On the Complete Misunderstanding by Economists of Keynes’s Alleged Attack on ‘Mathematical Economics’ in the General Theory in the Appendix to Chapter 19 and Chapter 21
27 Pages Posted: 22 Jul 2018
Date Written: June 28, 2018
J M Keynes’s supposed attack on mathematical economics is a myth created by Joan Robinson and her fellow Pseudo Keynesians, Austin Robinson and Richard Kahn, as well as by many of their supporters. Nowhere does Keynes attack mathematical economics. Of course, he does attack “pseudo mathematics” and “mathematical” economics. What Keynes was attacking was the formal, mathematical, modeling strategy of A C Pigou in his The Theory of Unemployment (1933).
Pigou’s approach was to treat macroeconomic phenomena in a strictly, Marshallian, partial equilibrium manner. Pigou’s basic model makes everything a function of a single variable, the real wage, subject to ceteris paribus. He then talks about the impact of other variables, but never incorporated them into his formal theoretical model.Keynes, himself, formulated what he called a similar, improved, “concoction”, in chapters 20 and 21, of Pigou’s model in order to formulate his microeconomic foundations for his D and Z model. Keynes’s basic model makes everything a function of a single variable, the expected real wage, subject to ceteris paribus. This allows him to generate the Aggregate Supply Curve (ASC), a locus of all D-Z intersections, which is a set of multiple equilibriums.
However, Keynes’s IS-LP(LM) model, which is built on the ASC, involves more than one independent variable and was modeled by Keynes as a system of three mathematical, simultaneous equations that incorporated some of the interdependences of the macro system into a model that were not present in Pigou’s model in 1933. Pigou incorporated them into his formal model in his 1941 book.
Keynes’s view is that no mathematical model can ever succeed in the goal of incorporating all of the complexities and interdependences of macroeconomic phenomena. Thus, careful judgment will always be required. However, macroeconomic, mathematical models that do incorporate interdependencies, complications and feedbacks are to be preferred to the Marshallian, partial equilibrium approach, which is, however, still valuable at the microeconomic level.
The best understanding of Keynes’s critique in the General Theory was written by A. Greenspan in 2004.
Keywords: IS-LM, IS-LP(LM), Pigou, Champernowne, Keynes, Chapter 21, Chapter 15, Keynes's Views Of Math
JEL Classification: B10, B12, B14, B16, B20, B22
Suggested Citation: Suggested Citation