Economics and Language (Economics As Social Theory)

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Summary: Interpretation is necessary if no formal model is specified
Review: Willie Henderson and his coeditors have published a disparate collection of essays.However,all of the essayists overlook the obvious fact that little or no interpretation of an author's meaning is necessary if an author has specified a formal mathematical model of his theory in his book.Only if it can be demonstrated that there are major mathematical errors present in the particular form of the mathematical model specified by the author will it be necessary to ask the question,"What did the author mean?".Gerrard's essay deals primarily with the need to interpret the meaning of an author's theory.He mentions Adam Smith,David Ricardo,Karl Marx and John Maynard Keynes as authors requiring careful interpretation if a reader is going to be able to grasp the real message that the author intended to convey.Gerrard is correct as regards Smith,Ricardo and Marx.There is no formal mathematical model in Smith or Ricardo.Marx does have some basic introductory algebra models in his three volume work,Das Kapital,but they have a number of ambiguous definitions.Gerrard is badly in error when it comes to Keynes's General Theory(GT).Gerrard's problem is that he wants to carry out an assessment of the GT based on the false premise that Keynes's formal model is made up of the rudimentory prealgebra equations presented by Keynes on pp.24-30 in chapter 3 of the GT only.This conclusion follows directly from the 1954-1956 articles of Dennis Robertson,Ralph Hawtrey,Harry Johnson and F. de Jong published in the Economic Journal.The conclusion directly contradicts Keynes's own summary which categorizes chapter 3 as an introduction only.Keynes's formal model is composed of two parts.The first part is the Y=PO=C+I,where C=bY,model of chapter 10.Y EQUALS THE ACTUAL AGGREGATE DEMAND.P represents the actual price level in this chapter.The second part is the D-Z model analyzed in chapters 20 and 21 of the GT.The reader of this review should note that Keynes specified THIS MODEL IN CHAPTER 3 BUT PROVIDED NO ANALYSIS.All of the analysis is incorporated into chapters 20 and 21 of the GT .The basic model is that D=pO and Z=P+wN,where p equals the expected price level,O equals real output, which is a function of total employment,N,P equals expected profit,w equals the money wage,D equals expected aggregate demand and Z equals expected aggregate supply.The point of effective demand is specified where D equals Z.This is an expected result.One then compares this expected result with Y,the current or actual result,in order to determine the amount of involuntary unemployment present in the macro economy .These results can be easily duplicated by any economist and/or reader of this review who is able to integrate(take the antiderivative of)the analysis provided by Keynes on pages 55-56,ft.2,pp.280-286,and pp.304-306 of the GT. Contrary to Gerrard"...Keynes's original meaning..."(pp.58-59) is crystal clear and in no need of any interpretation.This is because Keynes carefully compared his model with that of Pigou in the appendix to chapter 19 of the GT.That comparison leads to the following result.Pigou's special theory is that macroscopic full employment occurs where w/p=MPL, where MPL is equal to the marginal product of labor.Keynes's general theory is that w/p=MPL/(MPC+ MPI),where MPC equals b equals the marginal propensity to consume and MPI equals the marginal propensity to invest.Only in the special case of MPC+MPI equalling 1 will the two theories merge.We can conclude that, in the case of Keynes's GT,the problem is not "what did Keynes mean?",but" why can't economists integrate Keynes's derivatives correctly?".