Harry G. Johnson as a Chronicler of the Keynesian Revolution

American Journal of Economics and Sociology, The,  July, 2001  

• E-mail
• Print
• Link

The second aspect of successful revolution or counter-revolution "was the production of an apparently new theory that nevertheless absorbed all that was valid in the existing theory while so far as possible giving these valid concepts confusing new names" (Johnson 1971:194), for Johnson agreed with Patinkin (1969) in viewing Friedman's 1956 restatement of the quantity theory of money as a generalization of Keynes's liquidity preference, and identified Keynes's marginal efficiency of capital with the marginal product of capital (despite Keynes's emphasis on uncertain long-period expectations rather than on physical productivity). Such confusions would help a new theory satisfy "the third criterion for success, a degree of difficulty of understanding just sufficient to deter the old and to challenge and reward the young, and hence to reopen the avenues of professional opportunity for the ambitious" (ibid., p. 195). Further, a successful theory would provide employment for budding econometricians by offering the m an empirical relationship (the simple Keynesian consumption function, a stable money demand function) to estimate: "Moreover, since intelligent young men and women will persevere until they succeed in finding statistical validation of an allegedly important theoretical relationship, and will then interpret their results as evidence in favour of the theory that originally suggested the relationship, their efforts will inevitably be extremely favourable to the theory in question" (ibid., p. 196).

Johnson (1971, 1972a) predicted that Keynesianism and monetarism would eventually disappear as distinct approaches, with the worthwhile contributions of each absorbed into an eclectic mainstream of macroeconomics. The success of the monetarist counter-revolution "is likely to be transitory, precisely because it has relied on the same mechanisms of intellectual conquest as the revolution itself, but it has been forced by the nature of the case to choose a less important political issue-inflation-to stand on than the unemployment that provided the Keynesian revolution with its political talking point" (1971: 201-02), a conclusion in which any claim to be engaged only in an "as if" exercise has faded away.

Since Johnson (1971, 1972a) agreed with Don Patinkin's denial that monetarism emerged from a long-standing Chicago oral tradition of monetary theory (Patinkin 1969), he looked elsewhere in his de Vries Lectures in Amsterdam for the roots of the monetary approach to the balance of payments and exchange rates:

While the emergence of this new approach has been very largely the work of my colleague R. A. Mundell and our students at the University of Chicago, and harks consciously back to David Flume's analysis of the price-specie-flow mechanism, I believe myself, on the basis admittedly of a hunch derived from the literature rather than of scholarly research, that its intellectual lineage can be traced back, via Mundell's period of service in the research department of the International Monetary Fund under J. J. Polak, to the 1930's work on monetary equilibrium of the Dutch economist J. G. Koopmans and the subsequent development by M. W. Holtrop and the Netherlands Bank of its practical expression in the Bank's model of monetary analysis. (Johnson 1972a:83-84; cf. Holtrop 1972a, 1972b; Polak 1957; and, for a contrasting view, Selden 1975)