Forstater Keynes for the Twenty-First Century [economics] (Palgrave, 2008)

50	W. ROBERT BRAZELTON

12.National farm policies should be aimed at providing farm output sufficient to give an adequate diet to all Americans, eliminate the income disparities between rural (poorer) and urban (more affluent) Americans, and reduce the spread between what the farmers receive for their produce at the local markets and the higher prices at the retail stores. This would reduce the price of agricultural goods and would thus be anti-inflationary. There should also be an income support system for farm families (the Brannan Plan) rather than the price support system for agricultural produce; this would allow farm prices to fall to market levels (anti-inflationary) and, at the same time, give direct income supports to farmers who needed them.

13.There should be stronger, coordinated manpower training programs for available jobs, both for today and tomorrow. This would decrease unemployment and keep the workforce trained for the jobs of tomorrow in an ever-changing, globalized world.

14.Anti-trust laws should restrain price increases and illegal acts, especially in relation to administered pricing. Keyserling, like Berle, Means, and others, understood that big business was necessary in the modern, high-technology world, but not the illegal acts and not the administered pricing permitted by bigness and the control of markets assumed by bigness itself. These policies of preventing illegal acts and administered pricing would be anti-inflationary and pro-growth. He was also willing to talk to business leaders, and frequently did, concerning the needs and the policies of the Truman Administration (Brazelton 1997, 2001, 2005).

15.There should be direct controls over wages and prices where they are excessive. Keyserling was aware of the dangers of such controls, but he thought that “effective price control, by preventing recurrent imbalances between investment and profits on the one hand and wages and other consumer incomes on the other, would be conducive to a healthy economy. Under such conditions, real wage rates would not be excessive, even without wage controls. However, it may be impractical to institute a system of price controls, understood and supported by the public, without including wages also” (Keyserling 1975, 42–43). This, of course, related to his emphasis on macro balance—the balance between aggregate supply and aggregate demand for long-term growth and its sustainability.

16.Lastly, there must be both “energy expansion and conservation.” Keyserling mentioned, in 1975, the costs and dangers of depending upon foreign sources of

oil, and he desired public and private cooperatives to develop new energy sources to decrease our dependence on foreign supplies and for conservation.

In all of the sixteen points, we see an underlying interest in full employment and output growth, both cyclically and secularly. This involves price policies, tax policies, balanced budgets at full employment, the relevant Keynesian multipliers, the money supply, and money supply increases in terms of fiscal needs and growth needs (a money supply

LEON H . KEYSERLING, AMERICAN KEYNESIAN

51

increase in real terms and in terms of the need for full employment growth—thus, at a variable, not a constant, rate) (Brazelton 1997, 2001, 2005). Constant full employment and price-constrained output growth was the goal of Keyserling. Hopefully, others will readopt such a goal in the future.

CONCLUSION

Keyserling was basically a Keynesian in that he used fiscal policy derived from Keynes (Brazelton 2007; Tily 2007; Turgeon 1987) and the related multipliers. He also realized that money growth was a necessary ingredient for economic growth—a reason for his constant criticism of the Federal Reserve–Treasury Accord of 1951. He did differ slightly from Keynes in that the latter was more interested in cyclical unemployment whereas Keyserling (based upon Keynesian tenets) was more interested in secular growth for full employment output; but the Keynesian fiscal, monetary, and multiplier tools were therefore applied to tax and expenditure policies. Keyserling was also influenced by the institutionalist school (via Tugwell) and by the analysis of Berle and Means, which led him to concentrate on administered pricing as an important contributor to inflation and, thus, inadequate real growth over time. Keyserling knew that, to combat administered pricing, selective controls and legal action may be necessary, but he realized the inevitability of big business in the modern industrial world. He also believed in economic balance—micro and macro—and the need for selective incentives, et cetera, to allow lagging sectors to grow according to the needs of their micro sectors and of the macro economy. Thus, within this framework, Keyserling was a constant proponent of constant full employment and output growth for reasons of economic welfare and social equity. Thus, he is a man for his time and for the future.

APPENDIX: THE CONFERENCE ON ECONOMIC PROGRESS PAMPHLETS

The following pamphlets by Leon H. Keyserling and his wife, economist Mary Dublin Keyserling, are deposited at the Harry S. Truman Library and Museum, Independence, Missouri, a city adjacent to Kansas City, Missouri.

Toward Full Employment and Full Production, 1954.

National Prosperity Program, 1955.

52	W. ROBERT BRAZELTON

Full Prosperity for Agriculture, 1955. The Gaps in Our Prosperity, 1956.

Consumption—The Key to Full Employment, 1957. Wages and the Public Interest, 1958.

The “Recession”—Cause and Cure, 1958. Toward a New Farm Program, 1958. Inflation—Cause and Cure, 1959.

The Federal Budget and “The General Welfare,” 1959. Tight Money and Rising Interest Rates, 1960.

Food and Freedom, 1960.

Jobs and Growth, 1961.

Poverty and Deprivation in the U.S., 1962. Key Policies for Full Employment, 1962. Taxes and the Public Interest, 1963.

Two Top-Priority Programs to Reduce Unemployment, 1963. The Toll of Rising Interest Rates, 1964.

Progress or Poverty, 1964.

Agriculture and the Public Interest, 1965.

The Role of Wages in a Great Society, 1966. A “Freedom Budget” for All Americans, 1966.

Goals for Teachers’ Salaries in our Public Schools, 1967. Achieving Nationwide Educational Excellence, 1968. Taxation of Whom and for What, 1969.

Growth with Less Inflation or More Inflation without Growth, 1970. Wages, Prices and Profits, 1971.

The Coming Crisis in Housing, 1972.

The Scarcity School of Economics, 1973. Full Employment without Inflation, 1975.

Toward Full Employment within Three Years, 1976.

The Humphrey-Hawkins Bill: “Full Employment and Balanced Growth Act of 1977,” 1978.

Goals for Full Employment and How to Achieve Them under the “Full Employment and Balanced Growth Act of 1978,” 1978.

“Liberal” and “Conservative” National Economic Policies and Their Consequences, 1919–79, 1979.

Money, Credit and Interest Rates: Their Gross Mismanagement by the Federal Reserve System, 1980.

How to Cut Unemployment to Four Percent and End Inflation and Deficits by 1987, 1983.

REFERENCES

Berle, Adolf, Jr. 1959. Power without prosperity: A new development in American political economy. New York: Harcourt, Brace, World.

LEON H . KEYSERLING, AMERICAN KEYNESIAN

53

Berle, Adolf, Jr., and Gardiner Means. 1932. The modern corporation and private property. New York: Commerce Clearing House.

Brazelton, W. Robert. 1961. A critical analysis of the growth theories of Alvin H. Hansen and William J. Fellner. PhD diss., University of Oklahoma, Norman, OK.

———.1989. Alvin Harvey Hansen: Economic growth and a more perfect society. The American Journal of Economics and Sociology 48 (October): 427–40.

———.1993. Alvin Harvey Hansen: A note on his analysis of Keynes, Hayek and Commons. Journal of Economic Issues 28 (9): 1–9.

———.1997. Retrospectives: The economics of Leon H. Keyserling. Journal of Economic Perspectives 11 (4): 187–97.

———.2001. Designing U.S. economic policy: An analytical biography of Leon H. Keyserling. London: Palgrave Macmillan.

———.2003. The Council of Economic Advisors and the full employment budget concept: Keyserling before Heller. Journal of Economics 29:87–102.

———.2005. Research papers report and oral interview, Leon H. Keyserling, University of Missouri–Kansas City. Archives of the Harry S. Truman Library and Museum, Independence, MO; and Library/Archives, University of Mis- souri–Kansas City, 377–455.

———.2007. On the “orthodoxy” of Leon H. Keyserling: Selected major analytical and policy concepts and advice to presidents. The American Economist 51 (Spring): 15–28.

Davidson, Louise, ed. 1991. The collected works of Paul Davidson, 2 vols. New York: University of New York Press.

Davidson, Paul. 1993. The elephant and the butterfly: On hysteresis and Post Keynesian economics. Journal of Post Keynesian Economics 15 (3): 309–22.

Friedman, Milton. 1956. The quantity theory of money: A restatement. In Studies in the quantity theory of money, ed. Milton Friedman. Chicago: University of Chicago Press.

———. 1959. The demand for money: Some theoretical and empirical results.

Journal of Political Economy 67 (4): 327–51.

Galbraith, John Kenneth. 1954. The great crash, 1929. New York: HoughtonMifflin.

———.1967. The new industrial state. New York: Houghton-Mifflin.

———.1987. Berle, Adolf, Jr. In The new Palgrave: A dictionary of economics, ed. John Eatwell, Murray Milgate, and Peter Newman. New York: Macmillan.

Hansen, Alvin H. 1939. Economic progress and declining population growth.

American Economic Review 29 (March): 1–17.

———.1941. Fiscal policy and business cycles. New York: Norton Press.

———.1949. Monetary theory and fiscal policy. New York: McGraw-Hill.

———.1953. A guide to Keynes. New York: McGraw-Hill.

———.1957. The American economy. New York: McGraw-Hill.

———.1964. Business cycles and national income, expanded ed. New York: Norton Press.

54	W. ROBERT BRAZELTON

Keyserling, Leon H. 1957. Consumption—The key to full employment. Washington, DC: Conference on Economic Progress.

———.1964a. Progress or poverty. Washington, DC: Conference on Economic Progress.

———.1964b. The toll of rising interest rates: The one great waste of the federal budget. Washington, DC: Conference on Economic Progress.

———.1966. A “freedom budget” for all Americans. Washington, DC: Conference on Economic Progress.

———.1973. The scarcity school of economics and the shortages it has wrought. Washington, DC: Conference on Economic Progress.

———.1975. Full employment without inflation. Washington, DC: Conference on Economic Progress.

———.1976. Toward full employment within three years. Washington, DC: Conference on Economic Progress.

———.1978. Goals for full employment and how to achieve them under the “Full Employment and Balanced Growth Act of 1978.” Washington, DC: Conference on Economic Progress.

———.1979. “Liberal” and “conservative” national economic policies and their consequences, 1919–79. Washington, DC: Conference on Economic Progress.

———.1980. Money, credit and interest rates: Their gross mismanagement by the Federal Reserve System. Washington, DC: Conference on Economic Progress.

———.1987a. Means, Gardiner Coit. In The new Palgrave: A dictionary of economics, ed. John Eatwell, Murray Milgate, and Peter Newman. New York: Macmillan.

———.1987b. Tugwell, Rexford Guy. In The new Palgrave: A dictionary of economics, ed. John Eatwell, Murray Milgate, and Peter Newman. New York: Macmillan.

———.2005. Two oral interviews. Harry S. Truman Library and Museum, Independence, MO (includes Brazelton 2005).

Minsky, Hyman. 1977. The financial instability hypothesis and an alternative to standard theory. Nebraska Journal of Economics and Business 169 (1): 5–16.

Musgrave, Richard A. 1987. Hansen, Alvin H. In The new Palgrave: A dictionary of economics, ed. John Eatwell, Murray Milgate, and Peter Newman. New York: Macmillan.

Pechman, Joseph, and N. J. Simler. 1982. Economics in the public service: Papers in honor of Walter W. Heller. New York: Norton.

Sweezy, Paul. 1939. Demand under conditions of oligopoly. Journal of Political Economy 47:568–73.

Sweezy, Paul, and Paul Baran. 1966. Monopoly capital: An essay on the American economic and social order. New York: Monthly Review Press.

Tily, Geoff. 2007. Keynes’s general theory, the rate of interest and “Keynesian” economics: Keynes betrayed. New York: Palgrave Macmillan.

Tugwell, Rexford Guy, ed. 1924. The trend of economics. New York: Knopf.

———. 1974. The emerging constitution. New York: Harper’s Magazine Press.

LEON H . KEYSERLING, AMERICAN KEYNESIAN

55

Tugwell, Rexford Guy, Thomas Munro, and Roy Stryker, ed. 1925. American economic life and the means of its improvement. New York: Harcourt.

———. 1927. Industry’s coming of age. New York: Harcourt.

Turgeon, Lynn. 1987. Keyserling, Leon Hirsch. In The new Palgrave: A dictionary of economics, ed. John Eatwell, Murray Milgate, and Peter Newman. New York: Macmillan.

Weintraub, Sydney. 1963. Some aspects of wage theory and policy. Philadelphia: Chilton Books.

———, ed. 1977. Modern economic thought. Philadelphia: University of Pennsylvania Press.

Wray, L. Randall. 1992. Commercial banks, the central bank, and endogenous money. Journal of Post Keynesian Economics 14 (3): 272–310.

———. 1988. Understanding modern money. Cheltenham, UK: Edward Elgar.

This page intentionally left blank

C H A P T E R 3

HOW KEYNES CAME

TO CANADA

MABEL TIMLIN AND

KEYNESIAN ECONOMICS

ROBERT W. DIMAND*

CANADIAN ECONOMICS AND THE KEYNESIAN REVOLUTION

CANADA HAS ATTRACTED LITTLE ATTENTION from historians of economic

thought studying the international spread of economic ideas. It was omitted, for instance, from a conference volume on the international diffusion of Keynesianism (Hall 1991) and from a History of Political Economy supplement on the post-1945 internationalization of economics. John Kenneth Galbraith (1965), writing on “How Keynes Came to America,” included a passing mention of Robert Bryce taking Keynesian ideas from Cambridge to Ottawa, because Bryce conducted a study group on Keynes while a graduate student at Harvard before returning to Canada. However, Bryce’s career is by no means the whole story of “How Keynes Came to Canada,” nor is that story a mere repetition of the experience of other countries.

Keynesian economics came to Canada through two channels. One channel was a group of senior federal civil servants with academic backgrounds who formed a symbiotic relationship with the ruling Liberal Party. Two members of the group had studied with Keynes at Cambridge:

* I am grateful to Robin Neill and T. K. Rymes for helpful comments on this chapter.

58	ROBERT W. DIMAND

Wynne Plumptre while Keynes was writing A Treatise on Money, and Robert Bryce, who attended Keynes’s lectures from 1932 to 1934. This group, much studied in Canada (for example, Granatstein 1982 and Owram 1986), renewed direct contact with Keynes’s ideas during his visits to Ottawa in 1942 and 1944 (Bryce 1988) and in negotiations with Keynes in Cambridge about the postwar Canadian loan to Britain (LePan 1979). Although the group’s economic ideas were never translated neatly into economic policy, for they were filtered through a political process involving lobbying by the business community and dominion-provincial negotiations (Campbell 1987; Wolfe 1984), these civil servants shaped federal thinking about macroeconomic policy for nearly three decades after the 1945 White Paper on Employment and Income (Gordon 1965; Mackintosh 1965; Sharp 1966–1967).

The other channel, which introduced Keynesian economics into Canadian scholarly publications, conferences, and teaching, was a single remarkable career: that of Mabel Timlin of the University of Saskatchewan, author of Keynesian Economics (1942), which was based on a dissertation begun before the publication of Keynes’s The General Theory of Employment, Interest and Money in 1936. This chapter examines Timlin’s contribution and career to illuminate the reception of the “Keynesian revolution in Canada” and how this reception was shaped by and helped to transform the distinctive features and setting of Canadian economics.

The reception of Keynesian macroeconomics by the Canadian economics profession and by Canadian policymakers reflected, and helped to alter, distinctive Canadian circumstances and traditions in at least three ways. First, management of aggregate demand in the pursuit of macroeconomic stability, as a middle way between unfettered market forces and central planning, provided an enhanced role for the Liberal federal authorities in Canada’s perpetual struggle over federal-provincial division of powers, itself a reflection of Canada’s bilingual and bicultural nature. Keynesian demand management offered a middle way for the Liberals (in office federally 1935–57, 1963–79, 1980–84), between the free-market convictions of the Conservatives, who governed Ontario (1943–85), and the Second International social democracy of the Cooperative Commonwealth Federation and its successor, the New Democratic Party, which governed Saskatchewan (1944–64, 1971–82); and it was an alternative to the radical nostrums of Social Credit, which governed

HOW KEYNES CAME TO CANADA

59

Alberta (1935–71), and the provincial autonomy promoted by the Union Nationale, which ruled Quebec (1936–39, 1944–60, 1966–70).

Second, Keynesian macroeconomic theory was the vehicle for the Canadian economics profession to move beyond its focus on Canadian economic history, shaped by British historical economics and by Harold Innis and the “Toronto School of Economic History,” to an interest in formal economic theory.

Third, this growing adoption of the language of formal economic models and movement beyond specifically Canadian topics led to increasing integration of Canadian economics into the international community of economics at a time when the center of gravity of economic research (including Keynesian macroeconomics) was shifting to the United States. In economics as in other areas of English Canadian thought, the United States displaced Britain as the dominant external cultural and intellectual influence in the years following the Second World War.

Mabel Timlin was prominent in all three areas: She stressed the policy relevance of economic theory and interpreted Keynesian economics to the Liberal Party as well as to a wider audience; she interpreted formal economic theory (Keynesian macroeconomics, general equilibrium analysis, and welfare economics) to a Canadian economics profession unused to formal theory; and she was active in the American Economic Association and the International Economic Association.

The first professors of political economy at English-speaking Canadian universities, the economic historian W. J. (later Sir William) Ashley at the University of Toronto in the 1890s and A. W. Flux at McGill University a decade later, were young British academics waiting for senior positions to become available at home. This was also true of the economic historian C. R. Fay at Toronto in the 1920s (and it was common in other fields, as with the physicist Ernest Rutherford at McGill). In a protectionist country where the authorities were suspicious of the freetrade leanings of economic theorists, preference in hiring was given to economic historians: Four economic historians and a sociologist were the five heads of Toronto’s Department of Political Economy in its first eighty years (see Goodwin 1961and Neill 1991). Another distinctive feature of Canadian economics was that, until the 1960s, Canadian economists associated willingly with other social scientists in the Canadian Political Science Association, the Canadian Journal of Economics and Political Science, the University of Toronto’s Department of Political