Wednesday, July 1, 2015

Jim Crotty: Stages and Levels

Continuing our look into J.R. Crotty's Keynes on the Stages of Development of the Capitalist Economy: The Institutional Foundation of Keynes's Methodology:

Professor Crotty views Keynes's methodology as "the integration of two distinct levels of analysis – "
a relatively abstract level (which we label Level I) and a more institutionally concrete level (Level II).

Crotty says Level I includes "the defining characteristics of the capitalist economy" and also "textbook Keynesianism". Level II specifies "the concrete institutions, classes, and agent motivations peculiar to each particular stage of economic development".

In addition to levels, Professor Crotty also discusses stages:
In The General Theory and elsewhere Keynes made evident his belief that no all-purpose, institutionally abstract macromodel can adequately capture the processes and outcomes of distinct phases or stages of capitalist development ...

I argue that Keynes provided the outlines of a theory of the evolution of two distinct stages of capitalist development (and anticipated the transition toward a third) ...

I wanted to take the time to point out these details of Professor Crotty's analysis, because I get confused. We have Level I and Level II and Stage I and Stage II and it wants to turn to mush in my head. But "Level" refers to the level of detail Keynes provided; and "Stage" refers to the stage of historical development.

Here's how Professor Crotty uses the levels to analyze the stages:
Looked at from this perspective, The General Theory can be said to be general because it contains Keynes's Level I analysis of the capitalist macroeconomy at the most abstract level. But its concrete object of investigation is the institutionally specific form of capitalism found in Britain (or the United States) in the interwar period. Thus, neither the theoretical nor the policy conclusions of The General Theory are directly applicable to earlier to later stages of development.

I like it. Had to read it a couple times, and work my way through three or four blog posts before I got there, but I like it.


Unless my brain is misfiring, all of the above is contained in the first two pages of the professor's PDF. It leads to what I think is a most interesting observation, on page five. Crotty writes:
My central thesis implies that Keynes did not intend this to be a theory of the instability of capitalism in general or in every stage of development.

For example:
Keynes often observed that Britain's domestic nineteenth-century capitalism was characterized by reasonably steady growth, price stability, adequate employment and rising living standards, all produced by a strong and relatively steady pace of capital accumulation.

Not really a description of instability.

I know. I'm thinking of the recession density visible on this graph:

There's hardly any white in the first half of the period shown. The economy spent more time in recession than recovery, I think. In the latter half of the graph, longer booms and shorter busts. Seeing this history, how can one claim that the 19th century was more stable than the 20th?

Not sure. Maybe "stability" doesn't mean what we think.


I got data for US Real GDP for 1800-2014 from MeasuringWorth and did some quick comparisons.

RGDP grew twice as fast in the 1800s as in the 1900s, century to century. For 50-year periods I see a seven- or eight-fold increase in the 1800s, five- or six-fold increase in the 1900s. Real growth in the 94 years before 1920 was 1.7 times that in the 94 years after 1920. But then, real growth in the 80 years before 1934 was only about 60% of the real growth in the 80 years after 1934.

But all those numbers are garbage, really. It's all a result of population growth. I did the same calcs for RGDP per Capita and the 20th century comes out better than the 19th century every time. In my numbers, what looks like higher economic growth in the 19th century was due to higher population growth in the 19th century.

So I'm a little disappointed. I don't find the evidence I was looking for.

Okay. But I go back to that last quote from James Crotty, on what Keynes observed: "reasonably steady growth, price stability, adequate employment and rising living standards". Maybe I need to reconsider the standard I'm using to evaluate Professor Crotty's argument.

I am leaving a lot out. The PDF contains plenty of evidence to support Professor Crotty's central thesis. Don't judge by the bits that I'm quoting. If you want to evaluate his thesis, go get his paper.


Jazzbumpa said...

"The computation of annual GDP in the U.S. has two parts, before 1929 and since that year. The earlier data are not as reliable as those for the last 83 years. The reason is simple: GDP data were not collected or even defined before the 1930s and thus any measures for years before 1932 rely on sources that were not collected for the purpose of constructing national income and product accounts."

I woudn't trust it.


The Arthurian said...


Yesterday you were having doubts about Crotty's argument. Today you seem to have no doubts at all.

Yesterday you did a quantitative evaluation of the 19th century. Today you do not trust data from before 1929.