Tag Archives: nicholas kaldor

Michael A. Landesmann On Nicholas Kaldor On The Centrifugal Forces At Work In The Euro Area

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I have noted many times since the Euro Area crisis started how Nicholas Kaldor foresaw it much earlier than anyone else. The year: 1971 ‼

I came across this article Nicholas Kaldor And Kazimierz Łaski On The Pitfalls Of The European Integration Process by Michael A. Landesmann, published in Dec 2019, which is really good. I like the phrase centrifugal forces in the abstract, as the Euro Area is designed to cause countries in it to fly apart.

An interesting snippet:

In sum, Kaldor’s analysis of the pitfalls of the Common Market comprises three components:

  • the almost unavoidable processes leading to ‘structural external imbalances’;
  • the detrimental impact of the Common Agricultural Policy (CAP), for a country like the UK …
  • the fact that external imbalances would result in a ‘deflationary bias’ in the deficit countries … This tendency would be strengthened in a fixed exchange-rate regime and, even more so, in a monetary union that would not be complemented by a fiscal union.

…

Kaldor’s analysis points to an issue that is of central importance in the set-up of the EC (and continues to be of great relevance in the EU): the likelihood of what he calls the emergence of ‘structural (external) imbalances’. He refers in this respect to G. Myrdal’s ‘circular and cumulative causation’ processes … Which are the cumulative processes that Kaldor alludes to when predicting that integrated groups of countries will experience ‘structural external imbalances’?

Nicholas Kaldor On Monetary Policy And Stability Of Financial Instituitions

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Via Eric Tymoigne’s blog post, I came across this quote from Nicholas Kaldor in 1982 (page 13) on stability/solvency of financial institutions, especially relevant in recent times:

Given the fact that most, if not all, types of financial institutions have short-term liabilities, the interest payment on which varies in strict relation to the Bank Rate, whilst their assets consist in a large part of bonds or mortgages, the income from which is (or may be) fixed, there must clearly be limits to the freedom of the central bank to use the interest weapon if the solvency and viability of financial institutions is to be preserved. This is only one aspect of a wider problem of the Bank of England in its policies of debt-management (regarded by the Committee as the ‘fundamental domestic task of the central bank’), which must be so conducted as to provide various types of debt in the amounts and proportions in which the public desires to hold them subject to the Bank’s powers to influence the public’s preferences by altering the relative yield on various types of debt.

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That’s from his book The Scourge Of Monetarism.

It’s a fantastic book and clearly shows how Kaldor is a monetary economist of rank 1.

A favourite quote from the book is (next page) and which I quote often in this blog:

… As it is, a highly developed banking system already provides such facilities on an ample scale, since it is prepared to accommodate the public’s changing demand between different types or financial assets by altering the composition of the banks’ assets or liabilities in a reverse direction. If the non-banking public wishes to switch its holding of gilts for interest-bearing bank deposits, the banks are ready to supply such deposits at the minimum of inconvenience, and at the same time to place their surplus funds into the gilts which were previously held by the public. Similarly the banks provide easy facilities to their customers for switching balances on current accounts into interest-bearing deposit accounts, or vice versa. Hence, while the annual increment in the total holding of financial assets of the private sector (considered as a whole) is nothing more than the mirror-image of the borrowing requirement of the public sector (in a closed economy at any rate), neither the Government nor the banks can determine how much of this increment will be held in the form of cash (meaning notes and current deposits) and how much in the near-equivalents to cash (such as interest-bearing demand deposits) or in various forms of public sector debt. Thus neither the Government nor the central bank can control how much or the total financial assets the public prefers to hold in the form of ‘money’ on one particular definition or another.

Ashwani Saith’s New Book — Cambridge Economics In The Post-Keynesian Era: The Eclipse Of Heterodox Traditions

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Ashwani Saith’s new book is out. It’s the history of how Post-Keynesianism was dethroned at Cambridge through power and influence of neoliberalism.

Wynne Godley is on the cover!

From the book’s description of the cover:

COVER

St Michael’s victory over the devil.
Jacob Epstein, Coventry Cathedral

On 14–15 November 1940, “a bright moonlit cloudless night made navigation simple” for the Luftwaffe operation—fatefully code-named Moonlight Sonata—of the blanket bombing of Coventry in which “almost a third of the city was fattened” with its medieval cathedral reduced to rubble. (GCHQ 2021). Wynne Godley was married to Kitty Garman, daughter of Kathleen Garman and the famous sculptor Jacob Epstein, one of whose creations lives on the wall of the cathedral in Coventry evoking the unbroken spirit of the city, with Benjamin Britten composing his War Requiem for the consecration of the reconstructed cathedral in 1962. It depicts St Michael—representing the good—slaying the devil. Epstein used a model of his “impossibly handsome” son-in-law, Wynne, to sculpt the head of St Michael. Though Wynne and his research team, along with other celebrated heterodox lineages, lost out proverbially to “the devil” in the Cambridge war of economics, there has subsequently been a defiant phoenix-like revival of the reputation and work of the famous Godley-Cripps Cambridge Economic Policy Group of the 1970s, as well as of other renowned radical traditions nurtured since the 1920s in Cambridge, the crucible of heterodox economics. The allegorical symbolism of Sir Jacob Epstein’s sculpture resonates with the leitmotif of the book.

Here’s Marc Lavoie’s review:

Ashwani Saith’s book is monumental, enthralling, beautifully written with its occasional satirical tone, but as we are being warned, depressing. It explains how the Faculty of Economics of the University of Cambridge—the world centre of post-Keynesian economics—was gradually and entirely taken over by neoclassical economics and why the Department of Applied Economics, also at the heart of heterodox economics, eventually came to be dismantled. This was so far an untold story, except for a chapter on ‘Faculty wars’ in Saith’s previous book, the intellectual biography of Ajit Singh. The current book provides 14 chapters of a meticulous detective story, relying mostly on Cambridge archives, but also on testimonies, interviews, emails, and previous articles of participants to these events. The book makes clear that, besides possible strategical mistakes by the incumbent heterodox economists, there were inexorable and ineluctable outside forces that led to this dismal state of affairs, through the Americanization of the economics profession and through the changing political winds that blew out heterodox and left-wing economics nearly everywhere in the world. The last chapter shows that all is not lost, both in Cambridge and elsewhere in the world.

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REFERENCES

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GCHQ. (2021, April 19). The bombing of Coventry in WWII. Retrieved December 19, 2021, from https://www.gchq.gov.uk/information/the-bombing-of-coventry-in-wwii

…

The book is 1217 pages long.

Word count of “Kaldor” and “Godley”: 428 and 512 respectively.

Mainstream Economics On A Better Globalisation

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The United States policies and maintains the “liberal international order”, a totally unfair game built on laissez-faire/anti-Keynesian ideas. That was advantageous for the United States because its corporations are highly competitive because of historical reasons and who don’t need protection at home. Of course the US has still been using protectionist measures, so there’s hypocrisy there too. But the general system is the removal of protection from countries whose producers need it. Free trade in general. Low tariffs, no import quotas and industrial policy is shooed away.

There’s a good Noam Chomsky video on What Is The WTO? (with transcripts on that page).

Post-Keynesians have argued how the system of free trade has a deflationary bias and causes polarisation in the fortunes of nations.

The solution is, as proposed by Nicholas Kaldor in his book Causes Of Growth And Stagnation In The World Economy, page 87:

… coordinated fiscal action including a set of consistent balance of payments targets and “full employment” budgets.

Anyway, China has gamed this too well to cause troubles to the United States. The US balance of payments and international investment position is on an unsustainable path now because of this. Slower growth for the US also implies slower growth for the world as a whole because the United States is a spender of the last resort (or more like the first resort). High imbalance also means that many countries can’t expand fiscal policy.

So there is a need to change the rules of globalisation, which is more than about free trade but free trade is an important part of it.

Dani Rodrik has two interesting recent articles on this. He is different from the establishment but unfortunately falls short. In his article US-China Rivalry: Geopolitics Is Ruining The Chance To Shape A Better Globalisation, he talks of how the US has taken measures which are more than just tariffs raised by Trump:

US President Joe Biden has added to these challenges by launching what Edward Luce of the Financial Times has called “a full-blown economic war on China”. Just before the party congress, the United States announced a vast array of new restrictions on the sale of advanced technologies to Chinese firms.

As Luce notes, Biden has gone much further than his predecessor Donald Trump, who targeted individual companies such as Huawei. The new measures are astounding in their ambition, aiming at nothing less than preventing China’s rise as a hi-tech power.

In Trump’s four years, economists led by Paul Krugman dismissed Trump’s actions on China but the current Biden administration for which Krugman—acts as a lackey—have gone way beyond.

It’s such a blot on the economics profession that almost nobody saw all this coming. The exception of course was Wynne Godley who was recommending import controls and policies to expand exports in the 2000s. The bigger solution of course is one in which trade is overall balanced. Wynne Godley mentions in his article The United States And Her Creditors — Can The Symbiosis Last? written in 2005:

A resolution of the strategic problems now facing the U.S. and world economies can probably be achieved only via an international agreement that would change the international pattern of aggregate demand, combined with a change in relative prices. Together, these measures would ensure that trade is generally balanced at full employment.

The other Dani Rodrik article How To Build A Better Order although interesting doesn’t go much far than proposing some changes. And Rodrik is a kind of dissenter from mainstream economics from within the establishment, so the profession doesn’t have a clue!

A Rare Admission Of How Monetary Policy Works

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A recent FT Alphaville post by Ajay Rajadhyaksha, global chair of research at Barclays has this admission on how monetary policy works:

Central bankers don’t like admitting it, but a primary goal of rate hikes is to cause enough job losses to ensure that wage growth slows down.

Several Post-Keynesians have of course said this but here I quote Nicholas Kaldor who wrote in 1980 in the article Monetarism And UK Monetary Policy:

… This does not mean that a ‘monetarist’ economic policy such as that of the present government is futile. But its real effect depends on the shrinkage of effective demand brought about through high interest rates, an overvalued exchange rate and deflationary fiscal measures (mainly expenditure cuts), and the consequent diminution in the bargaining strength of labour due to unemployment. Control over the ‘money supply’, which has in any case been ineffective on the government’s own criteria, is no more than a convenient smoke-screen providing an ideological justification for such antisocial measures.

Paul Krugman And Free Trade As Mercantilism

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In a recent article How The West Is Strangling Putin’s Economy for The New York Times, Paul Krugman makes this point about international trade:

One final point: The effect of sanctions on Russia offers a graphic, if grisly, demonstration of a point economists often try to make, but rarely manage to get across: Imports, not exports, are the point of international trade.

That is, the benefits of trade shouldn’t be measured by the jobs and incomes created in export industries; those workers could, after all, be doing something else. The gains from trade come, instead, from the useful goods and services other countries provide to your citizens. And running a trade surplus isn’t a “win”; if anything, it means that you’re giving the world more than you get, receiving nothing but i.o.u.s in return.

That’s quite a deceit!

Now, he has some caveats but tries to minimise them. But the main point about imports, not exports being the point of international trade is something top corporations claim since they want to open markets in poor countries. This reminds of Joan Robinson’s quote that free trade is a subtle form of mercantilism. A poor country needs protection from foreign competition. In Post-Keynesian theory, exports/success of corporations in international markets is quite important. As Anthony Thirlwall in the paper Kaldor’s 1970 Regional Growth Model Revisited says about Nicholas Kaldor’s model (which I believe):

The first proposition of the model is that regional growth is driven by export growth. Kaldor regarded exports as the only true autonomous component of aggregate demand, not just at the regional level but also at the national level because consumption and investment demand are largely induced by the growth of output itself …

So that’s quite the opposite view from mainstream economics.

Some Wynne Godley Quotes On Planned Trade

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There’s an interesting review of Jagdish Bhagwati’s book Protectionism published in the year 1988 by Wynne Godley in the journal Economica, year 1993. Without going into the review, I wanted to highlight how Wynne Godley’s views were quite similar to Nicholas Kaldor’s and Godley proposals such as planned trade and international cooperation of a new kind:

… Kaldor’s chapter, ‘The Foundations of Free Trade Theory and Their Implications for the Current World Recession’ (in E. Malinvaud and J. P. Fitoussi (eds.), Unemployment in Western Countries, 1980), which, in the context of a fundamental critique of the abstract theory of international trade, suggests that, because of the scope for dynamic economies of scale, free trade in manufactured goods leads to the concentration of manufacturing production in certain areas, what Kaldor called ‘a polarisation process’. ‘In principle such trade is of great practical benefit since specialisation between industries of different areas should enable the benefits of the economies of scale to be realised more fully. However … this … depends on the trade being balanced in both directions … But as past experience … has shown this does not come about naturally.’

These ideas were further developed in Kaldor’s 1981 article in Economie Appliquee, ‘The Role of Increasing Returns, Technical Progress and Cumulative Causation in the Theory of International Trade and Economic Growth’, where he related his concern about dynamic imbalances in trade to the ideas of Roy Harrod (himself a strong advocate of protection as a way of improving Britain’s economic performance throughout the postwar period), who had put forward the theory of the foreign trade multiplier in his International Economics (1933). As the trade imbalances constituted a growing threat to the continued expansion of the world economy, Kaldor concluded that we should not ‘stick to free trade (whatever the cost) but introduce a system of planned trade between the industrially developed countries on a multilateral basis’.

Also in an interview to the magazine Marxism Today in 1981, Wynne Godley says how he is openly opposed to free trade and the destructive aspect of it:

Let’s turn to some international questions. How do the problems of the UK economy — and your solutions to them — tie in with problems in the world economy?

Well, the general answer is that I don’t think that free trade is the best way of organising international trade. The classical theory of international trade, which appears in text books and which is extremely influential in peoples’ minds, is based on a postulate of full employment. If you assume full employment you can easily prove that free trade is mutually advantageous. But if you think, as I do, that full employment cannot be assumed, then it’s easy to make out a realistic case that free trade is extremely destructive to economies that are relatively unsuccessful. Instead of making them more prosperous and better-off, it destroys them. I think this is a general proposition; it applies to the United Kingdom at the moment because it’s a relatively unsuccessful country, and I think it is beginning to apply to the United States, which is also becoming a relatively unsuccessful country.

When you say that you think that the free trade system is a bad system, how do you think it should be changed? It’s easy enough to say Britain should have import controls, but how do you see this in international terms?

Well, the logical answer to the question which, as an academic, is what I am primarily called on to give, is quite clear to me. If all relatively unsuccessful countries protect in the way we suggest — using import controls to raise domestic output and not to strengthen their balance of payments — the system of protection can be generalised advantageously. But that assumes a high degree of international co-operation, and international co-operation of a new kind.

Houthakker And Magee On The Importance Of Income Elasticity Of International Trade

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There’s a 1969 paper Income And Price Elasticities In World Trade by H. S. Houthakker and Stephen P. Magee where they realise that nations may have a balance-of-payments constraint:

In the econometric analysis of international trade the emphasis has traditionally been on price elasticities. The practical and theoretical importance of price elasticities is beyond question, and we shall have something to contribute to their estimation, but it has also been increasingly realized that income elasticities are at least as important, especially in a growing economy. Thus Harry Johnson [7] has pointed out that under certain conditions the direction in which the trade balance moves over time depends critically on each country’s income elasticity of demand for imports and on the rest of the world’s income elasticity of demand for each country’s exports.

Johnson showed that if trade is initially balanced in a two-country model, if prices are constant and if income growth is the same in both countries, then the trade balance between them can still change through time if their respective income elasticities of demand for the other’s exports differ. In this case, the country with a higher income elasticity of demand for its imports than the foreign income elasticity of demand for its exports will experience more rapid import growth than export growth, a deterioration in its trade balance and eventual pressure on its exchange rate. For this country, even relatively slow domestic income growth may be insufficient to cure payments imbalances if the relative income elasticities are sufficiently adverse.

We shall show, in fact, that disparities in income elasticities appear to be significant in the case of certain countries whose balance of payments performance is either much worse or much better than might be expected on other grounds. The United Kingdom and Japan are polar examples; the United States is also in this category.

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References

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  1. Johnson, H. G., International Trade and Economic Growth (Cambridge: Harvard University Press, 1958).

…

That’s not quite as sharp as Nicholas Kaldor’s work but yet some neoclassical economists acknowledging it is quite something.

Marc Lavoie’s New Book — Post-Keynesian Growth Theory: Selected Essays

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Marc Lavoie’s has a new book Post-Keynesian Growth Theory: Selected Essays with a collection of his essays on some of his important papers on growth. The cover features Michal Kalecki, Nicholas Kaldor, Joan Robinson and Luigi Pasinetti. Will be out soon.

In the same series, there’s also a book from 2020 Post-Keynesian Monetary Theory: Selected Essays. You can preview the introduction to this book on Google Books. So even if you’ve read all the papers, don’t miss the detailed introduction which gives an idea of his thoughts through the years. It also has a foreword by Louis-Philippe Rochon. And an interview with him on that book.

There are also two more separate videos you might be interested: Introduction To Post-Keynesian Economics For The Post-COVID Era and The Importance Of Michal Kalecki.

Biographies Of Nicholas Kaldor

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There’s a new short biography of Nicholas Kaldor titled Nicholas Kaldor’s Economics: A Review by Luis Gomes. The author reminds of Kaldor’s proposals for the world as a whole, something which is highly needed today more than ever (and something I regularly refer to):

In 1984 Nicholas Kaldor gave a series of lectures in Italy, which become a posthumous book in 1996. These lectures [“Causes of Growth and Stagnation in the World Economy” … ] presented an integrated set of policies with which to tackle economic problems. In this series of lectures, Nicholas Kaldor commented on the four basic principles for good macroeconomic administration: (i) it is needed a coordinated fiscal action which include a set of targets for a balanced balance of payments and a full employment budget; (ii) the interest rate should be the lowest possible: (iii) it is important to prevent the volatility of international commodity prices (via stocks and via an international currency) (iv) it is necessary to overcome chronic inflation trends under full employment, due to the system of adjusting wages via sectoral collective agreement …

There are many biographies (from short articles to full papers) and I thought I should list them:

  1. A short article titled Portrait: Nicholas Kaldor by Luigi Pasinetti, published in 1981 published in Challenge.
  2. Luigi Pasinetti’s Nicholas Kaldor: A Few Personal Notes, published in 1983.
  3. Anthony Thirlwall’s 1987 book titled Nicholas Kaldor,
  4. Anthony Thirlwall’s 1987 article Nicholas Kaldor 1908–1986. Republished 1991 in the book Nicholas Kaldor And Mainstream Economics Confrontation Or Convergence? and again in 2015 in the book Essays On Keynesian And Kaldorian Economics.
  5. Geoffrey Harcourt’s article Nicholas Kaldor, 12 May 1908–30 September 1986 published in 1988 in Economica and republished in the book Post-Keynesian Essays In Biography by Harcourt himself.
  6. Ferdinando Targetti’s 1992 book Nicholas Kaldor: The Economics And Politics Of Capitalism As A Dynamic System.
  7. Marjorie Shepherd Turner’s book Nicholas Kaldor And The Real World published in 1993.
  8. Anthony Thirwall’s section Nicholas Kaldor, A Biography in Nicholas Kaldor’s book Causes Of Growth And Stagnation In The World Economy published posthumously in 1996.
  9. Adrian Wood‘s entry Kaldor, Nicholas (1908–1986) in The New Palgrave Dictionary Of Economics published in 2008.
  10. John E. King’s book Nicholas Kaldor published in 2008.
  11. Luigi Pasinetti’s chapter Nicholas Kaldor (1908–1986): Growth, Income Distribution, Technical Progress in his book Keynes And The Cambridge Keynesians: A ‘Revolution in Economics’ To Be Accomplished, published in 2009.
  12. John E. King’s chapter Nicholas Kaldor (1908–1986) in the book Handbook On The History Of Economic Analysis Volume I published in 2016.
  13. John E. King’s chapter Nicholas Kaldor (1908–1986) in The Palgrave Companion To Cambridge Economics published in 2017. (h/t Marc Lavoie).

Apart from the above, following are useful to know about Nicholas Kaldor, although can’t be described as biography:

  • Introduction by Ferdinand Targetti and Anthony Thirlwall to the book The Essential Kaldor, a collection of papers of Kaldor, published in 1989.

Have I missed any?