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A Concise History of Economic Thought: From Merchantilism to Monetarism

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Vaggi and Groenewegen do an excellent job overall in this book of 34 essays that covers the economic theories and applied policies of economists , spanning a three hundred and fifty year time period, like Locke,Petty,Cantillion,Hume,Smith,Say,and Malthus to Keynes,Harrod,Kalecki,and Milton Friedman.Each essay devotes about ten pages to each of the economists covered.The different schools of economic thought such as Mercantilism,Classical economics,Marxist economics,Neoclassical(marginalism)economics,Keynesianism and Monetarism are covered.It is in essay 31,on John Maynard Keynes,that Vaggi and Groenewegen go badly astray.The authors give the Cambridge Circus(Joan Robinson,Austin Robinson and Richard Kahn) interpretation of the General Theory.The treatment of Keynes's Treatise on Money(TM)makes no sense.On p.299,they assert that Keynes's initial,temporary assumption of constant or fixed output in the TM amounted to an assumption that Say's Law was ,in general,sound and valid.Keynes's analysis showed that a fall in consumption spending and a rise in the amount of savings would NOT(contrary to the claims of the two authors) lead to a decrease in the rate of interest(bank) rate sufficient to increase the amount of investment spending by precisely the amount of the fall in consumption spending so as to keep the economy on the static and dynamic production possibilities.This follows from the fact that a private commercial banking system's goals of profit maximizing and/or sales maximization behavior will result in a bank rate which does not equilibrate savings with investment at a full employment level of output.Keynes showed that,starting from full employment at constant output,adjustments in the bank rate will not return an economy to optimum after it has been subjected to a business cycle shock.The treatment of the GT is just as poor.The authors claim (p.307)that the essential chapters of the GT are 1-3,5,8-11,13,18,and 24 is incorrect.The really crucial chapters are 19,20,21,and the appendix to chapter 19.It is in these chapters that Keynes derives his major result about involuntary unemployment and unemployment equilibrium-w/p=mpl/(mpc+mpi).Unless mpc+mpi=1 it is impossible for labor to cut its money wage ,w, so as to lower the real wage,w/p,while maintaining equality with mpl,the marginal product of labor.The claims that Tarshis's D-Z analysis is what Keynes meant(p.306 )and that "Keynes's ...vision of the aggregate supply function was never illustrated in a graph..."(p.305)means that the authors lack the necessary mathematical training in differential and integral calculus needed to follow the mathematical steps provided by Keynes on pp.281-286 and pp.304-306 of the GT.No diagram is needed.