory as part of the Cambridge (England) challenge to the neoclassical theory of growth and distribution, which itself was a response to the pessimism of Harrod concerning the possibility of long-run equilibrium growth. In the mid-1960s, however, Kaldor turned away from abstract growth theory and began to turn his attention to the applied economics of growth, both nationally and internationally He developed a vision of the growth and development process, which became part of his challenge to equilibrium theory, which he used to explain the continuing divergence in living standards between primary producing regions on the one hand and industrial regions on the other (within countries and between countries). The vision is in the spirit of centre-periphery models of growth and development, but with novel features.

A. P. Thirlwall

12. A Model of Regional Growth Rate Differences on Kaldorian Lines

Professor Kaldor has been a long standing critic of the application of neo-classical modes of thought to the analysis of economic growth and development. In recent years, in particular, he has followed the line of Myrdal [1] in attacking the predictions of neo-classical theory that regional (national) growth rate differences will tend to narrow with trade and the free mobility of the factors of production. The essence of the argument is that once a region gains a growth advantage it will tend to sustain that advantage through the process of increasing returns that growth itself induces—the so-called Verdoorn effect [2]. The fullest statement of Kaldor’s views at the regional level is contained in a lecture to the Scottish Economic Society published in 1970 [3]. Unfortunately the model he presents is purely verbal and lacks the rigour and precision that one normally associates with Kaldor. The purpose here is to attempt to formalize the model in order to clarify its structure,1 and to consider such questions as: the role of the Verdoorn effect in contributing to regional growth rate differences; whether regional growth rate differences will tend to narrow or diverge through time; and how policies of regional ‘devaluation’ can raise a region’s growth rate.2

A. P. Thirlwall

13. A General Model of Growth and Development on Kaldorian Lines

Arthur Lewis says in his Presidential Address to the American Economic Association: “the economist’s dream would be to have a single theory of growth that took an economy from the lowest level of say $100 per capita, past the dividing line of $2,000 up to the level of Western Europe and beyond. Or to have, since processes may differ at different stages, a set of theories growing out of each other longitudinally, and handing over to each other. Or putting aside what happens after $2,000 is passed, to have at least one good theory for the developing economy from $100 to the dividing line”. (Lewis, 1984). Lewis’s dream will probably remain as such, but I believe we know enough about the development process to provide the basis for his second best—namely a set of theories growing out of each other longitudinally and handing over to each other. Such a model would give pride of place to agriculture, and its complementarity with industry, in the early stages of development, with export growth taking over in the later stages. There can be little doubt from the empirical evidence (see Kaldor, 1966, 1967 and Sen, 1983) that the pace of long run growth and development is closely associated with the growth of industrial activities. The fundamental question is what determines the growth of industrial output?

A. P. Thirlwall

14. A Plain Man’s Guide to Kaldor’s Growth Laws

In the course of his Inaugural Lecture at Cambridge in 1966 on the causes of the U.K’s slow growth rate, Kaldor (1966) presented a series of “laws” to account, for growth rate differences between advanced capitalist countries; he later elaborated these laws in a lecture at Cornell University (1967). These laws, and their interpretation and validity, have been the subject of considerable scrutiny and debate, and Kaldor himself has clarified and modified his own position since their enunciation. The basic thrust of the model consists of the following propositions:1i)The faster the rate of growth of the manufacturing sector, the faster will be the rate of growth of Gross Domestic Product (GDP), not simply in a definitional sense in that manufacturing output is a large component of total output, but for fundamental economic reasons connected with induced productivity growth inside and outside the manufacturing sector. This is not a new idea. It is summed up in the maxim that the manufacturing sector of the economy is the “engine of growth.”ii)The faster the rate of growth of manufacturing output, the faster will be the rate of growth of labor productivity in manufacturing owing to static and dynamic economies of scale, or increasing returns in the widest sense. Kaldor, in the spirit of Allyn Young (1928), his early teacher at the L.S.E., conceives of returns to scale as macroeconomic phenomena related to the interaction between the elasticity of demand for and supply of manufactured goods.

A. P. Thirlwall

15. Testing Kaldor’s Growth Laws across the Countries of Africa

One of the many contributory factors to Africa’s relative economic backwardness and low per capita income is that the industrialization process has hardly started and even appears to be bypassing the continent altogether. There is even evidence in some African countries of deindustrialization before they have ever reached Rostow’s growth stages of ‘take-off and ‘maturity’. Africa has the lowest share of industrial output in total output compared to other continents; it has the highest share of the labour force still employed in agriculture, and the highest share of export earnings derived from primary products. To what extent is the growth performance of African economies related to these structural characteristics? More precisely is there any discernible evidence that GDP growth and overall labour productivity growth of African countries is positively related to how fast their industrial sector is growing?

A. P. Thirlwall

16. Talking about Kaldor: An Interview with John King

This conversation took place between Professor J.E. King of La Trobe University, Australia and A.P. Thirlwall on 15 December 1992.

A. P. Thirlwall


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