Archive for the ‘e488-keynes’ Category

A Response to Coddington’s “Keynesian economics: The search for first principles”

Wednesday, January 23rd, 2008

This was probably not the most appropriate starting point for me when trying to read an article pertaining to Keynesian economics.  I understand the skeletal basics–that is, Keynesian economics is sometimes given the name of modern macroeconomics which emphasizes the need for government spending to stimulate aggregate demand, which in turn will lead to a higher level of output.  Alan Coddington starts out by stating that original economists analyzed markets on the basis of the choices made by individual traders, all of whom made decisions based on predictable, stable, and clearly specified objectives.  However, after reading the introduction, I felt very lost and lacking the basic background on this economic viewpoint to really comprehend the nuances of Coddington’s article because his article presented more of a social commentary on Keynesian economics from three coined perspectives than a substantial background on the theory.  The authors three categories within Keynesian economics is fundamentalists, hydraulics, and reconstituted reductionists.

 Fundamentalists attack the traditional reductionists who insist that individuals exhibit “stable and clearly specified objectives” when making decisions on consuming products.  Rather, Keynes (1937) insists that choices were vague, uncertain, and expectations of future events were constantly shifting due to the strong influence of decision-making that one person could have on another consumer.  (This is where reductionists differed–they felt that consumers weren’t swayed by other people’s decisions.)  Lastly, fundamentalists believe that “self-interest will determine what in particular is produced, in what proper proportions the factors of production will be combined to produce it, and how the value of the final product will be distributed between them” (Keynes 1936).  This aggregate demand, as Keynes suggests, is what ultimately dictates both the level of employment and the level of output for the given economy.

Hydraulic Keynesianism was a popular way of thinking following the post-war era in the 1950s and 1960s.  This is where the government’s role became pronounced.  Here, Keynes makes it known that a large decentralized economy may be subject to broad central control or influence through the instrument of the budget–“fiscalism.”  Coddington refers to this form of Keynesian economics as “hydraulic” because of the homogeneous flows and interconnectedness of the stable relationship among three factors: expenditures, income, and output.  Thus, with the assumption that those three factors are indeed stable, then the government, which directly controls those factors, will ultimately dictate the economy’s level of output; thus, overall employment will be directly tied to aggregate demand rather than real wages.

 The third Keynesian breakdown, the reconstituted reductionist, makes little sense to me.  Coddington referred to two individuals who were at the forefront of this approach–Robert Clower and Axel Leijonhufvud, both of whom did work describing and modeling the disequilibrium status.  However, I couldn’t pick up on the author’s nuances in this section, so I will have to defer to either Dr. Greenlaw or someone else in the class who may have some understanding on the work that these two individuals contributed to macroeconomics.

 I regret ending my entry with the last paragraph the way I did, but I think I chose the wrong selection when trying to better comprehend Keynesian economics.  If I had understood the work of the individuals who associated themselves with this thought, then I think I would have gotten a lot more out of the reading, but unfortunately, I have to be honest in saying that the technicality of the piece was well over my head.

Source: Coddington, Alan. 1976.  Keynesian economics: The search for first principles.  Journal of Economic Literature 14 (December): 1258-73.  (This can be found in Snowdon’s Macroeconomic Reader.)