Keynes and the Crisis

毕业论文

Axel Leijonhufvud

1 Introduction
In working on Keynes more than 40 years ago， when the
General Theory seemed already ancient but was only 30
years old， I was fortunate in not having t0 cope with
Keyness Collected Works， which had not yet begun t0
appear. Since then， Keynes scholarship has become perhaps
easier in s0me respects but overall a more formidable
challenge. No doubt we have learned a great deal
but I am not prepared t0 take st0ck of it all. Instead， I
take the liberty of changing the question and t0 ask：
What should we have learned from Keynes?
The most important less0n from his life and work may
be that the macroeconomist should start from the
important problems of the day and should face the following
questions： (1) How are we t0 understand what is
happening right now? (2) What can be done about it?
What is the best policy t0 follow? (3) Do recent events
force us t0 modify what is t0day widely accepted economic
theory? If s0， what is wrong and how might we
go about arriving at a more satisfying theory?
There are s0me things that Keynes would not have us
do. He would not have us try t0 deduce how the world
works from a small set of doubtful ?axioms? about tastes
and technologies.1 And he would not approve of strenuous
attempts t0 squeeze every current issue int0 s0me
such preconceived framework. Neither would he be
happy t0 see economists become abs0rbed in scholastic
disputes over the economic thought of seventy years
ago.

29年危机是金本位，现在是美元本位。当时资本边际效率的.下降与利率下降合起来。现在外国央行输出资本给美国。这种资本流入未因美联储过低的利率而受抑制。
2 The credit crisis
The important economic problem of t0day is the current
financial crisis centred in the United States. What might
we learn from Keynes about it? The current situation is
almost the opposite of the one that Keynes dealt with
in the General Theory.
The background t0 the Great Depression in Britain， as
Keynes saw it， was the declining trend in the return t0
investment since the end of World War I (at which time
it had been exceptionally high). Britain had returned t0
gold at an overvalued parity and the imperative of
defending the exchange rate had caused it t0 maintain
t0o high a level of interest rates. The combination of a
declining marginal efficiency of capital and interest
rates that did not decline propelled the country int0 a
recession that was deep even before the United States
slipped int0 depression.
The process leading up t0 t0days American financial
crisis had the dollar exchange rate supported by foreign
central banks exporting capital t0 the United States.
This capital inflow was not even t0 be discouraged by a
Federal Reserve policy of extremely low interest rates.
The price elasticity of exports from the countries that
prevented the appreciation of their own currencies in
this way kept US consumer goods prices from rising.
Operating an interest-targeting regime keying on the
CPI， the Fed was lured int0 keeping rates far t0o low far
t0o long. The result was inflation of asset prices combined
with a general deterioration of credit quality
(Leijonhufvud 2007a). This， of course， does not make a
Keynesian st0ry. It is rather a variation on the Austrian
overinvestment theme.
3 Keynes and the financial side of
recessions
What then can we learn from Keynes that is relevant t0
our current troubles? I do not find the General Theory
particularly helpful. The warning not t0 allow the real
economy t0 be governed by the machinations of a casino
may be well taken but， once you have ignored it t0
your peril， what do you do then? His various papers
from the early thirties are more focused on the financial
crisis than the General Theory， in which the notion has
taken over that the real nexus of the problem is the
coordination of household saving and business investment.
The Treatise on Money contains a piece of analysis
that I have found illuminating. It deals with the financial
side of a business downturn. Keynes assumes an
initial equilibrium disturbed by a decline in expected
future revenues from present capital accumulation.
MAY 2008
CEPR POLICY INSIGHT No. 23
POLICY INSIGHT No. 23
abcd
To d o w n l o a d t h i s a n d o t h e r P o l i c y I n s i g h t s v i s i t 
Keynes and the Crisis
Axel Leijonhufvud， University of Trent0
a
Author?s note： Invited Lecture at the conference ?Keynes 125 Years -
What Have We Learned?，? Copenhagen-Roskilde April 23-24，
2008.
1 The kind of theory that makes one recall a great line by a great
Dane： ?But you are not thinking. Youre just being logical!? (Niels
Bohr).
Firms cut back on investment and， as activity levels
decline， direct s0me part of cash flow t0 the repayment
of trade credit and of bank loans. As short rates decline，
banks choose not t0 relend all these funds but instead
t0 improve their own reserve positions. Thus the system
as a whole shows an increased demand for high-powered
money and simultaneously a decrease in the volume
of bank money held by the non-bank sect0r.
Keyness preference for speaking of ?liquidity preference?
rather than ?demand for money? becomes understandable
in this context since while an increase in liquidity
preference does constitute an increase in the demand
for outside money it als0 leads t0 a decrease in the volume
of inside money.
What makes this analysis relevant in t0days context is
that it describes a process of general deleveraging as
part of a business downturn. Causally， it is the decline
of investment expectations and the consequent contraction
of output that prompts deleveraging. Today， we
are faced with the converse question of whether or not
the deleveraging that the financial sect0r is rather desperately
trying t0 carry through will of necessity bring
about a serious recession. For many months now， we
have been treated t0 brave protestations from all s0rts
of s0urces that the real economy is strong and will not
be much affected by the credit crisis. Yet， it is quite clear
that， in a closed system， it is a fallacy of composition t0
suppose that general deleveraging can take place without
a decline in asset prices and excess supply of goods
and services in general (Leijonhufvud 2007c).
Of course， the US private sect0r is not a closed system.
Leverage can be reduced and liquidity improved by
inducing s0vereign wealth funds or other foreign entities
t0 assume an equity interest in domestic enterprises
as s0me American banks have done. Similarly， the
government can guarantee certain private sect0r debts
and/or swap safe and liquid government debt for risky
and illiquid private debt. This t0o has been done. But
there are limits t0 both these safety valves2 and it
remains a serious question whether they will suffice t0
stave off a serious and long-lasting recession.
4. Policies t0 deal with a credit crunch
Should Keynesian policies be used in the kind of recession
that we are now threatened with?
Consider the case of Japan. Eighteen years after its
big crash Japan has still not completely emerged from
its aftermath. One should remember， however， that
Japan had two enormous bubbles bursting at the same
time ? one in the st0ck market， the other one in real
estate ? and that its banking system was heavily
engaged in both. In the present instance， we have t0
cope with the bursting of just one bubble， albeit a really
big one， and the United States als0 has a small
advantage over Japan in that s0me part of the financial
damage has t0 be abs0rbed by foreign interests， be they
German banks

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