4 of 8 people found the following review helpful
One can't understand Keynes if you can't follow his GT model,
This review is from: Interpreting Macroeconomics: Explorations in the History of Macroeconomic Thought (Paperback)
Backhouse has some interesting chapters in this book comparing and commenting on the works of Muth(the founder of the rational expectations approach based on the use of the normal probability distribution and related distributions),Leijonhufvud(one of the founders of the long run disequilibrium,neoWalrasian interpretation of Keynes),and Milton Friedman(monetarist economist whose empirical work is all based on the unsupported belief that the normal probability distribution(and its variates) can be applied universally as a correct model in macroeconomics).Backhouse is simply ignorant about the massive amount of data analysis done by Benoit Mandelbrot over the last fifty years demonstrating that the normal distribution is the wrong distribution to employ.His work has been replicated by many different researchers in many different countries.Keynes,in the 1939-40 exchange with Tinbergen over the logical foundations of econometrics,made the same,general theoretical argument as Mandelbrot,but without empirical support.Keynes argued that before the assumption of normality was made,Tinbergen needed to demonstrate the uniformity,homogeneity,and stability of the time series data before using the multiple correlation-regression approach.Keynes was ignored.The result has been 65 years of failed macroeconometric forecasts.Backhouse covers none of this.On pp.120-123,Backhouse repeats the standard economist claim that Keynes had no formal model in the GT.The formal model is in chapters 10,20,and 21.It is that w/p=mpl/(mpc+mpi),where w/p is the real wage,mpl is the marginal product of labor derived from a neoclassical aggregate production function,mpc is the marginal propensity to consume,and mpi is the marginal propensity to spend on investment goods. Keynes compares his formal model to Pigou's 1933 model in the appendix to chapter 19 of the GT(General Theory,1936).Only if mpc+mpi=1 does the Pigouvian result occur.Backhouse simply repeats the false claims of those,such as Leontief,who claim that Keynes was guilty of"implicit theorizing".Backhouse claims that Keynes's theory was not derived from microeconomic foundations.All the microeconomic foundations,expressed in the form of elasticity analysis,is present in chapters 10,20,and 21.Finally,Backhouse claims that it was Lucas who was the first to construct macroeconomic models on a microeconomic foundation of optimizing behavior by economic agents.This claim is false since both Pigou,in his 1933 book,The Theory of Unemployment,based all of his macro results contained in Part II of his book on optimizing behavior.Keynes did the same.Backhouse is simply ignorant of the mathematical modeling done by both Keynes and Pigou in the early to mid 1930's.Whatever interpretations Backhouse makes are ,unfortunately,based on a lack of understanding of what Pigou and Keynes were doing in their books.
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