2013년 1월 17일 목요일

[Kahn's remarks on] some evolution of the idea of 'multiplier'

자료: [구글도서] The making of Keynes's General Theory (R.F. Kahn, ...)

※ 발췌(excerpts): p. 91 ~:

(... ...)

They [Keynes and Henderson] used [in their pamphlet, ^Can Lloyd George Do It?^] the word 'direct' and 'indirect' employment as in the Liberal Party manifesto ^We Can Conquer Unemployment^ㅡto distinguish between employment on the site from employment in the production of the necessary materials and their transfer.[2]

A high proportion of the additional employment proposed in the Liberal party manifesto was on roads and bridges.[3] 

Keynes and Henderson accepted the Liberal claim that each additional million pounds spent annually on road improvements would employ, directly and indirectly, 5,000 work peopleㅡ2,000 to 2,500 directly and the remainder indirectly.

They were able to quote a 'reluctant admission' that these figures were correct, extracted in the House of Commons by a Parliamentary Question addressed to the Minister of Transport.

In ^We Can Conquer Unemployment^ only a page is devoted to the 'Indirect Effects on Employment'.

In all this, so far, we have taken no account of the large increase in employment everywhere resulting rom indirectly from the addition to the national purchasing power represented by the wages of the workers directly employed in this way.[1]

The word 'indirect' was confusing. It had been used to distinguish between employment on the ite and employment in the production of the necessary materials and their transfer. To avoid this confuion, the words used in my article, and later by Keynes in the ^General Theory^, are 'primary' and 'secondary' employment. Primary employment included 'direct' and 'indirect'; 'secondary' employment resulted from the addition to national purchasing power.

Keynes and Henderon were confusing in a different sense. They referred to the 'general stimulus of trade' caused by the substitution of wages for unemployment pay. They continued:
the greater trade activity would make for further trade activity; for the forces of prosperity, like those of trade depression, work with a cumulative effect. When trade is slack there is a tendency to postpone placing orders [...] a general hesitation to go forward or take risks. When, on the other hand, the wheel of trade begin to move briskly the opposite set of forces comes into play, a mood favorable to enterprise and capital extensions spreads through the business community, and the expansion of trade gains accordingly a gatering momentum.[2: ^Can Lloyd George Do It?^ London: The Nation and Athenaeum, 1929(12 May); reprinted in KEYNES, vol IX, pp. 106-7.]
(... ...)

The state of confidence about the near futureㅡand both the factors which influence it and the influences which it exercisesㅡis a difficult subject to assess, still more to quantify. It plays a prominent part in the General Theory.

Towards the end of my article I was careful to state that it was based on the assumption that 'the state of general confidence [was] not affected'.[1] I did not mean that this was at all probableㅡbut merely that in the study of one type of causation it is necessary to abstract from others. I then devoted only three concluding paragraphs to the subject: it was not the subject of the article.

Keynes and Henderson, unlike the authors of ^We Can Conquer Unemployment^, took the opposite course. No attempt was made to separate out the ration of secondary to primary employment, on the assumption of a given state of confidence.

Naturally enough, they wrote that: 'It is not possible to measure effects of this character with any sort of precision.' The sentence goes on 'and little or no account of them is, therefore, taken'[2] in this pamphlet. They continued:
But, in our opinion, these effects are of immense importance. For this reason we believe that [...] [they] would be far larger than the Liberal pamphlet assumes.[3]
(p. 94)
They failed to realise that the authors of the Liberal pamphlet were discussing secondary employment in the strict senseㅡsomething as different as chalk is from cheese from the subject which Keynes and Henderson were trying to assess in this part of their pamphlet.

Further on in their pamphlet, Keynes and Henderson wrote:
Mr Lloyd George has given a pledge that the execution of his programme will not mean an addition to taxation. He has added that, of course, this does not mean that it will cost nothing, but that the cost will be less than the money which it will save in other directions ^plus^ the buoyancy of the revenue attributable to it ^plus^ economies on such things as armaments.[1]
The suggestion that entirely irrelevant economies on armaments would be needed to secure fulfilment of the pledge strongly indicate that the pledge was not completely justified.

On the other hand, in this passage Keynes and Henderson, in contrast to the last passage but two quoted by me, were tacitly confining themselves to secondary employment in the strict sense, and taking no credit for the possible triggering off of a cumulative boom. Their rough estimate was the ‘nearly a half of the capital cost would be recovered at the time’, a quarter from the saving on the Unemployment Fund.[2]

The estimates made in my article led to the conclusion that the saving to the Unemployment Fund, together with the saving to the Exchequer on the cost of transitional benefit, should be just half of the total cost. The excess of my half over the Keynes-Henderson quarter is accounted for only partly by my bringing in the saving on the cost of transitional benefit.

My extremely conservative estimate of the increae in the yield of taxation was exactly the sameㅡone eighth of the total costㅡas that made by Keynes and Henderson.

It is remarkable that the inspired guesses of Keynes and Henderson turned out to be so accurate although, so far as is known, they made no estimate of the 'multiplier'ㅡthe ration of the total (... ...)

p. 102.

(...) My failure to enlarge on this issue would have led to endless trouble had not Keynes come to the rescue. In the course of the American edition of ^The Means to Prosperity^, published in the middle of 1933, Keynes in a section on the multiplier, estimated the time-lag, and concluded that:
it will be seen that seven-eights of the total effects come from the primary expenditure and the first two repercussions, so that the time-lags involved are not unduly serious.[1]

There is a widespread beliefㅡstonger to-day than it was after the publication of the General Theorythat the case for public expenditure as a means of raising demand is not a matter of commonsense but an illustration of the Quantity Theory of Money. In other words, it is successful only to the extent that the necessary funds are secured from the banking system (entailing a danger of inflation) rather than from the non-banking Private Sector. A good example is provided in the course of a letter written by Robertson to Keynes on 1 April 1933 half-way through the writing of the ^General Theory^ (and incidentally a good example of Robertson's concern over the abandonment by Keynes of the Quantity Theory) :
I hate always to appear in print as a controversialist with you, but it is because of the inexhaustible suggestiveness of the ^Treatise^! And I don't see how progress is better made in these fundamental matters than by public discussion between 1/2 dozen people who are wallowing in them.
I know I shall never reconvert you to old K-and-V method [the Quantity Theory]; but I can't refrain from suggesting how much stronger they make the ^prima facie^ case for public works. For on your and Kahn's short period method, all new money inevitably becomes completely inert in the end, and most of it pretty quickly. Hence your arguments can do nothing to allay the objections of those who urge that the budgets ^of future years^ will be burdened by the interest charges on the loan. But surely ^prima facie^ money once effectively introduced into circulation may be expected to stay there, and to circulate (thus affecting prices or employment as the case may be) with a velocity approximating to that of existing money, unless and until it is withdrawn by taxation, deflation, etc.[2]
[2] KEYNES, vol. XXIX, p. 17. I quoted Keynes's rejoinder in Section 10 of the Second Lecture. In the course of it he accused Robertson of 'addressing yourself to one of the deader of my dead selves'.
Even by that late date Robertson completely failed to appreciate that:

1. There was no reason why additional expenditure on public work needed to be financed by the creation of additional money as against borrowing from the public (though if a heavy programme was started off suddenly, some temporary help from the banking system would be useful for pump-priming purposes).

That was one of the lessons which I had tried to teach in my 'multiplier article' and is based on the rise in the rate of saving with the rise in the rate of Government expenditure.

The increase of employment was ^not^ the result of an increasing quantity of money.

2. However, to avoid a rise in the rate of interest, and tighter creidt generally, it would be desirable that total amount of money available for the active circulation should increase in proportion with the increase in the value of national output.

3. If the additional flow of expenditure were terminated, employment would fall to its previous level apart from:
a) the effectiveness of the temporary public works progamme as a 'shot in the arm', resulting on a more or less lasting basis in a limited recovery of confidence and in the rate of investment;
b) the favourable influence on employment of a higher quantity of money, in excess of the needs of the active circulation, as a result of lower interst and, generally, easier credit.
Robertson failed to realise that the lasting benefit which he in his letter was urging Keynes to claim could be achieved ^without^ any public works programme merely by using open-market operations to increase the quantity of money; and that the benefit was not attributable to the circulation of additional money but to lower rates of interest and easier credit.

(The end of p. 104)

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