Knowledge that Transforms

AXEL LEIJONHUFVUD has recently provided us with an insightful and refreshing reappraisal of the so-called revolution in his On Economics and the Economics of Keynes [8, 1968]. In light of the significance and importance of this book, it is disappointing that, although the reviewers have been very complimentary, the published discussion seems to have offered little in the way of critical evaluation of Leijonhufvud's arguments. This paper attempts to remedy this situation. Leijonhufvud argues convincingly that popular Keynesianism, as well as its offspring, the so-called neoclassical synthesis, does not have an adequate choice-theoretic, i.e., microeconomic, basis. This view seems to be finding wide and warranted acceptance. In addition, Leijonhufvud argues that, although this defect pervades popular Keynesianism, it does not characterize Keynes' own writings. Leijonhufvud suggests that Keynes himself would have been unsympathetic with the development of popular Keynesian macroeconomic theory. This paper argues, to the contrary, that this latter contention is not consistent with a complete and careful reading of the General theory. My analysis will suggest that Keynes' thinking was both substantially in accord with that of his popularizers and similarly deficient. Leijonhufvud's argument emphasizes the interpretation of the consumption function developed by R. W. Clower in his The Counter-Revolution: A Theoretical Appraisal [3, 1965]. I certainly accept Leiionhufvud's contention that Clower's conception, which is discussed more fully below, provides the choice-theoretic basis for macroeconomic theory, which popular Keynesianism lacks.' However, Leijonhufvud also suggests that Clower's conception may be attributed to Keynes himself.2 This latter is the hypothesis at issue. Leijonhufvud can point to no specific content in Keynes' writing which explicitly supports this attribution. His argument (pp. 91-102) seems to amount to the following: Keynes' discussion is dreadfully confusing, but Clower's interpretation offers the only conceivable way to make sense of it.3 Therefore, Keynes must have had Clower's idea in mind. My analysis will focus upon Keynes' treatment of the demand for labor services, a part

I am grateful to Professors Ralph Andreano, Arthur S. Goldberger, and W. Lee Hansen of the University of Wisconsin for their encouragement and comments on an earlier draft of this paper. Many valuable suggestions were contributed by two anonymous referees and the participants in the Workshop in Applied Welfare Economics at the University of Wisconsin, Fall 1970, especially Morley Gunderson. Charles Leitzke assisted in the arduous task of data collection. The usual caveat is applicable.

AS CRITICISM of the traditional theory of production and exchange has mounted in the postwar period, increasing attention has been given to new analytical approaches that seek either to supplant classical marginalism or to extend its scope. In the latter category is the important body of literature that has grown up around the notion of property rights structures. The contributions here are quite diverse in style and content but are characterized by a common emphasis on certain basic ideas concerning the interconnectedness of ownership rights, incentives, and economic behavior. The purpose of the present paper is to summarize the essential features of this line of research, examine some of its important areas of application, and discuss the promise the approach holds for improved understanding of economic problems.

FOR THE past 45 years, the Institute of Finance of the Graduate School of Business Administration of York University has been releasing Bulletins (at the rate of four to eight numbers a year) on financial and economic developments in foreign countries and in the United States. Some 208 reports were released between 1926 (when a staff was originally assembled-under the late Marcus Nadler's distinguished editorship-to work exclusively on the credit situation in foreign countries on behalf of the Investment Bankers Association) and 1959 when the Institute was reorganized and a New Series was introduced.' Until 1938 about 90 percent of the Bulletins were related to the creditworthiness of foreign countries; but international problems of a broader interest, and then domestic financial topics gradually replaced the country studies (see Table 1). The most drastic change in the contents of these Bulletins occurred around 1964 when, under a new editor (Arnold W. Sametz), the unsigned products of the Institute's research staff were replaced by original papers prepared by identified scholars, increasingly from outside the York University community. This review is primarily concerned with the output over the past six years, a period when the quality has improved and the frequency and size of issues have increased.

THE POSTHUMOUS DISTRIBUTION of two of Michal Kalecki's last works [3, 1969 and 4, 1971] offers an opportunity to draw attention to the career of one of Poland's most illustrious economic theorists. If Kalecki's formulation of a macroanalytic theory was overshadowed by Keynes in the mid-'thirties, he nonetheless went on to develop it and to make other contributions -both theoretical and applied. In the latter category was his participation in the establishment of the United Nations' World Economic Report. Kalecki's voluntary return to Poland was not uniformly beneficial to his career; there is, unfortunately, ample evidence that any official recognition of his brilliance was accompanied by an overt distrust of his revisionism. The calamities that befell the Polish economy in 1969-70 are ample proof that Kalecki had the rare distinction of being a prophet in his own country. He repeatedly warned Gomulka of the disastrous effects that his economic policy was likely to have. Although he was a Jew, Kalecki was not directly subject to the slanderous official antiSemitic campaigns launched after the 1967 Arab-Israeli War. But he personally was greatly tormented by the inequities and the upsurge of forces of retrogression. In 1968 Professor Kalecki retired voluntarily in protest against the dismissal of many colleagues who fell victims to the wave of repression against alleged revisionists and Zionists. Another form of protest was his refusal to publish in his native country. Kalecki was greatly esteemed by the various groups of progressive economists in Eastern Europe and the U.S.S.R. Also, in the West, he found many staunch admirers of his analytical powers and towering personal integrity. Yet his work has gained in neither East nor West the recognition that it merits. The reputation in the West of Michal Kalecki (who died in 1970) probably rests on his seminal contributions to (1) the theory of economic dynamics and distribution of income, (2) his anticipation and independent discovery of all the essential ingredients of the Keynesian system, (3) his prediction of the regime of the political business cycle, and (4) his development of the concept of general rationing, etc. His contributions to the development of a theory of economic growth and planning under socialism, and to the elaboration of a perspective plan, will probably gain a fifth and equal place in the history of economic thought-and will become just as important in influencing economic policy. (Historical parallels are difficult, however, and this is not the place to make conjectures on the likely impact of theories on policy.) These books bear witness to the clarity of his thinking as well as to the capacity of an adept translator to convey the beauty of his exposition. The study at hand on the socialist economy [3, 1969] reflects Kalecki's first hand knowledge of the realities of planning, the wealth of experience he accumulated as an adviser to the Polish and other governments, and the acuteness of a brilliant theoretical mind. A parallel could, perhaps, be drawn between the development of Kalecki's theory of growth in a socialist economy and the development of his business cycle theory (theory of economic dynamics of the capitalist economy); both were essentially derived from a perceptive observation of economic realities. Kalecki was always primarily interested in and preoccupied with the most urgent problems requiring solution. Kalecki stresses throughout that his work