Lance Taylor (1940-2022) and his legacy

With Lance in Beijing (2001)

I took Lance’s macro class in the Fall of 1995 at the New School for Social Research (NSSR), and then was his Teaching Assistant for two years. The book we formally used was Income Distribution, Inflation and Growth: Lectures on Structuralist Macroeconomic Theory, in which the terms (not the concepts) for wage-led and profit-led economies were first used (at least that's what I think; profit-led does not appear in the index, I must note). But classes were based on his notes, on what became his next book Reconstructing Macroeconomics (he thanked me for all the input in my copy; I had to learn how to read his handwriting, which was not easy). In many ways, my thinking was influenced more by the Sraffian professors at the NSSR, both John Eatwell (I was also his TA in the micro class) and Ed Nell (who really was the first to discuss functional finance in my classes), in part because the blend of Cambridge left-of-center Keynesianism and Latin American Structuralism, that Lance exposed, was more familiar to me coming from Brazil.

My plan was to work on inflation theory (and I did write a conflict model, that can be seen as being in Lance’s tradition later on; in my view his best book is the one that is less formal, and is on inflation, his Marshall Lecture at Cambridge, Varieties of Stabilization Experience; at the time I first read it I didn't know that the title was a quote from Henry James; the other candidate is his book with Eatwell Global Finance at Risk. Both are more books than manuals). But I started working with Wynne Godley on his stock-flow model for the joint Center for Economic and Policy Analysis (CEPA) and Levy Economic Institute project. A year into the project I told Lance that it would make sense if I worked on something related to the project, namely the sustainability of the US external account. Lance was very nice about it, and not only went along, but also provided funding, since I received CEPA’s dissertation grant.

I ended up writing something that was very close to Massimo Pivetti’s monetary theory of distribution. The theory at least. Lance provided comments and feedback, and, at some point, told me that I was obsessed with this monetary distribution thing (I was, indeed). But he also provided support, and his criticism was always constructive. Lance was the best supervisor one could have. He guided the work with frequent conversations, read and criticized what I gave him to read, and, after it passed certain standards, approved it, even if it wasn't exactly a Lance Taylor dissertation. He never tried to mold my thinking, or force me to work on own his terms. Sadly, that isn’t the norm in academia. I think he had been lucky with his supervisor too. He once spoke fondly of Hollis Chenery (his supervisor; not his mentor, which I think was Rosenstein-Rodan; I might be wrong), because he protected the radicals, which were under pressure in the late 1960s at Harvard. His intellectual generosity, among several other qualities, is something that will be deeply missed.

Lance was open to alternative methods, and approaches, what he called closures (certainly more than I am), and his comparative method was influenced by other disciplines, the qualitative "thick descriptions" a la Clifford Geertz that he liked. I actually ended up reading a bit of Geertz because of my conversations with Lance, particularly when I was the assistant director at CEPA (he was the director) and he organized a book on several comparative studies of liberalization in peripheral countries (the one on Brazil, which was supposed to appear in a previous volume, and should have been written by Edward Amadeo, was eventually written by me; photo above is from one of the conferences that led to that book). Geertz saw anthropology, as he famously put it, "not [as] an experimental science in search of law but an interpretive one in search of meaning." The thick description was essentially the interpretive work of the ethnographer. Lance took that view, in some sense, of economics, blending the description of the historical and institutional features of peripheral countries, with relatively simple models in what Paul Krugman (a co-author; Paul's first paper was the one on contractionary depreciations with Lance) called the MIT or Solow type models (my only other model in that sense, is the currency crisis one that puts Krugman's one upside down).

 

I tend to think that this methodological stance is Lance most enduring legacy, and the one that had the most influence on my own work. Most discussions of his work emphasize the gap models (which I think are problematic, the savings and fiscal gaps in particular), or the stagnationist model of growth, which builds on Bob Rowthorn's seminal Neo-Kaleckian growth model (and also on Amitava Dutt's model, which I think was part of his dissertation work under Lance). Some might even think that it was the reversal of his views on the role of exchange rates in development, his paper with Roberto Frenkel on stable and depreciated exchange rates as engines of growth (which can be seen in line with Luiz Carlos Bresser-Pereira and Jaime Ros views, and as being at the center of New Developmentalism). Others might think it's his work on Social Accounting Matrices that prefigured, and went hand in hand with his appreciation for Wynne Godley's stock-flow consistent models (on Wynne's methodological stance, see this old post).

In a way, all these models, and others (I could have added the Minsky crisis one, that is often neglected), to some extent show the use of models for Lance. He was somewhat eclectic, and use them to illustrate some of the issues with developing countries. But for him that had to be complemented by the interpretive thick descriptions. In my view, the models per se were less relevant for Lance, who was an unorthodox lefty that remained so, as someone remembered recently, even as the whole world moved to the right in the 1980s, and 1990s (he told me that a director of research at the World Bank, that had become a neoliberal, told him in his last visit to that institution, if he wasn't ashamed for still defending those structuralist views). And he did leave MIT for the NSSR, which was a strong signal of his political views. The simple model allowed him to tell the stories.

I have a tendency to prefer greater consistency in the models, and I'm less keen on accepting some possibilities of neoclassical/monetarists closures for the real world. But his methodology, which in some sense contrasts with the large stock-flow models that my other mentor (Wynne) liked, is certainly something I think it is a more fruitful way of thinking about macroeconomic problems. But again the specific models per se are less relevant, and the thick description that they illustrate with simplicity matter more.

Production of Commodities at 60

Video of the conference, without the long part before it starts that was on the Review of Keynesian Economics Facebook page.

At any rate,the three presentations by professors Serrano, Palumbo and Nell.

60 Years of Sraffa's PCMC: Watch the whole seminar here

Ed Nell, who shared his signed copy of PCMC

 

The whole Zoominar can be watched at the Review of Keynesian Economics' (ROKE) Facebook page here. It starts early with the live-stream, you can jump to minute 49 or so and watch from the onward.

60 Years of Sraffa's Production of Commodities by Means of Commodities/ROKE Webinar

Tomorrow we will talk about this book that is the Rosetta Stone of the history of economic ideas (read post 6 below for more on that). I'm happy to have a great panel to discuss it. In the meantime below 7 previous posts on Sraffa's contributions to economics, which might be helpful for some.

1. Sraffa and the Marshallian System
2. Sraffa, Marx and the Labor Theory of Value (LTV)
3. Sraffa, Ricardo and Marx
4. The Standard Commodity and the LTV
5. The Capital Debates
6. Microfoundations of Macroeconomics and the Capital Debates
7. Free Trade and the Capital Debates

60 Years of Production of Commodities by Means of Commodities

ROKE sponsored event soon.

It will be live-streamed too.

The New School for Social Research at 100: A view from the Econ. Dept.

From a late 1990s catalogue; Lance Taylor (center), and also in no particular order

and from what I can remember (Ellen Houston, Adalmir Marquetti, myself (with goaty

on the left side), Margaret Duncan, Josh Bivens and Carlos Bastos (Orozco Room)

The New School for Social Research was founded 100 years ago by a group of academics dissatisfied with the direction of American higher education. Economics was central to the early history of the New School, and my brief, very incomplete, and certainly idiosyncratic historical account emphasizes the Economics Department of what used to be called the Graduate Faculty.

Thorstein Veblen, one of the founders, had written his famous Higher Learning in America, which in a sense is the original critique of the corporate university. The idea was to put learning at the center, and avoid the conventional trappings of universities, with no degrees provided to students. The foundations of the critical perspectives provided at the New School came from institutionalists (like Veblen), pragmatists, represented by another prominent founder, namely John Dewey, and revisionism in history, with Charles Beard as its main voice at the new institution. Many came from Columbia University and were dissatisfied with both institutions of higher education and the direction the country had taken, in particular with World War I. These were mostly anti-war, progressive social scientists.

Perhaps the key person at the inception of the New School was Alvin Johnson, a somewhat difficult to classify economist (Gonçalo Fonseca at the HET website suggests that he might be seen as Austrian), that has been almost completely forgotten. Johnson was the editor of the massive Encyclopaedia of the Social Sciences, later substituted by the International Encyclopedia of the Social Sciences (last edition under Sandy Darity, and I have two entries on Export Promotion and James Mill), which put him in contact with several economists around the world, many in Germany.

A group of scholars that he met as the editor of the encyclopedia was the basis for the so-called University in Exile, which eventually was the basis for the Graduate Faculty, the division that now still is called the New School for Social Research (while the whole is just The New School, if I do understand the naming changes at my alma mater). The most important and cohesive group of economists that arrived at the New School in 1933, and the following years, escaping persecution in Nazi Germany, were the ones related to the Kiel School, including Gerhard Colm (on Colm I co-authored this paper with Luca Fiorito), Adolph Lowe, Jacob Marschak, and Hans Neisser. In that group, Lowe, the mentor to Robert Heilbroner, was to be the more consequential for the New School.

The New School was not orthodox in its economic teaching, but the 1930s were a period of flux in the profession. The Keynesian Revolution was in course, and Keynes was acquainted with Johnson and the New School, as it can be seen in the letter he gave to H. G. Bab (see below; click to amplify). In that sense, while it is true that the place was somewhat unorthodox, given its origins and the historical period in question, that should not be exaggerated. Note that Marschak went on to be the head of the Cowles Commission, and a leading mainstream economist. While at the New School he supervised Franco Modigliani's doctoral thesis, which was the basis for his famous neoclassical synthesis paper of an ISLM model with rigid wages and for his Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

The New School, more enjoyable and compatible people than at Columbia, for sure (click to enlarge)

I say this because there is a tendency to think of the New School as being always heterodox, and taking that term to have more or less a contemporary meaning (for what I mean about that go here; for a great and more in depth discussion see this post by Ingrid Kvangraven and Carolina Alves). Many others taught at the New School in this period, perhaps, worth mentioning is the case of Abba Lerner, the main author of the functional finance school (something that is at the core of Modern Money Theory, but is more restrictive and specific than MMT).

The Kiel School was what one could term eclectic. They certainly had roots on elements of the German Historical School, and readings of marginalist and non-marginalist authors, including Marxists. Gonçalo puts Tugan-Baranovsky as one of the influences on the Kiel School. Tugan, a "semi-critic of Marx" according to Schumpeter, argued that a disproportion between the investment and consumption goods sectors would lead to recurrent industrial crises, and that notion of structural imbalances was central for Kiel authors. Leontief was also connected to the Kiel School.

While many in the Kiel School were open to and used marginalist concepts, as in the case of institutionalists, not all were neoclassical, and Lowe's views arguably were the most clearly connected to the works of the old classical political economists. Ed Nell, in the appendix to Lowe's book The Path of Economic Growth compares it with Leontief, Von Neumann, and Sraffa, as being classically inspired. One can think of Ed's Transformational Growth research program as building on that tradition.

But it would be a stretch to suggest that Bob Heilbroner, Lowe's main disciple at the New School, and the next key person in the history of the Economics Department at the Graduate Faculty, was a follower of classical political economy. A cursory reading of his classic, The Worldly Philosophers, shows that his reading of Smith is perfectly compatible modern mainstream readings, which imply that Smith was a precursor of supply and demand theories. The chapter on Smith discusses the law of markets, but the labor theory of value only makes an appearance in the chapter on Marx, and to suggest that it was a deviation from Smith and Ricardo. The degree to which Heilbroner conflates classical and marginalist or neoclassical theory is clear in that he argues that the Walrasian circular-flow in Schumpeter's theory resembles Ricardo's stationary state. And in the discussion of Schumpeter's notion of profit he suggests, regarding the labor theory of value, that "everyone knew to be wrong and therefore did not have to be reckoned with."*

Further, his views on economic growth, as evidenced in his book on the economics history of the Unites States, were essentially that growth was supply-side constrained and dependent on technological innovation, in ways that seem to be closer to his Harvard undergraduate teacher, Joseph Schumpeter, than classical political economy authors (Smith had, arguably, a demand driven view of growth, at least for some, while Ricardo most certainly didn't, and Marx is open to many different views; I'll keep that to another post). I emphasize this to show that even if he was unorthodox in many ways, Bob was not necessarily what we would term heterodox in the modern sense of the word (even if taken loosely as not being neoclassical).** In my view, no clear heterodox bias existed up to the 1960s, in a department that had basically been under the shadow of three economists, Johnson, Lowe and Heilbroner. Note that this somewhat eclectic persistence of different approaches was more or less common in many departments at that time.

But the Johnson-Lowe-Heilbroner nexus provided the basis for the changes that shaped the department with the arrival of Ed Nell in the late 1960s. Ed had worked with Hicks at Oxford, and he was from early on critical of methodological individualism, something that is clear from his critique of the concept of the rational economic man. More importantly he was concerned with growth, and that led to a discussion of the theories of value and distribution (perhaps influenced by Hicks' Capital and Growth, which remains an important book), and was influenced by Sraffa's revival of classical political economy. It was after Ed arrived that a series of new hires, among them Stephen Hymer, Anwar Shaikh, and David Gordon, changed the department. Note that the late 1960s and early 1970s too is the period in which the economics profession segregates the heterodox groups, makes it harder for radicals to get tenure in conventional and prestigious departments (e.g. Sam Bowles at Harvard), and publishing requires the foundation of new journals (e.g Journal of Post Keynesian Economics, and the Cambridge Journal of Economics).

In my view, it is no coincidence that this is also when the change in the notion of equilibrium, as discussed by Garegnani, takes place (some discussion of that here). The point is that the capital debates had shown the limits of marginalist (neoclassical) economics, and the profession embraced what I have referred to as vulgar economics after that. The hiring of heterodox economists, critical of the mainstream in this period, and the sociology of academia, locked in heterodox hegemony at the Econ. Dept. of the Graduate Faculty.

Many other heterodox economists taught at the New School's Econ. Dept. from that point onwards. I might note Paul Sweezy, which if I'm not wrong was instrumental in making Bob Pollin choose the New School for his PhD, was among the teachers in the 1970s. And also many Sraffians like Piero Garegnani, John Eatwell, taught on a recurring basis, while many were visitors for shorter periods. Again, somewhat idiosyncratically, in my view it is the arrival of Lance Taylor in 1993 and a few years later of Duncan Foley that consolidated the persistence of the heterodoxy, and the type of heterodox department (with a mix of structural Keynesianism and Marxism), that the New School has today.

Perhaps, it is important to emphasize how limited this story is. There is a missing story about the role of David Gordon, who was also a key player in the department for many decades, and of Anwar Shaikh, that I always saw as somewhat of an influential outsider (maybe I'm wrong), even by the New School standards. And also the many other wonderful and creative heterodox economists that passed through the New School over the years. There is a question about the gender imbalances at the New School, and within heterodoxy itself, that I do not address. I'll explicitly avoid saying any additional names, since in this way I cannot be accused of forgetting someone (I'm leaving out a ton, including the many alumni that went on to remarkable careers). Hopefully this provides a window on how the New School became heterodox and why it remains so.

* It should be noted that Bob's book was published in 1953, a few years before the labor theory of value was rehabilitated by Sraffa's Production of Commodities.

** On a personal note, I remember talking to Bob on an interval of a conference organized by Ed Nell on functional finance, in 1997, I think, in which he argued that the Maastricht limits (3 per cent for deficits, and 60 per cent for debt) were reasonable measures to constrain the size of government. He was a liberal in an older sense of the word, perhaps.

Kaldorian and Sraffian supermultipliers: a clarification

This is a post for those interested in demand-led theories of growth. Not long ago I wrote a post on misconceptions about Sraffian economics. Marc Lavoie sent me a nice email about it, and a recent paper he published in Metroeconomica (subscription required), which comments on a paper I wrote with Esteban Pérez (working paper available here). In his discussion of supermultiplier models, which put the multiplier and the accelerator together to explain -- not fluctuations of the level of output around its normal position -- but the determination of trend or normal output. Lavoie says:

"Other post-Keynesians, also assume that non-capacity creating autonomous expenditures are the driving force, rather than investment. Serrano himself refers to Kaldor (1983, p. 9) to provide support for this reversal of causality. Fazzari et al. (2013) assume that there is some unidentified demand component that grows autonomously, in order to tame Harrodian instability; Godley and Lavoie (2007, ch. 11) and, as already pointed out Allain (2015), rely on autonomous government expenditures. Indeed, there is a large Kaldorian literature that relies on exogenous growth components other than business investment, most particularly the whole literature on Thirlwall 's law with its exogenous exports (McCombie and Thirlwall, 1994), as well as Godley and Cripps (1983), with both government expenditure and export sales."

And in a footonte to that passage he says:

"Thus, adding to the confusion over terminology, Pérez-Caldentey and Vernengo (2013) refer to the Kaldorian tradition when discussing models based on induced investment and non-capacity creating exogenous growth components such as Serrano's Sraffian supermultiplier analysis."

So let me clarify our use of Kaldorian, and also why I believe that it is a mistake to refer to the Sraffian supermultiplier as neo-Kaleckian, even though it does have evidently Kaleckian elements. As I understand the distinction that came to dominate demand-led models of growth, there are basically two* main traditions, one that is referred to as neo-Kaleckian, and one that is referred to as Kaldorian.

The first tradition developed from Bob Rowthorn's expansion of Joan Robinson's 1960s model. And because Joan Robinson was influenced by Kalecki, and  Rowthorn, a Marxist author, was seen as Kaleckian, the name stuck. The original model, one must note was wage-led. And causality basically determined whether the authors was Keynesian or Marxist, with Ed Nell famously referring to one author that suggested that causality went from income distribution to growth as Jean Baptiste Marglin. At any rate, Marxist and Keynesian closures, to use the term popularized in this context by Lance Taylor, were special cases of the neo-Kaleckian model. Later developments introduced changes in the independent investment function which allowed for a profit-led closure.

As I noted before, the term Kaleckian is a bit of a misnomer. The current version of the model allows for a profit-led closure, which is not clearly in Kalecki, and, besides its derived from Joan Robinson's model. The Kaleckian feature is that often it is assumed that workers do not save, and capitalists do not consume, for simplification, a classical political economy type of assumption really.**

The genesis of supermultiplier models is more convoluted. On the one hand, the combination of multiplier and accelerator was used to discuss economic cycles, not growth, including by Hicks, who first discussed the idea of the supermultiplier. By the late 1960s, Kaldor moved away from the differential savings or neo-Keynesian growth models (sometimes referred to as Kaldor-Pasinetti or Cambridge growth model), and adopted the supermultiplier model, formalized by Thirlwall in the 1970s. The model assumed as a simplification that exports were the only autonomous component of demand. In accordance with the accelerator, investment was seen as derived demand. That is the main difference with the so-called Neo-Kaleckian models, namely: there is no independent investment function.***

The idea of the supermultiplier was later, in the 1980s and 1990s, developed by Bortis and Serrano,**** both authors sharing a Sraffian perspective. In these versions, autonomous spending was not restricted to exports, and government spending was also relevant. The term Sraffian or classical-Keynesian has been used to describe these models. In essence, they are Kaldorian models, since investment is derived demand, as much as in Thirlwall's model. In this sense, even though the Kaldorian models a la Thirlwall are a special case of the Sraffian supermultiplier, as discussed here in my debate with Jaime Ros (in Spanish), and by definition more general than the export-led growth model, they came later, and can be seen as a development within this tradition.

So certainly the intention is not to create confusion. In my view, models with an independent investment function are broadly speaking neo-Kaleckian, while models in which investment is derived demand are Kaldorian. And there are differences between models within those broadly defined traditions.

* All taxonomies are somewhat arbitrary and one might see some sub-divisions from the two main branches discussed here as standing in the same footing, for example, some might argue for an explicitly Marxist tradition.

** Goodwin predator-prey models, which have become quite fashionable, can be seen as a variation of these neo-Kaleckian models.

*** I think these Cambridge models have been completely abandoned since the 1960s, and that is the reason why I don't have three types of models in my taxonomy. They are a historical curiosity, associated to a response to the Harrod instability problem, at a time when full employment seemed like a stylized fact in advanced capitalist economies. For a clear explanation of the implications of the different model closures see the paper by Franklin Serrano and Fabio Freitas here.

**** The Sraffian versions of the supermultiplier model also assume differential savings by workers and capitalists, as many other classical political economy inspired models, and in that sense have Kaleckain features. But they are not neo-Kaleckian, since there is no independent investment function.

The State of the Worldly Philosophy at the New School