Abstract. This note responds to Arne Heise’s critque of my article on Keynes’s denial of conflict in The General Theory. Heise’s response fails to show Keynes addressed conflict and makes several meritless criticisms regarding my treatment of Keynes and Keynesianism. It also fails to recognize the purpose of my article which was to show conflict is an essential part of capitalism; conflict is absent in Keynes’ magnum opus; conflict is absent in Neo- and New Keynesianism; though Kalecki introduced conflict in Keynesianism, much more remains to be done about recognizing its implications; and calling for revival of the economics of Keynes in bad times keeps policy locked in the orbit of stimulus and blocks recognition of need for policies addressing the economic consequences of conflict.
Keywords: conflict, Keynes, The General Theory, Kalecki, Neo-Keynesianism, New Keynesianism.
Reply. Professor Arne Heise has written a response to my article (Palley, 2023) on Keynes’ (1936) denial of conflict in The General Theory. Professor Heise (2024, p.1) accuses me of a “scathing” and “mistaken” critique. As part of that, he accuses me of (i) being wrong re my claim that Keynes did not recognize the role and significance of social conflict (Heise, 2024, p.3), (ii) not distinguishing between Keynes’ economics and Keynesian economics (Heise, 2024, p.2), and (iii) not recognizing Keynes’ paradigmatic shift regarding money and interest rate determination (Heise, 2024, p.7). His response is argumentative and without merit.
Professor Heise believes my claim about Keynes’ denial of conflict in The General Theory is wrong. That should be very easy to prove if true. All that is needed are some quotes therefrom showing that Keynes recognized the existence and economic importance of conflict. But Professor Heise provides none – zero, rei. That absence is utterly damning of his argument.
Professor Heise also claims I do not recognize the distinction between Keynes’ economics and Keynesian economics. Here, I wonder if he has read my article. There is a long section in it (Palley, 2024, p.14-17) focused on Keynes’s framing of the aggregate demand shortage problem and the inability of the interest rate mechanism to solve it. A little further on, there is a long section discussing Keynesian economics (Palley, 2024, p.20-24). That section focuses on the Neo-Keynesians and Kaleckian Keynesianism. It explicitly identifies how the Neo-Keynesians departed from Keynes with their claim that downward price and nominal wage rigidity is the cause of unemployment (Palley, 2024, p.21), and how Kalecki introduced conflict into the Keynesian paradigm and remedied Keynes’ failing (Palley, 2024, p.23-24).
Lastly, Professor Heise claims I do not recognize Keynes’ paradigmatic shift regarding money and interest rates. That issue was not the focus of my article, but here too Professor Heise’s claim is unfounded and again I wonder if he has read the article. My introduction describes Keynes’ critique of laissez-faire as being “centered on the phenomenon of money, which he framed as a monetary theory of production (Palley, 2024, p.9)”. It also contains the following:
“Keynes identified the core mechanism of modern capitalism which is effective demand determines the level of economic activity. He also discredited the classical loanable funds theory of interest, provided a new liquidity preference theory of interest rates, and explained why the interest rate mechanism was unlikely to ensure full employment (Palley, 2024, p.8)”
Later in the article, there is a long section (Palley, 2024, p.15-17) detailing the economics behind those three claims. Finally, my article concludes with reaffirmation of Keynes paradigmatic contributions, albeit qualified by the point that Keynes neglected the significance of conflict:
“Keynes’ (1936) General Theory was a huge step forward relative to classical economics, but it was also a step backward in its denial of the conflictual nature of capitalism… There is need to understand Keynes’ technical contributions regarding the workings of monetary economies… Keynes made a fundamental contribution elucidating the mechanism of effective demand, and he also has claim to be the preeminent monetary theorist (Palley, 2024, p.29).”
In sum, Professor Heise’s critique is without merit and based on a dishonest strawman construction. First, he begins by falsely claiming I do not recognize either Keynes’ fundamental contribution or the distinction between Keynes’ economics and Keynesian economics. Then, he proceeds to document those well-known features about Keynes and Keynesian economics, thereby supposedly proving his case. Why does he do this? I suspect he has fallen prey to the psychological trap of seeing and reading what he wants to. Having been professionally marginalized themselves, some Post Keynesians reactively view any criticism of Keynes as tacit criticism of themselves.
Let me close by trying to salvage something constructive from this exchange by reiterating what my purpose was:
• First, I wanted to surface the fact that conflict is essentially absent in Keynes’ General Theory.
• Second, I wanted to surface the fact that conflict was absent in the Neo-Keynesian interpretation of The General Theory.
• Third, I wanted to convey that conflict is critical to understanding capitalism, which means conflict must be addressed if we are to resolve the problems of capitalism. That includes the problem of tendency to stagnation, which is partly caused by conflict. Kalecki (1933 [1971]) began the process of incorporating conflict into the Keynesian paradigm, but there is much more to be done regarding recognizing conflicts’ implications for economic theory and recognizing the multiple fora in which it appears.
• Fourth, given the absence of conflict in both Keynes’ General Theory and in mainstream (Neo-Keynesian and New Keynesian) Keynesianism, I wanted to show that simply calling for a revival of the economics of Keynes in bad times is problematic. That is because Keynes (and mainstream Keynesianism) does not address the root problem of conflict. Consequently, calling for a revival of the economics of Keynes can be a way of blocking addressing the problem of conflict as it keeps policy discussion locked in the orbit of “stimulus”. In that regard, it is noteworthy that mainstream economists and establishment politicians often call for stimulus in bad times, but they never call for structural change that tackles the problems caused by conflict.
In sum, Professor Heise’s article muddies the water by introducing unwarranted and counter-productive controversy. Unfortunately, it will now become part of the published literature, which risks impeding the above important points that need to be surfaced.
References
Heise, A. (08 April 2024). “Keynes and the drunkard under the lamp post: making sense of Palley,” The Japanese Political Economy. https://doi.org/10.1080/2329194X.2024.2333370
Keynes, J. M. (1936). The General Theory of Employment, Interest, and Money, London: Macmillan.
Palley, T. I. (2023). “Keynes’ denial of conflict: why The General Theory is a misleading guide to capitalism and stagnation,” The Japanese Political Economy 49 (1): 7-34. https://doi.org/10.1080/2329194X.2023.2212008