It was during a year in residency at Tokyo’s Hitotsuabashi University in 1995 that Jim Crotty first “met” John Maynard Keynes.
His teaching duties were minimal, so he spent much of his time in the school’s excellent English-language library, where he read British political and economic history, and studied the collected works of Keynes. Crotty had been teaching macroeconomics, by then, for 25 years, but the Keynes he discovered in at Hitotsubashi was nothing like the Keynes he thought he knew.
For the economics profession, Keynes was the original technocrat. He was the theorist who had shown that the one problem with a free-market economy was that it lacked — in the words of Paul Samuelson, whose textbooks introduced Keynes to generations of American students — a thermostat for aggregate demand. Set that one dial correctly, and the only substantive criticism of capitalism was resolved. But as Crotty read Keynes’ voluminous output from the 1920s, 30s and 40s he found something very different — a radical who saw the pursuit of profit as both inimical to a decent civilization and unsustainable on its own terms. When Keynes ended the General Theory with a call for “a more or less comprehensive socialization of investment” and the “euthanasia of the rentier,” it wasn’t a tossed-off provocation, but a summary of a serious political program developed over decades.
As Crotty told Arjun Jayadev and me in a recent
I discovered that the Keynes that I had been taught was not the right Keynes historically. This is one of the two or three most famous economists in history. So how could we have gotten him so wrong?
This radical program is touched on in a few publications still sometimes read today, like
“The End of Laissez Faire”, “Economic Possibilities for Our Grandchildren”, and “National Self-Sufficiency”. It is developed in more detail in publications that are today almost forgotten but were hugely influential at the time, such as “Britain’s Industrial Future,” the Liberal Party’s 1928 economic manifesto, which was largely written by Keynes. In Crotty’s reconstruction, the analysis goes something like this:
At one point, the organization of economic life around the pursuit of profit was highly successful at fostering industrial development. And if it did not always succeed at meeting human needs or ensuring social stability, it at least was not fundamentally inconsistent with them. But already before the World War this was ceasing to be the case, for a number of related reasons: the increasing importance of long-lived capital goods; the increasing size of productive enterprises; the shift from “investing as a way of life” to a more systematic focus on expected returns; the decline in the returns on investment; the progressive replacement of competitive markets with monopoly. For Keynes, these were not minor or transient problems; they were a sea change that meant it was impossible for a modern economy to function on the basis of private investment. Returns on investment would fall below the minimum rate acceptable to wealth holders long before the social returns were exhausted, and long before full employment was achieved. The role of financial markets in guiding investment made the problem worse. But the fundamental problem was that the combination of production dependent on investment in long-lived capital goods and other irreversible decisions, on the one hand, and an unknown and unknowable future, on the other, made pursuit of profit an unreliable guide for economic activity. The only way for society to achieve the level of material production it was technically capable of, and to avoid endless crises and mass unemployment, was the “more or less comprehensive socialization of investment” Keynes alludes to this program, but doesn’t explain it, in the closing pages of the General Theory. But elsewhere, he develops it at length. And as Crotty explains, he makes no effort to disguise the radicalism of his proposals.
Keynes writes in many places that he’s a socialist. He gives speeches to the Labour Party saying ‘I’m a socialist.’ What does he mean? He thinks we need to organize capital investment decisions, bring them all under a board of national investment. And we have to bring together all the sources of savings that are in our economy in one place. And, he goes through all of these incredible, important things you can do with this capital if you can control it. In 1942 or 43, he says if the state can control two-thirds to three-quarters of large-scale capital investment through this national board of investment, we’ll be fine. The only way you can do this is if you drive the interest rate down towards zero, and that’s what you should do. So you have to have strict capital controls, otherwise, people will take their money out.
Whether or not private ownership was preserved on paper was less important to Keynes than ensuring that investment decisions were based on public needs rather than private returns. The great advantage of investing on the basis of social rather than private criteria was not only that the two often and increasingly diverge, but that in a world of long-lived capital assets no one knows what private returns are. So private investment will take place on the basis of conventional opinions that by their nature are unstable and subject to herding; and investors will require a high return to compensate them for their lack of confidence. These are the problems of fundamental uncertainty and liquidity preference; it’s important to realize that they are not universal facts about the world or the market or capitalist economies in general, but specific problems with the institutions of capitalism as they had developed in the early 20th century. This doesn’t make Keynes’ views any less radical, though. Crotty says:
This plan, his socialist plan, means, he says, the end of the Rentier class in Britain. Now, Britain has been governed by its Rentier class for several hundred years - the landed gentry and the Rentier class. So this is an incredibly radical thing to propose. He says we’re going to have to manage our trade, we should have industrial policies, we should have wage policies, we should have geographical location policies. And all of this to achieve not just full employment, but the creation of arts, the building of cities, the building of housing, and so on. In his socialism, there’s still private markets, but they are small. He keeps saying if we don’t have socialism, we’re going to have chaos, we’re going to have revolution.
Over the next couple years, the work on Keynes’ politics developed into a book manuscript. Crotty summarizes some of the key arguments in his article
“Was Keynes a Corporatist?”. But in the summer of 1998 a financial crisis broke out in Asia, and the book was set aside unfinished. (The manuscript circulated among his students at UMass, and Crotty has recently resumed work on it.) What was at first called the “Asian crisis” soon spread to Russia, Brazil, Turkey and elsewhere, and making sense of what was now the worst global financial crisis in decades seemed more urgent than clarifying 60-year old arguments. For the next several years, Crotty’s work — much of it in collaboration with his student Kang-Kook Lee — focused on Korea, which appeared as both ground zero of the financial crisis and as a case study in the transformation of the tightly regulated, state-directed capitalism of the postwar years to a new, liberalized regime.
The shift in focus was, on one level, a serious loss for economics, which badly needed Crotty’s reconstruction of Keynes’ political vision — and still does. But the shift also reflects Crotty’s great strength as an economist — his sense of economics not as a self-contained intellectual enterprise, but as a tool to help the struggle to build a better world. There’s no way he could not have turned his attention to the great crisis unfolding before him.
Though he’s not as well-known as he deserves to be, Crotty has been important figure in American heterodox macroeconomics. His distinctive synthesis of Marx and Keynes illuminates important real-world economic problems in a way that orthodox approaches often miss. He is also, in some ways, representative of the larger story of dissenting economics over the past generation.
Crotty’s background was not an obvious one for an important critic of the economics profession. He grew up in a heavily Irish area of the Bronx, where he lived until he left for graduate school.
It was a completely working class area. I sincerely believe that I never met a professional person until I was 30. My father was a bus driver for the city, an active trade union guy. I didn’t have politics, but I did have a kind of unconscious class-consciousness.
Whatever political orientation Crotty took from this milieu, it had nothing initially to do with his choice of a career in economics. As is still often the case, economics was simply the default option for a mathematically gifted student interested in an academic career. At the start of his academic career, Crotty had no sense of being outside the mainstream of economics, or that debates within economics had any larger significance. “I had always thought economics was fun,” he recalls, “But I’d realized early it had nothing to do with the lives of anyone I knew.” He did his graduate work at Carnegie-Mellon, where his dissertation committee included Edward Prescott the Nobel-winning pioneer of real business cycle theory — about as far from Crotty’s current work as you can get. (One reason: They’d played on the same rugby team.)
He dates his sense of the economist’s vocation as part of a larger project of social change to his years in the early 1970s teaching at SUNY-Buffalo.
The State University of New York at Buffalo and the town of Buffalo was a hot bed of antiwar movement: massive resistance, gigantic marches, cataclysmic clashes with the police who were extraordinarily vicious and repressive. And so, I became involved in the radical faculty movement. And then I had to get serious about the issues and poverty and inequality and racism and so on. So now I saw that economics could actually be important.
Soon thereafter, he arrived at the University of Massachusetts at Amherst, where he would teach for the next 40 years. UMass-Amherst was just then becoming a center for non-mainstream, radical or “heterodox” economics. The department had just been taken over by a group of younger faculty who, like colleagues at a handful of other universities, were trying to develop a new kind of economics, one relevant to the struggles and crises of the wider world, and the new social movements responding to them.
The American economics profession has plenty of rebels and radicals in its history, but the heterodox economics that developed in the 1970s did not have much continuity with those older traditions. Today, if young economists sees themselves as outside the mainstream of the profession, they are likely to have studied with professors espousing some form of heterodoxy themselves. Crotty’s generation, by contrast, didn’t come out of any self-conscious school of radical economics. They found themselves compelled to challenge economic orthodoxy as part of their larger political commitments, and built their own institutions as they went. Crotty’s UMass colleague Sam Bowles often describes his own conversion experience as being asked, as a young assistant professor at Harvard, to help develop an economics platform for Martin Luther King’s Poor People’s March. It was when he found that nothing in his economics training was helpful for this task that he turned to Marx and other radical thinkers.
As heterodox economics developed into a self-conscious minority, with its own graduate programs, journals, and other institutions, an ongoing debate began about what relationship heterodoxy could or should have to the rest of the profession. “In this period,” Crotty recalls, we had very active interventions in the profession, in the American Economic Association. We fought over everything. We demanded space at the meetings for our own panels. We presented things to be voted on by the whole. We tried to change the job market situation.” But there were disagreements —as there still are — about the extent to which organized dissenters should focus on reform of the profession, and how much on cultivating their own garden.
Everyone agreed that it was important to teach the students the basic things that they needed to know if they were going to be economists and interact with the profession and get jobs. Some of us went beyond that, and thought that it was important to always have one foot in the mainstream, and to always work with methodologies acceptable to mainstream people, in order to change the profession. I thought that we should be trying to create the best theories that we can, and whether the economics profession accepts them or not is probably not in our power.
Crotty taught graduate macroeconomics for nearly 40 years; he has framed the fundamental problems of the macroeconomy for generations of dissenting economists. The exact content of his classes varied over the years but a close reading of Keynes’ General Theory was always central. Thanks to him, Keynes and the great Post Keynesians like Hyman Minsky remained living presences and, were not, as elsewhere, reduced to intuition pumps for formal model-making or to historical curiosities. In his teaching as well as his scholarly work, several broad themes stand out.
First, macroeconomics has to be attuned to concrete reality. “Methodologically, there is no such thing as ‘capitalism’,” he says, paraphrasing Keynes. “There is only concrete historical capitalism with different institutions, psychologies, behavioral tendencies. Jim taught that — while abstraction is necessary — the fundamental orientation of macroeconomics should not be to abstract formalism but to the concrete institutions of capitalism, which were always evolving. An example of this orientation from his own work is his article “Owner-manager conflict and financial theories of investment instability”, which argues that to make sense of the investment decision we can’t think of “managers” and “shareholders” as just as formal categories, but have to keep them in view as concrete social actors, whose relationship has changed over time.
Second, there is his careful but original reading of Keynes. Here the focus was not on Keynes’ political vision but on his economics. For Crotty this came down to two fundamental questions: aggregate demand and fundamental uncertainty.
Keynes, to me, is two things: He had a theory of aggregate demand determination which stood against the classical model that said that that if there’s something that moves the economy off full employment, there’s automatic processes which will restore it right away. The second, which is, to me, even deeper, is that there are crucial economic decisions — decisions one has to make now the results of which will not be revealed until many years in the future. But we don’t know the future. The future is still to be determined. And Keynes had the courage to construct a theory of capitalism on the assumption that the future is unknowable.
This idea of fundamental uncertainty — that there are important issues about which “we simply do not know” — is an important cleavage in economic theory. The majority of economists — including many who are far from the mainstream in other respects — agree with Robert Lucas that economic theory is impossible except on the basis of a well-defined probability distribution for future events. But for a minority, the distinction between a known, or at least knowable, present, and a fundamentally unknowable future is central to many of the biggest problems in macroeconomics. For a while these debates absorbed a great deal of Crotty’s energies; his essay “Are Keynesian Uncertainty and Macrotheory Compatible?” offers a good statement of his position.
Last but not least, Crotty’s teaching, like his scholarly work, involved an effort to synthesize Marx and Keynes. This is a union that a great many matchmakers have been trying to arrange for a long time, with mixed success. While Crotty’s work is mostly in the Post Keynesian tradition, this isn’t a judgment on whose contribution was greater: “Marx is clearly the more brilliant social scientist and thinker and philosopher, with a much more ambitious project. But,” he adds, “I am writing a book about Keynes.” Crotty’s most important contribution to Marxian economics is undoubtedly his brilliant 1985 article “The Centrality of Money, Credit, and Financial Intermediation in Marx’s Crisis Theory”. Here he argues that Marx’s vision of capitalist crises cannot be understood except in terms of the development of the credit and the financial system, and that his discussion of these ideas anticipated the ideas on financial fragility later developed by Minsky and other Post Keynesians.
Crotty’s focus on money and credit, uncertainty, and financial instability naturally prepared him to think about the global financial crisis that broke out in 2008, and much of his most recent work has been devoted to understanding that crisis. But his critical perspective on capitalism has led him in some less predictable directions as well. The tedious, coercive, dehumanizing character of so much work in modern economies is not a major theme for Keynes; to address it Crotty turned not only to Marx but to a less expected figure, Pope John Paul II. During the early 1980s, when the U.S. Conference of Bishops was working on a pastoral letter on the economy, Crotty helped organize conference for Conference staffers with a student, Jim Stormes, who was also Jesuit priest. Crotty and Stormes later coauthored an article in which they argued that the bishops’ letter offered an important critique of American capitalism. The letter, they observed, called unambiguously for the “socialization of the means of production.” The moral economy imagined by the bishops, they explained, was “a system of ownership rights that supports worker control of the production process … [in which] each worker ‘is fully entitled to consider himself a part-owner of the great workbench at which he is working with everyone else’ and is ‘able to take part in the work process as a sharer in responsibility and creativity’.”
This embrace of an institution that many today see as hopelessly conservative might seem surprising for someone with Crotty’s commitments. But as he explains in the interview, “There are always two Catholic Churches. There’s a formal church, a power structure church, a top-down church. But there’s always another church.” He recalls meeting nuns in the 1980s who “were working in Latin and Central America — at that time nuns were getting killed by the officials there. These were probably the most dedicated set of people I’ve ever met. I thought these were the people, if there was a revolution, I wanted to be with.”
This is a perfect example of Crotty’s fundamental orientation as an economist, and of what he has in common with the radical Keynes about who he is now again writing. You must be rigorous in your scholarship, and you can be radical in your vision, but you can’t do it on your own, as unattached intellectual. He says:
“I think the role of teachers of radical economics, is to assist those people who want to understand the world better so that they change it for the better. We say look, it doesn’t have to be like this.”
Perhaps this is the most important lesson of Crotty’s career. To be a great economist you can’t just be an economist. You have to go out in the world, where the fight is, and you have to know which side you are on.