Keynes’s Macroeconomics Rethought
Chapter 4: Keynes’s Theoretical Shift: Casualty of the Criticism of the Treatise
It was considered essential in the previous chapter to dwell on the meanings of Keynes’s terminology in order to understand the premises on which Keynes’s theory is built and to counter Hayek’s and Robertson’s criticism of Keynes for his so-called inconsistencies in definitions and uses of vocabulary. Now that the difficulties with Keynes’s semantics, which so distracted Hayek, are clarified, a brief note is added here about Hayek’s frustration with Keynes’s reaction to his own work. Hayek was, simultaneously as he was evaluating Keynes’s new Treatise, defending his own theory presented in Prices and Production newly circulating in English in 1931. From Cambridge, both Keynes and Pierro Sraffa harshly rebuked Hayek’s work. Leaving aside this time the rhetoric of the exchange, the two theories will be contrasted. Comparing the almost contemporaneously appearing works of Keynes and Hayek should shed light on the similar and differing aspects of their approaches. Both Keynes and Hayek, like Wicksell, were concerned in their respective models with the causes of economic fluctuations. Both attempted to explain how money, prices or price level, investment, and savings are related and how the interactions of these specific variables impact production, employment, and income or income distribution. Both considered production as a process in which two types of goods are produced,1 and further like Wicksell, they distinguished them as consumption goods – Hayek’s ‘consumers’ goods’ and Keynes’s ‘consumption-goods’ – and capital goods – Hayek’s ‘producers’ goods’ and Keynes’s ‘investmentgoods’. For both, fluctuations in the production process at the scale of the...
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