Who Were the Sea Peoples?

Wicksell postulates a process of forced saving when the money rate of interest is held below the natural rate, a process that maintains the ex post equality of savings and investment. Keynes turns that situation around, and postulates a process of forced investment (the piling up of inventories) when the money rate is held above the natural rate, a process that again maintains the ex post equality of savings and investment.

The Keynesian cross model is, of course, a highly simplified abstraction of Keynes's work. Even so, it is not hard to add Hayek to the model, and thus to illustrate how their work is complementary, rather than contradictory. Although highly simplified, of course, we can instruct undergrads as follows: Keynes was theorizing about the portion of the cross below where the aggregate demand line crosses the income equals output line, i.e. where savings exceeds intended investment. Hayek was theorizing about the portion of the cross above that equilibrium point, where intended investment exceeds savings. This is exactly the point made in the Shackle quote offered a few weeks ago on this blog. And, of course, the first region is characterized by the money rate of interest being above the Wicksellian natural rate, while the second region is characterized by the money rate being below the natural rate. And note: Both the Keynesian story and the Hayekian story rely upon disequilibrium i...

"Hayek and Keynes could be said to have merely been theorizing on opposite sides of the same Wicksellian coin." -- Goodspeed, Rethinking the Keynesian Revolution , p. 119 I had been groping towards this conclusion myself: Keynes is concerned with what happens when the money rate of interest is above the natural rate, and Hayek with what happens when it is below the natural rate.

I'm reviewing Tyler Beck Goodspeed's book for The Review of Political Econom y, and... boy, I think this is going to be fun! Some initial quotes: "since the merger of Irving Fisherwith Walrasian general equilibrium, by Robert Lucas and the 'New Classicals,' all mainstream schools of macroeconomic thought... have adhered to a Walrasian approach" (p. 2). "not only did Keynes and Hayek both adhere to the Wicksellian approach, but also... the Wicksell 'connection' was, as a result, responsible for a fundamental convergence of their respective theories of money, capital, and the business cycle during the course of the 1930s" (p. 3) "Money, therefore, is intimately related to the second element of the Wicksell connection, namely, the identification of intertemporal coordination as the central problem in macroeconomics" (p. 6). ( As I noted .) "Critical to the Wicksellian approach, therefore, is the notion that producers, c...