- Paperback: 264 pages
- Publisher: Edward Elgar Publishing; UK ed. edition (August 30, 2009)
- Language: English
- ISBN-10: 1848448260
- ISBN-13: 978-1848448261
- Product Dimensions: 6.2 x 0.8 x 9 inches
- Shipping Weight: 14.9 ounces
- Average Customer Review: 7 customer reviews
- Amazon Best Sellers Rank: #2,414,861 in Books (See Top 100 in Books)
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Says Law and the Keynesian Revolution: How Macroeconomic Theory Lost its Way UK ed. Edition
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`Steven Kates has written an important 250 page pamphlet on the history of Say's Law and its misinterpretation in The General Theory. He argues that Keynes is responsible for a fundamental misunderstanding of classical - and in fact all pre-Keynesian - economics, which has disfigured mainstream macroeconomics since 1936. This is no small reproach, but Kates makes his point in a well-documented and convincing way. . . I consider this book required reading for macroeconomists as well as historians of economic thought and intellectual historians. . . A work of true scholarship and thought-provoking content. You may disagree with Kates, but you cannot easily dismiss him.' --- Evert Schoorl, De Economist
`The original classical formulators of Say's Law never said what Keynes claimed they said. On the contrary, far from dismissing slumps as impossibilities, they stressed their occurrence. They differed from Keynes only in denying that demand failure could be the cause. . . A convincing and authoritative account.' --- Thomas M. Humphrey, The Economic Journal
`Based on the comprehensive and well-written historically analytical chapters alone, this book is highly recommended for students interested in the history of economic thought, as well as for contemporary theorists and empiricists who are concerned with non-Keynesian research on business cycles and unemployment.' --- Roy Rotheim, Journal of Economic Literature
About the Author
Steven Kates, School of Economics, Finance and Marketing, RMIT University, Australia and former Commissioner of the Australian Productivity Commission
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While Keynes asserted that Say's Law (as he defined it) is only valid in the "special case" of no involuntary emploment, Kates explains that Classical economists understood recessions and [involuntary] unemployment in the context of the "true" Say's Law- i.e., "a product is no sooner created than it creates a demand for other products to the extent of its value" and "products are paid for with products." Ergo, recessions are caused by a mismatch between the structure of supply and the structure of demand (too much production of this good/serice, not enough of that one), exacerbated by the contraction of credit due to the liquidity constraints of financial intermediaries.
I could never have written my own book, Waffle Street: The Confession and Rehabilitation of a Financier, absent the influence of Kates' wonderful volume. Thank you Professor Kates for bringing lost truths of Classical economics back into the light!
Let's reiterate the original Say's Law;
'Underlying the monetary economy we actually exchange goods and services. Money is not wealth itself, it just represents a claim on real wealth. So in order to consume, we must first supply. The more goods and services we have to supply, the more we can consume. This widens the circle of production and expands the division of labor. Ergo, the key to wealth creation is to create more goods and services, not create more money. Increasing production is the key to prosperity.'
Steve Kates barely even mention these basic core tenets of Saw's Law. In fact Kates goes out of his way to avoid even talking about it, and instead wants to make demand failure (and the related refutation of Keynesian demand management) the entirety of the law.
I always thought it strange when I read this book years ago that the basic principles of Say's Law were missing. But over the years reading his blog it has become clear why; Kates feels like he has to bring some original insight -that ONLY HE knows- to economics. He has obsessively latched onto this demand failure issue as his discovery and repeatedly pushes it as the true Say's Law.
This is absurd and misleading. So that's why I am giving this book only 3 stars. As a book focused on the debate around demand failure it would get 5 stars, but as a book on Say's Law itself this is not good at all. Kates really does a disservice to those seeking to understand basic principles of economics with his insistence on not seeing the forest for the trees.
If I were to offer one criticism of the book, it is that the author's thesis is perhaps a little TOO transparent at times; by the middle of the book, I felt I had lost count of the number of times that we had been informed that a particular pre-Keynesian author's discussion of recession was not incompatible with the Law of Markets, in fact he was really basing his explanation on this principle, etc. etc. However, a reader who encounters the same phenomenon is encouraged not to give up on the book prematurely, as the best chapters follow soon after. Particularly fascinating was the chapter where Kates shows that Keynes almost certainly picked up on the idea of effective demand from reading Malthus's correspondence with Ricardo in late 1932 - a possibility that seems obvious in retrospect, but which I had certainly never heard before. (While reading this chapter, I could not help thinking how much better off the world would have been had those letters been destroyed in a fire before posterity could hand them down to Keynes....but that is neither here nor there).
Overall, this book is a fine contribution to the history of economic thought, combining superb scholarship with a very clear thesis regarding the ongoing relevance of the material under discussion. A must-read for anyone interested in a full understanding of the literature on business cycle theories.
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