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Keynes, Pigou and Cambridge Keynesians: Authenticity and Analytical Perspective in the Keynes-Classics Debate

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Ambrosi(A)correctly returns to chapters 8-10 of Part II of Pigou's 1933 masterpiece,The Theory of Unemployment(TU),published in 1933,in order to rediscover what it was that set off the Keynesian revolution.A wastes a good deal of the reader's time in reconstructing the microfoundations of Pigou's macro analysis.Seymour E. Harris,in an article published in the May,1935 issue of the Quarterly Journal of Economics,had already provided a complete micro exposition of Pigou's macro model.A correctly shows that Richard Kahn,Joan Robinson and Austin Robinson were not able to follow the technical,theoretical argument made by Pigou ,that the private sector would always self adjust its allocation of resources over time so as to maintain itself on the boundary of the(PPF) Production Possibilities Frontier(static and dynamic) as long as there was "free competition"(pure competition)and no government interference in the form of tariffs,unemployment compensation ,social security,minimum wages or unions.It is precisely this conclusion of Pigou's theory that Keynes sought to demonstrate ,through a theoretical,mathematical argument,was a special case of a much more general case.However,since, as A demonstrates, Joan Robinson,Richard Kahn and Austin Robinson were unable to follow Pigou's technical analysis,they attempted to reinterpret Keynes's General Theory(GT) argument,which they were never able to grasp at anytime during their lifetimes ,as being that the cause of involuntary unemployment was ultimately due to imperfect competition.Of course,imperfect competition was exactly what Kahn and the Robinsons had specialized in during the time Keynes was writing the GT.(A) successfully shows that the condition Pigou arrived at to demonstrate a constant full employment level of output was simply the macroscopic analogue of the microeconomic condition for optimal resource allocation in the private sector.Pigou's condition was that ,in the aggregate,w/p=MPL,where w/p is the real wage,w is the money wage,p is the price level,and MPL is the marginal product of labor.It is at this point that A drops the ball and fumbles as he was approaching the goal line.A bases his entire analysis of Keynes's "model" on chapter 3 of the GT alone,which has only an introductory ,grammer school ,pre algebra statement of the problem of generalizing the formal neoclassical model presented by Pigou in 1933 so as to integrate the aggregate demand side into the analysis.Keynes's analysis of the formal model of his GT is contained in chapters 10(pp.114-117,p.126),20(pp.280-286), and 21(pp.304-306).Keynes then compares his formal model with Pigou's in the appendix to chapter 19 of the GT on pp.271-278. A fails to present Keynes's generalization,which was that,in the aggregate,the condition for optimal resource allocation ,using the marginalist calculus of rational decision making of neoclassical economics,w/p=MPL/(MPC +MPI),where MPC=the marginal propensity to spend on consumption goods and MPI=the marginal propensity to spend on investment goods(the factories,plants,equipment and machinery used to produce the consumption goods sold in the marketplace).Only in the special case where MPC+MPI=1 will the special neoclassical theory of Pigou be equivalent to the general theory of Keynes.Of course, this requires that, at the theoretical level ,the private sector of the economy is always operating on the boundary of its PPF.On the PPF,resource scarcity holds and there is an inverse relationship between consumption goods and investment goods.Only voluntary unemployment would occur.There would be zero involuntary unemployment.Inside the PPF,there is a positive relationship between consumption goods and investment goods.Resource scarcity does not hold and there is some level of involuntary unemployment present due to the failure of business decision makers to invest in maintaining an optimal,up to date,stock of capital goods intertemporally over time.This is a long run,not a short run,problem.A ignores all of Keynes's chapter 19 analysis and settles for the incomplete conclusion that Keynes simply disagreed with Pigou's conclusion.On the other hand,he correctly deduces that the Robinsons and Richard Kahn effectively sabotaged the Keynesian revolution with their gross errors of misinterpretation .This was most likely due to the severe lack of formal training in mathematics of the Robinsons.Kahn simply tagged alone due to his 50 year love affair with Joan Robinson.