Remembrance of John Archibald Wheeler by Daniel Holz

One of the best pieces of writing I read this year was a short remembrance of the great American theoretical physicist John Archibald Wheeler (9 July 1911-13 April 2008). It was written by Daniel Holz, a theoretical physicist who was mentored by Wheeler as an undergraduate physics student.

The writing is simple, elegant, sincere. It uses a few classic literary tools to great effect. The title is one simple, evocative word: Goodbye.

Commentary on Keynes' General Theory, part 2: Book I (Introduction): Chapter 1 (The General Theory)

Book I : Introduction

• Chapter 1: The General Theory
• Chapter 2: The Postulates of the Classical Economics
• Chapter 3: The Principle of Effective Demand

Chapter 1 ("The General Theory") is extremely short (a single page), so we can quote it in full:

I have called this book the General Theory of Employment, Interest and Money, placing the emphasis on the prefix general. The object of such a title is to contrast the character of my arguments and conclusions with those of the classical¹ theory of the subject, upon which I was brought up and which dominates the economic thought, both practical and theoretical, of the governing and academic classes of this generation, as it has for a hundred years past. I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case, the situation which it assumes being a limiting point of the possible positions of equilibrium. Moreover, the characteristics of the special case assumed by the classical theory happen not to be those of the economic society in which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.

Footnotes (in the original text)

1. “The classical economists” was a name invented by Marx to cover Ricardo and James Mill and their predecessors, that is to say for the founders of the theory which culminated in the Ricardian economics. I have become accustomed, perhaps perpetrating a solecism, to include in “the classical school” the followers of Ricardo, those, that is to say, who adopted and perfected the theory of the Ricardian economics, including (for example) J. S. Mill, Marshall, Edgeworth and Prof. Pigou.

We make the following two comments:

• The "general" in The General Theory serves to contrast Keynes' theory with what he calls the classical theory. According to Keynes, the classical theory is only applicable to a special case and not to the general case.
• Keynes argues that the characteristics of the special case assumed by the classical theory are not applicable to the prevailing economic situation (circa the 1935).

Three questions must be borne in mind constantly as we go through The General Theory:

• Does Keynes accurately describe the alternative, or indeed alternatives, to his General Theory?
• Do the postulates of the alternative, be it the so-called classical theory or some other alternative, indeed apply only to a special case?
• Do the characteristics of the alternative differ from those of the prevailing economy (circa 1935, OR circa 2008 for that matter)?

At all times we must closely examine the premisses and basic assumptions of both Keynes' theory and other alternatives.

A final comment. It's not clear to me what Keynes means when he says: "I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case, the situation which it assumes being a limiting point of the possible positions of equilibrium." Specifically the second part of the sentence: "...the situation which it assumes being a limiting point of the possible positions of equilibrium." What is "it": The "classical theory"? The "special case"? Or the "general case"? And what is "a limiting point of the possible positions of equilibrium"? Presumably this will be clarified as we read on. We shall see. We shall certainly come back to this sentence.

Commentary on Keynes' General Theory, part 1

On 13 December 1935, exactly 73 years ago to the day, John Maynard Keynes completed the preface to what was to become one of the most controversial and influential books of the 20th Century: The General Theory of Employment, Interest and Money.

Judging by the revival of interest in Keynesian economics that has come in the wake of the recent (and ongoing) global economic crisis, Keynes' General Theory looks set to become one of the most controversial and influential books of the 21st Century as well.

In his preface, Keynes notes that although his book "is chiefly addressed to [his] fellow economists", he "hope[s] that it will be intelligible to others."

This, then, marks the beginning of a detailed commentary on Keynes' General Theory by an interested non-economist.

Why undertake such a task?

There are three reasons.

First, the growing influence of The General Theory on current global economic policy. It is vital that we, economists and non-economists alike, have a clear understanding of Keynes' ideas. And more importantly, their implications.

Second, to the best of my knowledge, there is no such commentary available online.

And third, because you're worth it.

OK, that third reason is just some debris from the world of global cosmetics advertising that floated into my mind after I typed "And third". But it sounds good and three's a good number, so it stays.

The book consists of six main sections, or books as Keynes calls them:

Book I : Introduction

• Chapter 1: The General Theory
• Chapter 2: The Postulates of the Classical Economics
• Chapter 3: The Principle of Effective Demand
  

Book II: Definition and Ideas

• Chapter 4: The Choice of Units
• Chapter 5: Expectation as Determining Output and Employment
• Chapter 6: The Definition of Income, Saving and Investment
  Appendix on User Cost
• Chapter 7: The Meaning of Saving and Investment Further Considered

Book III: The Propensity to Consume

• Chapter 8: The Propensity to Consume: I. The Objective Factors
• Chapter 9: The Propensity to Consume: II. The Subjective Factors
• Chapter 10: The Marginal Propensity to Consume and the Multiplier

Book IV: The Inducement to Invest

• Chapter 11: The Marginal Efficiency of Capital
• Chapter 12: The State of Long-term Expectation
• Chapter 13: The General Theory of the Rate of Interest
• Chapter 14: The Classical Theory of the Rate of Interest
  Appendix on the Rate of Interest in Marshall’s Principles of Economics, Ricardo’s Principles of Political Economy and elsewhere
• Chapter 15: The Psychological and Business Incentives to Liquidity
• Chapter 16: Sundry Observations on the Nature of Capital
• Chapter 17: The Essential Properties of Interest and Money
• Chapter 18: The General Theory of Employment Re-stated

Book V: Money-Wages and Prices

• Chapter 19: Changes in Money-Wages
  Appendix on Prof. Pigou's Theory of Unemployment
• Chapter 20: The Employment Function
• Chapter 21: The Theory of Prices

Book VI: Short Notes Suggested by the General Theory

• Chapter 22: Notes on the Trade Cycle
• Chapter 23: Notes on Merchantilism, the Usury Laws, Stamped Money and Theories of Under-consumption
• Chapter 24: Concluding Notes on the Social Philosophy towards which the General Theory might lead

The entire book is available online here.

So much for introductory remarks.

Let's proceed to the Preface which begins as follows:

This book is chiefly addressed to my fellow economists. I hope that it will be intelligible to others. But its main purpose is to deal with difficult questions of theory, and only in the second place with the applications of this theory to practice. For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premisses. Thus I cannot achieve my object of persuading economists to re-examine critically certain of their basic assumptions except by a highly abstract argument and also by much controversy.

We must note the following points:

• Whilst The General Theory is addressed primarily to economists, Keynes hopes that it will be intelligible to non-economists.
• The primary purpose of The General Theory is to deal with difficult theoretical issues and only secondarily with applications of this theory to practice.
• Keynes argues that the fault of orthodox economics (circa 1935) arises from its erroneous premisses and two characteristics of these premisses or basic assumptions in particular: their lack of clarity and generality.

Keynes ends his Preface much as he begins it:

The composition of this book has been for the author a long struggle of escape, and so must the reading of it be for most readers if the author’s assault upon them is to be successful,— a struggle of escape from habitual modes of thought and expression. The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.

We note that, according to Keynes: "The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies, not in the new ideas, but in escaping from the old ones". This suggests that, if anything, the non-economist may be better placed than the economist to judge The Classical Theory and its alternatives on their own merits, unencumbered by any professional prejudices.