Keynes vs Harwood — A Contribution to Current Debate

From the introduction:

"The inevitable aftermath of our inflationary progression will not be easy for the American public to bear, but economists may well rejoice if Mr. Keynes is still alive to realign his theory to fit the facts of life." (E. C. Harwood, "Review of General Theory" in AIER weekly Bulletin, July 13, 1936, p. 72.)

E. C. Harwood is a relatively unknown figure who exchanged views with J. M. Keynes through personal correspondence and the news media during the early part of 1934. Harwood did some then-impressive empirical work; had some original, interesting ideas; compiled a forecasting record superior to those of his better-known contemporaries; had a specific epistemological base; and anticipated modem macroeconomic concepts, including the natural rate of unemployment (the vertical long-run Phillips curve) and imperfect information as a source of business cycles.

The Keynes-Harwood exchange reflects fundamental methodological and analytical differences. The exchange primarily focused on issues of analytical methods, bond-financed deficit, the liquidity trap and hoarding phenomena, and the role of money. However, the differences between the two extended beyond these matters, and embraced their perceptions respecting the impact of economic events, the policy and social philosophy implications of their theories, and predictions of economic events based on their analyses. Subsequent economic events in conflict with Keynes's (or at least "Keynesian") predictions have induced a complete re-thinking of macroeconomic theory and constitute in some degree a vindication of Keynes's critics. It is unfortunate that Harwood's economic thinking has remained isolated from the mainstream of the academic world and his thoughts deserve to be recognized, especially because some apply to today's situation….

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