James Tobin on macroeconomic instability: an old Keynesian changes ground
Bibliographic record
Abstract
From 1975 onwards, the American Keynesian monetary economist James Tobin changed his interpretation of the Keynesian case that active stabilisation policy is sometimes needed to restore full employment, offering a new interpretation that drew on Keynes’s General Theory (Chapter 19) and on Irving Fisher’s 1933 debt-deflation theory of depressions to argue that wage and price flexibility could be destabilizing. Tobin’s very first journal article in 1941 attributed the existence of involuntary unemployment in a Keynesian economy to money wage rigidity and money illusion, as he also did in 1947. From 1975 onwards, Tobin responded to New Classical critiques of Keynesianism by absolving Keynes from assumptions of irrational money illusion or unexplained wage rigidity, arguing instead that Keynes assumed a given money wage in the first eighteen chapters of his General Theory for simplicity of exposition and as a policy recommendation. Like Hyman Minsky and Peter Howitt, Tobin stressed the previously underappreciated Chapter 19 of The General Theory, where Keynes argued that faster adjustment of prices and money wages could be destabilising. The basis of Keynesian macroeconomics was coordination failure and instability, not irrational money illusion or an arbitrary assumption of a fixed money wage. The most important aspect of this discussion of debt-deflation and of macroeconomic instability and coordination failure came through the attention to Keynes’s Chapter 19, Fisher, Minsky, and Tobin in Ben Bernanke’s dissertation on the breakdown of financial intermediation in the US culminating in the 1933 Bank Holiday and in Mervyn King’s 1994 European Economic Association presidential address on debt-deflation. This intellectual preparation shaped the response of Bernanke and King to the Global Financial Crisis of 2007-2009, when they placed absolute priority on preventing a debt-deflation spiral that would take the economy out of its corridor of stability.Presented to the Nice workshop on “Coordination Issues in Historical Perspective,” September 9, 2022. We are grateful for helpful comments from Peter Howitt, Goulven Rubin and other participants there and at a workshop in memory of Jerome de Boyer des Roches at the University of Paris I Panthéon-Sorbonne in June 2022 and from two anonymous referees.
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How this classification was reachedexpand
Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.003 | 0.000 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.001 | 0.000 |
| Bibliometrics | 0.000 | 0.000 |
| Science and technology studies | 0.000 | 0.000 |
| Scholarly communication | 0.000 | 0.001 |
| Open science | 0.001 | 0.000 |
| Research integrity | 0.000 | 0.000 |
| Insufficient payload (model declined to judge) | 0.001 | 0.001 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; both teacher heads agree on what is shown here.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".