ABSTRACT OF PAPER
Title: From Theory to Policy? On Keynes’s Distinction between “Apparatus of Thought” and “Apparatus of Action”
Author: Carabelli Anna Maria, Cedrini Mario Aldo
As known, the outbreak of the Great recession initially urged a return to Keynesianism. Crisis-hit countries, and particularly the United States and Britain, embarked on a Keynesian path to recovery, adopting fiscal stimulus packages and supportive monetary policies in the biennium 2008-9. Then, however, Keynesian policies lost momentum, particularly in Europe. The debt crisis prompted a return to a pre-Keynesian austerity doctrine (under the modern clothes of “expansionary austerity”), which however failed to deliver the desired results, and even contributed to delay Eurozone recovery. European Central Bank President Draghi’s “whatever it takes” announcement, in July 2012, to preserve the euro (a decisive factor in reducing the chances of a monetary collapse) resulted in unconventional measures of liquidity provision on the part of the ECB to European banks. Such measures culminated in the proposal (January 2015) of a quantitative easing policy, starting from March 2015, to counteract tendencies to deflation, via further liquidity assistance to the European financial system and Euro devaluation. Moreover, in August 2014, Draghi encouraged greater role for fiscal policy, to be accompanied by national structural reforms. Quite naturally, some leading non-mainstream economists (Krugman in particular) have produced a resurrection of Keynesian positions in public debate about monetary and (particularly) fiscal policies. Since the beginning of the Keynesian resurgence, however, heterodox economists brought back Keynes’s ideas (and those of followers like Minsky) into the spotlight. The impact of renewed scholarly interest, in heterodox communities, in both Keynes’s theory and, even more, his policy suggestions is greatly reduced by the continuing confusion, in mainstream economics as well as among Keynesians themselves, between Keynes and Keynesianism: to which one should add that so-called “New Keynesian” economics is a refutation, not a revival, of Keynes’s The General Theory. While stressing the need to revisit the fundamental “difference” of Keynes’s own economics to elaborate a Keynes-inspired solution to our troubles, however, even post-Keynesian economists have probably devoted less attention than deserved to one relevant aspect of the possible continuing legacy of Keynes, that is his reflections on the relationship between economic theory and economic policy. Although the rise and success of Keynesianism have been an hindrance to research on this peculiar topic, which may explain why the literature itself is less voluminous than it would be reasonable to expect, Keynes’s writings provide evidence of the intrinsic complexity of the relationship between theory and policy. A complexity that may cast doubts on the growing literature on Keynes’s presumed “realist orientation”. Keynes’s comments – recently investigated by Aspromourgos (2014) – on Abba Lerner’s “functional finance” (the view whereby governments should discard the principles of “sound finance” and balanced budget, and rather manage aggregate expenditure with a view to keeping the economy at full employment, even by printing money) are of great interest per se, in a decade of prolonged crisis and austerity budgets. But they are also extremely relevant for the purposes of this paper, since they provide a powerful direct illustration of the necessity, in Keynes’s view, to distinguish as accurately as possible between theory and policy: a distinction that rests on methodological bases. Drawing on "The General Theory", in particular, re-read through the lens of Keynes’s early works and “methodological” writings, this paper elaborates on the above-mentioned distinction and the numerous other dichotomies accompanying it in Keynes’s writings to propose a methodological and philosophical reading of the relationship between theory and policy in his thought, with a view to suggesting how and why Keynes’s convictions can be usefully put to use in discussing the current European troubles.
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