Tag Archives: nicholas kaldor

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Ashwani Saith: Ajit Singh Of Cambridge And Chandigarh – An Intellectual Biography Of The Radical Sikh Economist

Has interesting stories from Cambridge:

Anthony Thirlwall provides us with this aphoristic nugget that sums it all up: “The distinguished development economist Ajit Singh tells how, when he first went to Cambridge to study economics, Nicholas Kaldor taught him three things: first, the only way for a country to develop is to industrialize; second, the only way for a country to industrialize is to protect itself; and third, anyone who says otherwise is being dishonest!” (Thirlwall quoted in Hein 2014, p. 178, footnote 35).

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References

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Hein, E. (2014). Distribution and growth after Keynes: A post-Keynesian guide. Cheltenham: Edward Elgar.

Labour Day!

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Nicholas Kaldor on how neoliberalism weakened labour power:

The centrepiece of the Government’s economic strategy, the control of the money supply, however genuinely believed in by some people, is really only a façade or a smokescreen. The important consequence of the strategy is to alter the balance of bargaining power, to weaken the trade unions through the intensification of unemployment and through the loss of jobs, through factory closures and bankruptcies, and thereby to succeed in bringing wage settlements well below the rate of inflation; that is to say, to reduce real wages.

– Nicholas Kaldor, The Economic Consequences of Mrs. Thatcher, page 62

Nicholas Kaldor, picture from National Portrait Gallery

To understand how labour power has been weakened, you need to understand monetary economics.

Happy Labour Day 🥂

Mainstream Economics Compared To Keynesian Times

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Paul Krugman has endorsed an article by Jason Furman and Lawrence Summers on fiscal policy. It has a mix of pre-Keynesian orthodoxy and the Keynesian thinking of the 40s.

The economics profession got it wrong on fiscal policy, claiming it is impotent for raising real output and is now making it look like they already knew this.

For comparison, here’s Nicholas Kaldor, free of all pre-Keynesian orthodoxies:

It is impossible to judge intelligently the system of taxation, or the scale of public expenditures, without a quantitative record of the total economic activity of the nation, which forms the background. This is perhaps even more important in war-time, when the Government controls so much larger a part of the national income; but it is vital in peace-time as well. If a statement of this kind had been presented year by year, simultaneously with the Budget, many financial mistakes of past Governments might have been avoided.

Moreover, the regular publication of this document would stimulate both Government and Parliament to look upon the level and the stability of the National Income, rather than the conventional and narrowly financial standards, as the true criterion of budgetary policy; to regard the movements of the national expenditure, and not merely of the expenditures of public departments, as within their province. It is on the assumption of this wider responsibility that our best hope lies for the post-war world.

– Nicholas Kaldor, The White Paper On National Income And Expenditure, 1941

Anthony Thirlwall On Nicholas Kaldor On Joining The European Union

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There’s a new book, The Elgar Companion To John Maynard Keynes, edited by  Robert W. Dimand, Harald Hagemann. Chapter 76 titled Nicholas Kaldor is written by Anthony Thirlwall.

Thirlwall reminds us of Kaldor’s dislike to enter the common market in the 70s:

The Labour Party lost power in 1970 and Kaldor had more time to campaign on two main public issues which concerned him greatly. The first was the acceptance by economists and policy-makers of the doctrine of monetarism which had spread with the virulence of a plague from the University of Chicago under the influence of Milton Friedman to infect policy thinking at the highest level in the UK. The second concerned the UK’s entry into the Common Market (now the European Union). With regard to monetarism, Kaldor led the intellectual assault worldwide against the monetarist view that inflation is always and everywhere a monetary phenomenon in a causal sense caused by excessive government expenditure financed by money creation. On the contrary, argued Kaldor, because money consists largely of credit, and credit only comes into existence if it is demanded, money is endogenous to an economy not causal in the determination of output and prices. The major cause of inflation, at least in mature industrial countries, is rising wages and other costs. Kaldor could find no evidence in the UK. or across countries, of any relationship between the size of countries’ budget deficits and measures of broad money (Kaldor 1980c). Kaldor lost the battle against monetarism in the UK, but won the war because the doctrine of monetarism is now dead.

On the issue of the UK joining the Common Market. Kaldor was highly sceptical of the alleged dynamic benefits stemming from a larger market for the export of goods and services. He argued that because imports are likely to grow faster than exports, as trade barriers come down, the UK would need to deflate the economy to preserve balance of payments equilibrium, and this would slow growth. In addition to this, the budgetary contribution would be huge, the price of food would rise leading to wage increases and Britain would be letting down the Commonwealth countries which had a preferential access to the UK market. The vote in 1975 against joining the Common Market was lost, but Kaldor appears to have been correct in his predictions. The dynamic benefits of having become a member of the European Union are nowhere to be seen. If anything, productivity growth has been slower post-1975 than pre-1975 (although other factors have also been at work).

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REFERENCES

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Kaldor, N (1980c), Memorandum of Evidence on Monetary Policy submitted to the House of Commons Select Committee on the Treasury and the Civil Service, 17 July, London: HMSO.

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Nicholas Kaldor, picture from Cambridge Journal Of Economics

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Ashoka Mody: Kaldor’s Ghost Is Stalking The Eurozone

Ashoka Mody has done excellent historical work in his book Eurotragedy — A Drama in Nine Acts. Excerpt from his interview with Spiked, reminding us of the wonderful prediction of Nicky Kaldor from 1971:

spiked: When I’ve been to Italy recently I’m struck by the instances of anti-German grafitti. Do you think that one of the greatest ironies of this project of supposed economic and political integration is that it has actually fostered enmity among European nations, rather than unity?

Mody: As I said, Nicholas Kaldor predicted exactly that in 1971. He said that a single currency will amplify existing economic divergences, and, if it does that, it will deepen political divisions. He even quoted Abraham Lincoln: ‘A house divided against itself cannot stand.’ Kaldor’s ghost is stalking the Eurozone.

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IMF Paper On How Export Sophistication Is The Determinant Of Growth

Missed this working paper Sharp Instrument: A Stab At Identifying The Causes Of Economic Growth from May 2018 from three IMF authors with an impressive conclusion.

From the abstract

We find that export sophistication is the only robust determinant of growth among standard growth determinants such as human capital, trade, financial development, and institutions. Our results suggest that other growth determinants may be important to the extent they help improve export sophistication.

Note, not only is it saying that it is robust but that other factors are important as long as they improve export sophistication.

Cambridge Keynesians were clear on this. Here’s Wynne Godley in a 1993 article Time, Increasing Returns And Institutions In Macroeconomics, in Market And Institutions In Economic Development: Essays In Honour Of Paolo Sylos Labini, page 79:

… In the long period it will be the success or failure of  corporations, with or without active help from governments, to compete in world markets which will govern the rise and fall of nations.

and Nicholas Kaldor in Causes Of Growth And Stagnation In The World Economy, first published in 1996 and based on lectures given in 1984:

The growth of a country’s exports thus appears to be the most important factor in determining its rate of progress, and this depends on the outcome of the efforts of its producers to seek out potential markets and to adapt their product structure accordingly. The income elasticity of foreign countries for a particular country’s products is mainly determined by the innovative ability and the adaptive capacity of its manufacturers. In the industrially developed countries, high income elasticities for exports and low income elasticities for imports frequently go together, and they both reflect successful leadership in product development. Technical progress is a continuous process and it largely takes the form of the development and marketing of new products which provide a new and preferable way of satisfying some existing want. Such new products, if successful, gradually replace previously existing products which serve the same needs, and in the course of this process of replacement, the demand for the new product increases out of all proportion to the general increase in demand resulting from economic growth itself. Hence the most successful exporters are able to achieve increasing penetration, both in foreign markets and in home markets, because their products go to replace existing products.

[italics: mine]

The IMF paper is surprising, since the IMF believes in free trade in which market mechanisms work to achieve convergence in fortunes of nations, so exports is hardly important.

My Favourite Chart, Updated: Euro Area Imbalances

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With crisis in Italy, the Euro Area is back in news! But it is not just Italy, the crisis is far from over, as this chart from Eurostat—my favourite—illustrates:

Euro Area Net International Investment Position

EA19, Net International Investment Position

The Euro Area doesn’t have a central government with large fiscal powers and hence there is nothing to keep imbalances in check. So some countries—with no fault of theirs—accumulated large debts. The net international investment position captures the financial position of a country. If it is positive, it is a creditor to the world, if it is negative it is a debtor of the world. If NIIP/GDP is large negative, then there is a problem. It’s difficult to say how large it can go, since it depends on how long markets and official institutions allow it to go. The need to keep it sustainable puts a downward pressure on GDP.

As Nicholas Kaldor wrote in The Dynamic Effects Of The Common Market, in the New Statesman, 12 March 1971:

… the objective of a full monetary and economic union is unattainable without a political union; and the latter pre-supposes fiscal integration, and not just fiscal harmonisation. It requires the creation of a Community Government and Parliament which takes over the responsibility for at least the major part of the expenditure now provided by national governments and finances it by taxes raised at uniform rates throughout the Community. With an integrated system of this kind, the prosperous areas automatically subside the poorer areas; and the areas whose exports are declining obtain automatic relief by paying in less, and receiving more, from the central Exchequer. The cumulative tendencies to progress and decline are thus held in check by a “built-in” fiscal stabiliser which makes the “surplus” areas provide automatic fiscal aid to the “deficit” areas.

Joan Robinson And Nicholas Kaldor On Antagonism To Keynesian Ideas

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After the recent Employment Situation Summary by the U.S. Bureau Of Labour Studies, it is becoming more clear that the concept of NAIRU is a chimera, a deceit.

In a 1943 article, Joan Robinson talked of why the establishment wishes to keep a fraction of the population unemployed. It is quoted in Nicholas Kaldor’s 1983 article, Keynesian Economics After Fifty Years:

… recession hit a number of countries and it became generally believed (rightly or wrongly) that ‘Keynesian’ instruments of economic policy were unavailable for coping with this situation. At the same time the anti-Keynesian school of economists, the ‘new’ monetarists, rapidly gained followers among influential people more or less simultaneously in a number of countries and this was combined by widespread and rapidly growing antagonism to Keynesian ideas. The reason for this antagonism, not openly acknowledged, was the change in the power structure of society which the pursuit of Keynesian policies had brought about. This was foreseen well before the adoption of Keynesian methods of demand management. Thus in an article in The Times in January 1943 on post-war Full Employment it was stated:

Unemployment is not a mere accidental blemish in a private- enterprise economy. On the contrary, it is part of the essential mechanism of the system, and has a definitive function to fulfil. The first function of unemployment (which has always existed in open or disguised forms) is that it maintains the authority of masters over men. The master has normally been in a position to say: ‘If you don’t want the job, there are plenty of others who do’. When the man can say ‘If you don’t want to employ me there are plenty of others who will’ the situation is radically altered.4

The change in the workers’ bargaining position which should follow from the abolition of unemployment would show itself in another and more subtle way. Unemployment in a private enterprise economy has not only the function of preserving discipline in industry, but also indirectly the function of preserving the value of money. If free wage bargaining as we have known it hitherto, is continued in conditions of full employment, there would be a constant upward pressure upon money wage-rates. This phenomenon also exists at the present time, and is kept within bound by the appeal of patriotism. In peace-time the vicious spiral of wages and prices might become chronic.5

4 The doctrine is usually associated with Karl Marx who argued that capitalism can only function with a ‘reserve army’ of unemployed labour. But Marx himself owes these ideas (though he never seems to have acknowledged it) to Adam Smith, who wrote in the Wealth of Nations that normally there is always a scarcity of jobs relative to job-seekers: ‘There could seldom be any scarcity of hands nor could the masters be obliged to bid against one another in order to get them. The hands, on the contrary, would in this case, naturally multiply beyond their employment. There would be a constant scarcity of employment and the labourers would be obliged to bid against one another in order to get it. If in such a country the wages of labour had ever been more than sufficient to maintain the labourer and to enable him to bring up a family, the competition of the labourers and the interest of the masters would soon reduce them to the lowest rate which is consistent with common humanity’ (Book I, ch. VIII, p. 24).

5 ‘Planning Full Employment – Alternative Solutions of a Dilemma’, The Times, 23 January 1943. (A ‘turnover’ article; the article was unsigned but its authorship is generally attributed to Joan Robinson.)

Ha-Joon Chang On Why Manufacturing Is Still The Engine Of Growth

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Recently the University Of York hosted a talk by Ha-Joon Chang on deindustrialisation. The title of the talk was: Manufacturing Matters – The Myth Of Post-Industrial Knowledge Economy.

picture credit: Ingrid Kvangraven

You will find a lot of emphasis on manufacturing in Nicholas Kaldor and Wynne Godley’s work. Why is manufacturing important? Wynne Godley emphasised the supremacy of manufactured products over services in exports, since it’s more difficult to export services. Nicholas Kaldor also suggested increasing returns to scale in manufacturing.

We are frequently told that manufacturing lost its importance. Ha-Joon Chang’s talk is precisely in debunking this myth. As Wynne Godley emphasised, while the share of manufacturing in GDP has fallen, the share of imports has risen a lot. Ha-Joon Chang also points out another important point that superficial reading of data might mislead. So because of offshoring and how the data is recorded by national accounts, it might look like there is no manufacturing happening. For example—and the real thing is more complicated—Apple manufactures phones, computers, etc., in China and it is recorded as an export of services in U.S. balance of payments and hence not as manufacturing in the production account of U.S. national accounts.

You can view the talk on YouTube. It has slides and audio.

Legacy: Ajit Singh

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Ashwani Saith has a fine biography of Ajit Singh for Ajit Singh (1940–2015), The Radical Cambridge Economist: Anti‐Imperialist Advocate Of Third World Industrialization for the latest issue of Development And Change.

The article highlights how his worldview and work was quite close to Nicky Kaldor.

Ajit Singh died on 23 June 2015 and there’s also a fine obituary on him in The Guardian by John Eatwell.

F.M. Scherer had a nice biography in the Palgrave Companion To Cambridge Economics.