Mr. Keynes and the “Classics”; A Suggested Interpretation By J. R. Hicks
Word count: 2,932, (excluding mathematical equations)
We aim to examine the British economist Sir John Hick’s article ‘Mr Keynes and the “classics”; A suggested interpretation (April 1937)’ in which Hicks seeks to devise a simpler more cruder ‘classical’ model of the imperial, however complicated work of Professor Pigou’s ‘The theory of unemployment’ that will rightfully disagree with Mr Keynes’s mystifying but accepted proposal in his ‘General theory of unemployment.’ We seek to explore the proposed model by Hicks with the support of mathematics, economic behaviour and theory from his own independent views as well established economists.
To the amusement of the reader Hicks initially portrays Keynes’ work as ‘satiric’ and ‘bewildered,’ this is a clear indication that Hicks is not very fond of the book The General Theory of Employment, however he acknowledges many of Keynes’ views are widely accepted by classical economists. This is true as many Classical views are outdated, as when in his book Keynes attacks the views of Classical Economists as ‘its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.’ Sir Hicks goes on to applaud Pigou’s “The Theory of Unemployment” however recognises it is “an exceedingly difficult book,” which is why it is not accepted by modern economists. Hicks differentiates Pigou’s work from Classical Economists view as being more ambitious; Pigou’s work is described as being a ‘tour de force’ as he talks in real terms in his writings, whereas other economists talk in “money terms.” Hick’s believes that it is hard to compare Keynes’ work with Pigou’s as Classical economists would have liked to ‘investigate many of those problems in money terms’ so as to draw comparisons, however Hicks state that although Keynes says ‘there is no classical theory of money wages and employment,’ he was wrong as in those times ‘general changes in money wages in a closed system did not present an important problem.’ By this he means that Pre 1930’s labour markets were a lot more flexible. It was only in the early 1900’s that there were liberal reforms that led to the formation of the Trade Boards Act of 1909, which created a minimum wage by law – making it a penal offence to hire labour at a lower rate than that fixed.
Hicks’ attempt to devise a more simplistic “classical” theory, results in a mathematical construction of a typical classical theory, in order to produce a model which would constitute for a cruder ‘satisfactory basis for comparison.’ The basis for our belief in Hicks’ actions in simplifying Pigou’s model is Hicks’ recognition that Pigou’s theory has no support from the ordinary more simplistic classical models, ‘the ordinary classical economist has no part in this tour de force.’ Further it can be made evident that Hicks’ view on the Keynesian apparatus, as being a competent apparatus, is a widely accepted view as stated by Friedman - “We all use the Keynesian language and apparatus” and moreover Hicks’ proposal to use Keynesian model is consistent with economists in this time period. However, both Hicks and Friedman disagree with the final conclusions of Keynesian theory. Hicks states ‘which do not agree with Mr Keynes’ conclusion,’ where Friedman supports “none of us any longer accepts the initial Keynesian conclusions.” This supplements Hicks’ reasons for establishing a new model based on the Keynesian theory, which adheres to some classical ideals. Prior to making this model Hicks makes a number of assumptions; first being ‘dealing with a short period of time in which the quantity of physical equipment of all kinds is taken as fixed.’ Hicks assumes ‘homogenous labour’ and ‘further that depreciation can be neglected, so that the output of investment goods corresponds to new investment.’ These assumptions as a base of construction for his model will indefinitely...