doi:10.1093/cje/beaa020
Advance Access publication 23 June 2020
© The Author(s) 2020. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.
Ulysses’ journey home to Ithaca:
a new metaphor for understanding the
General Theory
Teodoro Dario Togati*
This paper argues that in order to remedy the lack of alternative methods in cur-rent macroeconomics it is necessary to clarify the ontology of Keynes’s General Theory. One of the reasons why Keynes lost his generality battle is that he left many gaping holes in the ‘correct’ articulation of his research programme—espe-cially in terms of the specification of hard-core ‘cosmological’ beliefs concerning stability, value and aggregate behaviour—yet to be filled by the post-Keynesian literature. In order to start filling the gaps, this paper proposes a new agenda called ‘The General Theory 4.0’ based on the new ‘Ulysses’ journey’ metaphor, which, it shows, is better than alternative ones, such as Farmer’s ‘windy boat’ and Akerlof and Shiller’s ‘rollercoaster’, for improving understanding of Keynes’s book.
Key words: General Theory, Implicit theorising, Internal consistency, Research programme, Standard macroeconomics
JEL classifications: B0, B5, E0
1. Introduction
This paper seeks to explain why, in current macroeconomics, there is a lack of al-ternative methods capable of challenging the dominant DSGE (Dynamic Stochastic General Equilibrium) models, despite their limitations as revealed by the recent Great Recession. It holds that one plausible reason for this state of affairs is that critics of the mainstream, who claim to be influenced by the General Theory (GT), do not get the ontology of Keynes’s macroeconomics right, thus failing to capture the very foun-dations of its methodology. On the one hand, many prominent economists propose new paradigms combining Keynes’s features, such as ‘animal spirits’, with standard ontology and methods (see e.g. Akerlof and Shiller, 2009; Farmer, 2014). On the other hand, Post-Keynesians, while rejecting standard approaches, still quarrel about key specific ontological questions concerning the GT, such as the nature of money and the
Manuscript received 31 October 2018; final version received 4 December 2019.
Address for correspondence: Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche, School
of Management and Economics, University of Turin, Corso Unione Sovietica, 218 bis, 10134 Torino, Italy; email: dario.togati@unito.it
*University of Turin. I am most grateful to two anonymous referees for their comments.
relationship between ‘micro’ and ‘macroeconomics’,1 and tend to address them in a
piecemeal fashion, thus neglecting the ‘systemic’ nature of macroeconomics.
Basing my argument on the above, I suggest that significant progress in understanding Keynes’s ontology can be made by discussing it in the context of the Lakatosian ‘re-search programme’ (RP) framework, which has at least two key advantages. First of all, it is deeply ‘systemic’: it provides a useful ‘checklist’ of all structural features—such as a hard core, a protective belt and heuristics—that all macroeconomic theories should have if they are to be competitive in the present context.2 In particular, as Leijonhufvud
(1976) underlines, the hard core should include theorists’ ontological views or ‘cosmo-logical beliefs’ concerning three related features of the real-world economy, namely its stability, the nature of value and the behaviour of economic agents. Such beliefs, which also inspire the basic methodological principles of theoretical frameworks, may be ex-pressed in terms of metaphors, such as that of the ‘rocking horse’, underlying standard macroeconomics. Far from being simple ornamental features, metaphors are heuristic tools that allow us to grasp intuitively the ‘correct’ meaning of an RP (see e.g. King, 2012, p. 14). As the German philosopher Blumenberg suggests, this is because meta-phors leap into a void that concepts are unable to fill. More specifically, he argues for the existence of ‘absolute metaphors’ that cannot be translated back into conceptual language and play a ‘constitutive’ or ‘foundational’ role in the analysis. As he put it, ‘… metaphors can also…be foundational elements of philosophical language, “translations” that resist being converted back into…logicality’ (Blumenberg, 2010, p. 3, italics in the original).3
Secondly, the RP framework permits a straightforward comparison between alter-native approaches. As previous research along these lines shows (see e.g. Togati, 2019), Keynes himself did not elaborate his RP in general and his ontology in particular as fully as standard macroeconomists. While the latter unanimously subscribe to three well-established cosmological beliefs—namely, internal stability, individual rationality and utility theory of value—quite effectively captured by the rocking horse metaphor, the same cannot be said of Keynes. On the one hand, his key revolutionary cosmo-logical beliefs about internal instability, the nature of value and aggregates are rela-tively ‘open’ and thus somewhat prone to misunderstanding.4 On the other hand, he
failed to produce a metaphor as powerful as that of the rocking horse to express such
1 As noted by King, in his stimulating contribution on the ‘microfoundations’ issue, placing the emphasis
on the role of metaphors: ‘Among heterodox economists, many Post-Keynesians have been strong critics of the (microfoundations) dogma, but a surprisingly large proportion have been unclear, inconsistent or just plain confused on the issue’ (King, 2012, p. 5).
2 In particular, the hard core reflects ontological views about the economy and key methodological
prin-ciples and the protective belt concerns more specific models, while heuristics represents a view on how the theory should be developed or the moves the theory forbids (see e.g. Hands, 2001, p. 296).
3 It is clear however that, as Blumenberg himself notes, there are limitations on the use of such
meta-phors, whose task can only be ‘to lay the groundwork for... ‘deeper investigation’ (Blumenberg, 2010, p. 5). Moreover, we should be well aware that, as underlined, for example, by Gareth Morgan: ‘metaphor … al-ways creates distortions … metaphor uses evocative images to create what may be described as “constructive falsehoods”, which if taken literally, or to an extreme, become absurd’ (quoted by King, 2012, p. 13).
4 For example, Keynes can be interpreted as endorsing a ‘phenomenological’ theory of value, according to
which interest rates and wages are based on conventional factors (see e.g Togati, 2019). However, some sug-gest (see e.g. Garegnani, 1978–79), that, following his acceptance of the first postulate of the classical theory of employment, Keynes’s stance is consistent with standard value theory. But that is not all, as it can even be regarded as being in tune with labour theory, as the following claim suggests: ‘I sympathise, therefore, with the pre-classical doctrine that everything is produced by labour’ (Keynes, 1936, p. 213).
beliefs. In the GT, one can find popular metaphors, such as animal spirits or the ‘ex-pedition to the South Pole’ (Keynes, 1936, pp. 161–2), that are not sufficiently ‘sys-temic’ because they focus on investors’ uncertainty rather than on the behaviour of the economy as a whole.
In my view, these two limitations show the kind of remedial work that must be done in order to ‘get Keynes’s ontology right’. The ultimate goal is to provide an intern-ally consistent picture of all his cosmological beliefs, which might open the way to the development of successful alternative methods in macroeconomics. In this regard, this paper’s contribution is to propose a new agenda, the ‘General Theory (GT) 4.0’, that seeks to achieve this goal by suggesting a new systemic metaphor for Keynes’s macroeconomics, namely Ulysses’s journey home in Homer’s Odyssey. Three major reasons justify this move. First, the use of metaphors to understand the GT appears quite useful to overcome many inconclusive analytical puzzles and quarrels that have characterised its interpretations since 1936. Secondly, although a few metaphors to capture Keynes’s view of capitalism—such as Farmer’s ‘windy boat’ and Akerlof and Shiller’s ‘rollercoaster’—exist in the literature, they are not truly alternative to the rocking horse, due to the constraints imposed by the atomistic ontology accepted by these authors. In contrast, the Ulysses metaphor is capable of restoring some of Keynes’s revolutionary insights, such as his processual ontology. Thirdly, although the Ulysses metaphor has been used before in various fields,5 including economics—
in particular, by Elster in his analysis of individually rational behaviour6—this is its
first macroeconomic application. More specifically, as it is based on the relationship between two different ‘worlds’—i.e. Ulysses’s journey and Ithaca—this metaphor is useful for conveying the idea, somehow underlying the GT, that in order to understand the working of the economy as a whole we need to look at economic agents from dif-ferent standpoints (e.g. entrepreneurs should be regarded as carrying out both regular production processes and strategic investment plans), in line with other modernist re-volutions, such as Picasso’s cubism.
To discuss these questions, this paper compares the four metaphors mentioned above. The second section focuses on the standard ‘rocking horse’ metaphor. Section 3 addresses Farmer’s ‘windy boat’ metaphor. Section 4 analyses Akerlof and Shiller’s ‘rollercoaster’ metaphor. Section 5, finally, focuses on the ‘Ulysses’s journey home’ metaphor.
2. The ‘rocking horse’ metaphor
2.1 The neo-Walrasian macroeconomic research programme
Wicksell’s ‘rocking horse’… indicates a belief that one treats as indubitable for doing equilib-rium analysis – an activity which otherwise would be merely an intellectual game.
(Leijohufvud, 1976, p. 80) What is this belief? To answer this question, it must be remembered that the rocking horse lies at the heart of the standard neo-Walrasian RP, which is widely regarded as
5 A modern reincarnation of Ulysses is Leopold Bloom in Joyce’s novel.
6 More specifically, Elster introduces this metaphor to discuss imperfectly rational behaviour, arising
when the ‘weakness of will may prevent us from using our capacity for perfectly rational behaviour’. In this case, ’the notion of binding oneself, as did Ulysses before setting out towards the Sirens’, (Elster, 1979, p. viii, emphasis in the text) becomes relevant.
the ‘best’ in macroeconomics.7 This does not mean that it is the most reliable tool for
accounting for empirical evidence and events such as the Great Recession, but that it is an internally consistent and well-articulated structure. For example, within this RP, the distinction between hard-core postulates and simplifying assumptions underlying specific models in the protective belt is clearly made. One thing is the Arrow Debreu framework, which fixes the ‘grammar’ for correct economic theorising and formalises the basic hard-core ontological claims about the economy on the grounds of basic pos-tulates, and another is a specific construct, namely the DSGE model. While the former is a meta-model that highlights the ‘fundamentals’ of general equilibrium theory, such as the so-called ‘deep parameters’ of individual preferences and technology, the latter is just one instance of general equilibrium theory being subjected to great simplifica-tions—such as perfectly competitive markets, full price flexibility, representative agents and rational expectations—in order to carry out ‘technical’ macroeconomic analysis.
Moreover, the standard RP clearly underlines both positive and negative heuristics. On the one hand, it stimulates the development of new models or microfoundations that are in tune with the first principles of economics; on the other hand, it dismisses attempts to reject standard cosmological beliefs—individual rationality, in particular— on the grounds of contrary empirical evidence, such as that emphasised by behavioural approaches.
2.2 Cosmological beliefs
It can thus be argued that the rocking horse is a perfect expression of this internally consistent RP. It expresses effectively the basic cosmological beliefs that constitute its hard core—namely the internal stability of the economy and the individual rationality and utility theory of value—revealing, in particular, their strict interrelations.
Note, for example, that insofar as it is a compact, solid object, a rocking horse conveys the idea that, in line with a mechanistic approach, the stability of the whole economy follows from the stability of its elementary, constituent parts. This means that, as in Newtonian physics, atomistic ontology is the key feature of the standard RP. It should be clear that, in this respect, the rocking horse metaphor is just an alternative way of expressing the traditional invisible hand story about the internal stability of a decentralised market economy, namely the view that the interaction of autonomous, rational, self-interested, agents produces ‘optimal’ equilibrium thanks to the smooth working of prices, formed according to an ‘essentialist’ theory of value based on the concepts of scarcity and utility (see e.g. Orlean, 2014, p. 13).
But this is not all. The peculiar feature of the rocking horse is to convey the idea that a market economy is a self-regulating system,8 partly because it is capable of absorbing
external shocks due to the smooth working of the price mechanism. Just as the rocking horse soon returns to its normal state after being hit with a club, so the economy, when it is hit by such shocks, exhibits ‘strong tendencies to converge relatively rapidly to the equilibrium values of its “real” variables’ (Leijohufvud, 1976, p. 71).
7 See e.g. Leijonhufvud (1976), Togati (2019) and Weintraub (1985).
8 For Leijonhufvud, such metaphors do not establish a unique and necessary link with the real world. To
formulate the stability view, he also uses another metaphor, namely the ‘even-keel state of the hull of a ship’ (ibid., p. 98).
2.3. Standard methodology
The rocking horse metaphor also helps to clarify key aspects of the standard method, namely the ultimate presuppositions (which Leijonhufvud considers as ‘acts of faith’) that guide the study of the economy. An obvious presupposition is that ‘there exists a horse’. A ‘horse’ is a way of expressing the reliance of economists on ‘models’. Since the incorporation of all relevant external factors into a systematic theory is beyond the reach, in order to deal with evolving economic systems they are compelled to:
a) classify relevant explanatory factors into endogenous/exogenous variables;
b) decompose the economic system into autonomous subsets (e.g. monetary/real sectors);
c) construct a model of the economy explaining its response to any given external shocks;
d) regard the economy as a self-contained subset isolated from society; from this point of view, economics is separate from sociology and follows an ‘internalist’ logic. 3. The ‘windy boat’ metaphor
3.1 The neo-Paleo Keynesian RP
Keynes had much less faith in the free market. In Keynesian economics, the economy is like a boat on the ocean with a broken rudder. Gusts of wind represent major economic events: a war in the Middle East, a hurricane in the Midwest, an airline pilots’ strike. After each shock, unemployment rises or falls permanently and there is no self-correcting mechanism to return it to a unique equilibrium. Just as a sailboat will be becalmed whenever it comes to rest, the un-employment rate can end up anywhere. The classical economists saw the economy as a stable self-correcting system. Keynes did not.
(Farmer, 2010, pp. 10–1) This ‘boat’ metaphor, through which Farmer seeks to capture Keynes’s vision of capit-alism,9 is meant to support the cosmological beliefs of his ‘neo-Paleo Keynesian’ (NPK)
RP. This is because, unlike most contemporary macroeconomists, he openly advocates the Lakatosian RP approach as a critical weapon against mainstream macro and holds that the differences between Keynes and the contemporary macroeconomists do not just lie at the level of ‘models’ in the protective belt but also at the hard-core level.
What is the NPK agenda? In line with a long-standing tradition in Keynesian eco-nomics from Hicks to Hahn, it seeks to reconcile Keynesian ideas with the micro-economics of general equilibrium theory. More specifically, Farmer’s intention is to integrate animal spirits within the hard core of the neo-Walrasian RP in order to go beyond the two dominant new classical and new Keynesian versions of standard macroeconomics and construct a third, more Keynesian, alternative stance.10 As
Farmer puts it, ‘In contrast to the new classical and new-Keynesian programs, neo-paleo-Keynesianism contains two propositions that are absent from the hard core of these agendas: 1) there is a continuum of possible equilibrium unemployment rates
9 For a similar ship metaphor to express Keynes’ s view, see Leijonhufvud (1976, p. 99).
10 In particular, Farmer holds that ‘Despite its name, the new-Keynesian research program is neither new
nor Keynesian. The idea, that real economic activity may be different from its long-run steady state as a con-sequence of sticky prices, is firmly rooted in monetarist tradition’ (Farmer, 2014).
and 2) the unemployment rate that prevails is determined by the “animal spirits“ of investors’ (ibid.). But is the NPK agenda really ‘alternative’ to the standard approach? 3.2 The cosmological beliefs
My answer is negative. Following the basic thrust of the paper, this point can be made clear by comparing Farmer’s boat with the rocking horse. On close inspec-tion, these two metaphors turn out to be simply two alternative ways of telling the same story, as revealed by the fact that they essentially refer to the same cosmo-logical beliefs.
First, by putting forward his boat metaphor, Farmer subscribes to the same internal stability view as the rocking horse. He regards the boat simply as a solid object, like the rocking horse. He does not mention, for example, ‘internal’ mechanisms—such as the composition of the crew or the crew’s state of mind—that might explain animal spi-rits or crises of confidence. More precisely, he does not open the ‘black box’ of animal spirits as Akerlof and Shiller do, for example, within their behavioural approach. While holding a traditional view of animal spirits—namely as a feature of investors’ behav-iour—he suggests that they are consistent with rationality, in contrast with Akerlof and Shiller and many others, who stress their purely irrational character.11 He notes, for
example, that the introduction of animal spirits to the general equilibrium model is possible ‘without giving up on the idea of rational behavior’ (Farmer, 2009, p. 357), which is at the core of neoclassical economics.
Secondly, as in the rocking horse story, Farmer retains the dominant role of external shocks in bringing about instability. Just as the rocking horse moves because it is hit by a club, his boat is driven by rough winds. However, he seems to believe that it is here, namely in the different type of shock generating the cycle, that the key differ-ence between Keynes and the current mainstream lies. Indeed, he criticises standard macroeconomists not for emphasising the role of shocks as such, but for relying on the wrong ones, namely shocks to ‘fundamentals’, such as tastes and technology; in his view, they are not important enough to justify the Great Depression or the Great Recession and imply a quick return to full employment (see Farmer, 2010, p. 44). Basing himself on what he calls Pigou’s ‘laundry list’,12 Farmer holds a broader view
of the causes of the business cycle, which allows him to provide a Pigouvian interpret-ation of Keynes. Indeed, his ‘animal spirits’ label is not unlike Pigou’s ‘errors of opti-mism and pessiopti-mism’. Both labels refer to agents’ psychology and can be regarded as instances of exogenous shocks exercising an autonomous influence on the economy, on a par with other fundamentals.13
Thirdly, as in the rocking horse story, he retains the dominant role of ‘empirical’ external obstacles in allowing for persistent unemployment and the possibility of mul-tiple equilibria. Just as the rocking horse may be blocked by what Leijohufvud called
11 For example, this is the essence of ‘animal spirits’ according to Akerlof and Shiller (2009): ‘[…] most
economists ... assume ... that variations in individual feelings, impressions and passions do not matter in the aggregate and that economic events are driven by inscrutable technical factors or erratic government action’ (p. 1, my italics).
12 Farmer notes that Pigou mentions at least six causes: ‘errors of optimism and pessimism, agricultural
fluctuations caused by weather, shock to productivity as a consequence of new inventions, monetary fluctu-ations, industrial disputes and changes in tastes’ (Farmer, 2010, p. 41).
13 As Farmer puts it: ‘[…] beliefs are themselves fundamentals that should be accorded the same
meth-odological status as preferences or technology’ (Farmer, 2016, p. 15).
a ‘spanner in the works’,14 the boat has a ‘broken rudder’. Strictly speaking, Farmer
rejects the traditional ‘price rigidity’ explanation of departures from optimal outcomes favoured by new Keynesians. While retaining the standard view of price flexibility and the ‘propagation mechanism’ of the economy—i.e. how agents respond to price changes brought about by shocks—he seeks to attach an alternative Keynesian inter-pretation to the special type of empirical imperfection that he introduces to justify the lack of adjustment. In particular, in his view, both multiple equilibria and persistent unemployment are due to imperfections, such as the incompleteness of markets and agents’ heterogeneity (born and unborn people, for example), which he elevates to the status of fundamental assumptions or postulates of his agenda. However, it can be argued that such imperfections do not really break with the standard mould; for ex-ample, they appear to be not so unlike the structural labour market imperfections that in standard macroeconomics account for high natural rates of unemployment.
3.3 NPK methodology
Not surprisingly in the light of the above claims, Farmer’s NPK agenda fails to be a true alternative to the mainstream also at the level of hard-core methodological prin-ciples. From this standpoint, his boat metaphor is very much the same as that of the rocking horse. Both imply that there exists a closed, internally stable object that, like the economic system, can be studied on the grounds of self-contained models.
The difference this agenda seeks to make with respect to mainstream approaches concerns what may be regarded as a ‘lower level methodology’ relevant for the heur-istics and protective belt of the RP, namely the construction of different types of models, such as ‘better’ DSGE incorporating animal spirits, that Farmer labels as ‘post-Keynesian’. In his view, this is possible because current general equilibrium theorising as reflected in the DSGE approach ‘is a very broad church that includes models which a purely Walrasian theorist might refer to as disequilibrium. Equilibrium, like beauty, is in the eye of the beholder’ (Farmer, 2017, p. 174).
4. The ‘rollercoaster’ metaphor
4.1 The behavioural macroeconomic research programme
We started work on this book in the spring of 2003. In the intervening years the world economy has moved in directions that can be understood only in terms of animal spirits. It has taken a rollercoaster ride.
(Akerlof and Shiller, 2009, p. 1) The ‘rollercoaster’ metaphor,15 through which Akerlof and Shiller seek to capture
Keynes’s vision of capitalism, is meant to support the cosmological beliefs of their behavioural RP. Like Farmer, they too hold that the differences between Keynes and contemporary macroeconomists lie not just at the level of ‘models’ in the protective belt but also at the level of the hard core.
14 ‘When the huge machine does not work as it is supposed to … it must be ... because someone has
thrown a spanner in the works— ‘monopolists and unions fix prices’—(Leijonhufvud, 1968, p. 395)
15 The rollercoaster metaphor has been used recently by the political historian Ian Kershaw to capture the
seeming lack of regularity in events in the history of Europe (Kershaw, 2018). As one reviewer of his book notes: ‘No single thread explains Europe’s trajectory over the past 70 years, so instead Kershaw charts ‘a story of twists and turns, ups and downs’, an unending rollercoaster of change and uncertainty’ (Kissane, 2018).
What is the behavioural agenda? In the light of our Lakatosian standpoint, it appears as a rather hybrid (or internally inconsistent) RP. On the one hand, it represents the basis for an alternative macroeconomic paradigm insofar as it makes a move which the neo-Walrasian RP strictly forbids: more precisely, it calls directly into question the key metaphysical, hard-core postulate of atomism based on substantive individual ra-tionality by contrasting it with evidence about agents’ actual behaviour. In particular, Akerlof and Shiller account for Keynesian phenomenology on the emergence of sub-optimal outcomes, such as high unemployment, by looking at the economy as com-prised of individuals, with several failings of a moral or cognitive character, which they call animal spirits. Unlike most economists, Akerlof and Shiller extend the notion of animal spirits well beyond familiar usage (for an assessment, see Dow and Dow, 2011). While traditionally this notion has been regarded as vague or as a kind of black box, they try to look inside it. As the following citation shows, they regard it as being not just a matter of pure psychological or irrational moves, such as mental energy or life force, but also include various social features:
The idea that economic crises, like the current financial and housing crisis, are mainly caused by changing thought patterns goes against standard economic thinking. But the current crisis bears witness to the role of such changes in thinking. It was caused precisely by our changing confidence, temptations, envy, resentment and illusions – and especially by changing stories about the nature of the economy.
(ibid., p. 4, my italics). On the other hand, the behavioural approach does not rule out general equilibrium theory completely. For Akerlof and Shiller, the Arrow Debreu model still represents the benchmark, the ‘true’ model of the economy. However, not unlike most new Keynesians, they regard it as an ideal system that formalises the invisible hand view without any special descriptive value. To understand ‘how the real-world economy works’, a theorist must focus upon deviations from this model. It is by placing the em-phasis on a special type of deviations—i.e. those of a moral and cognitive kind—that the behavioural approach departs from standard new Keynesian macroeconomics. For this reason, Akerlof and Shiller stress that in their book they carry out a much broader deviation from the Arrow Debreu world than most economists are willing to do: In our view economic theory should be derived not from the minimal deviations from the system of Adam Smith [...] from pure economic motivation and from rationality [...] but rather from the deviations that actually do occur and that can be observed [...] a description of how the economy really works must consider those animal spirits.
(ibid., p. 5). But is the behavioural agenda really ‘alternative’ to the standard approach?
4.2 The cosmological beliefs
In order to see why this is not the case, let us start by noting that the rollercoaster metaphor captures the hybrid nature of the behavioural RP quite well. Unlike the neo-Walrasian RP, it relies upon three seemingly mutually inconsistent or heterogeneous cosmological beliefs: namely belief in the internal instability of the economy, emphasis on individual irrational behaviour and standard value theory. The rollercoaster shows intuitively how these cosmological beliefs actually ‘fit together’ into a picture of the economy that is not so alternative to the standard one.
First, by replacing the reference to solid objects, such as the horse or the boat, with the vivid emotional experience of rides, the rollercoaster is meant to express the idea that the economy is internally unstable. However, it can be argued that it does so only to a limited extent. While certainly useful in conveying the idea that instability is rooted in the rich phenomenology of agents’ foibles generating seemingly erratic fluctuations of the economy, this metaphor also clearly suggests that excesses or de-partures from the ‘standstill’ norm (or from the smooth, gentle ride of the rocking horse) are temporary. Just as the ride must soon come to an end for the return to ‘normal’ life outside the fairground, the economy is punctuated by a succession of events, such as booms and crashes, that on average tend to confirm the existence of a ‘correct’ state, based on the fundamentals of standard theory captured by the Arrow Debreu model, where no such excesses by definition could exist. In other words, the (often) implicit assumption of the behavioural approach—which the rollercoaster helps to reveal—is that behind the surface of ups and downs generated by people’s illusions and mistakes, there is a ‘true’ structure of an economy governed by the eternal verities of microeconomics. Indeed, in line with the rational expectations hypothesis, Akerlof and Shiller do not dispute the existence of this structure, which is at least potentially knowable by agents. Their peculiarity with respect to the hy-pothesis is to believe that, due to the widespread existence of animal spirits, there is no ‘communism of models’ (i.e. people have heterogeneous expectations) and the learning process of the true structure is not spontaneous. Although illusions or mis-takes cannot last forever, it is crucial to help people get rid of them and recognise the true story through reform, nudging or education.
Secondly, unlike the rocking horse or the windy boat, the rollercoaster meta-phor apparently does not regard external shocks as dominant causes of instability. Indeed, in behavioural theory, the latter appears to be fully endogenous in view of its key emphasis upon agents’ internal states of mind. However, on close inspec-tion, this claim too can be disputed. Just as rollercoaster rides are not produced spontaneously but are in general predetermined by the constructor of the ma-chine itself,16 so in Akerlof and Shiller’s approach, there is an ultimately exogenous
source of disturbances, namely the psychological laws of individuals, the ‘natural’ givens which behavioural theorists try to discover or catalogue fully in order to account for historical events, such as ‘new eras’, booms and crashes.
Thirdly, just as the windy boat may be blocked by a broken rudder, so the rollercoaster is exposed to mechanical failures which may, for example, cause people to get stuck in dangerous, maybe upside-down positions. More specifically, this means that Akerlof and Shiller’s diagnosis of suboptimal states, such as persistent unemployment, in which the system may get stuck, does not really break with the standard mould at a fundamental level. The point is that, while focussing on actual processes and imper-fections of human behaviour, they retain the standard value theory—with its emphasis on price flexibility as the key regulator of the demand and supply mechanism—as the key benchmark. This quite inevitably leads them to subscribe to the mainstream view that persistent unemployment is mainly due to price rigidity generated by empirical imperfections.
16 Unfortunately, this is not always true, as the 2017 Dreamworld disaster in Queensland demonstrated.
4.3 Behavioural methodology
Akerlof and Shiller’s behavioural agenda also fails to be truly alternative to the main-stream at the level of hard-core methodological principles. Why? On the one hand, unlike the rocking horse or the boat, the rollercoaster certainly has two heterodox features. First, it is not an internally stable object; from the rollercoaster standpoint, it is true that ‘there exist rides’, which, such as the booms and crashes studied by behav-ioural theory, appear to be chaotic movements. Secondly, such rides cannot be studied on the grounds of self-contained models. Indeed, the behavioural RP involves a shift of emphasis from pure deductivist forms of analysis to the observation of agents’ actual behaviour, which appear to be incompatible. Suffice it to note that while macroeco-nomic models typically focus on equilibrium, the features that behavioural theorists focus upon concern typical ‘disequilibrium’ phenomena. Moreover, in their view, the economy ceases to appear as a self-contained subset isolated from society. In par-ticular, Akerlof and Shiller reject the ‘internalist’ logic and the clear-cut distinction between endogenous and exogenous variables underlying standard models and regard economics as being no longer separate from other disciplines, such as sociology and psychology.
On the other hand, however, there is one key reason why the behavioural approach fails to construct a full-blown alternative macroeconomic stance: the lack of alternative modelling reflects the fact that Akerlof and Shiller do not provide an alternative repre-sentation of a normal state of the economy with respect to that provided by standard theory. This claim can be made clear by focussing on their interpretation of Keynes. Seen from Akerlof and Shiller’s perspective—despite their original effort to open the black box of animal spirits—Keynes still substantially resembles Pigou, who suggests an approach to business cycles based on psychological factors, such as waves of opti-mism and pessiopti-mism. They thus subscribe to a long-standing conclusion of much of Keynesian literature from Hicks’s ‘Mr Keynes and the Classics’ onwards: that is, that at the end of the day, Keynes’s theory is relevant essentially for dealing with patho-logical phenomena such as bubbles and fluctuations rather than with the normal or structural working of the economy. Standard tools, such as DSGE models, thus still have a role to play in representing the latter.
This kind of inconsistency in hard-core methodological principles of the behav-ioural agenda explains why the latter is unable to make a vast difference with respect to mainstream approaches, even in terms of ‘lower level methodology’, that is in terms of heuristic and protective belt assumptions. A few remarks suffice to make this point clear. First of all, while criticising the dominant new Keynesian approaches, Akerlof and Shiller are still in tune with them when they advocate microfoundation moves for justifying wage and price rigidities. Their broad approach to animal spirits allows them to do so in alternative ways. Strictly speaking, in their view, new Keynesians do not neg-lect animal spirits tout court, but consider only one specific form, namely money illu-sion, that leads them to account for money wage rigidity in such a way as to make only a minimal departure from full employment and standard models: ‘Macroeconomics textbooks [used to] explain deviation from full employment by a single type of animal spirit: that workers dislike money wage cuts, and that employers are therefore reluctant to make them [...]’ (ibid., pp. 4–5). Akerlof and Shiller’s broader view leads them in-stead to explain money wage rigidity in terms of ‘fairness’ or ‘efficiency wage’.
Secondly, although Akerlof and Shiller stress the limitations of standard DSGE models and, unlike Farmer, do not seek to construct ‘better’ general equilibrium models by inserting animal spirits into them, they end up by supporting the use of other types of standard aggregate models. For example, they appear to be in tune with early Keynesian models—incorporated in old textbooks, such as Dornbusch and Fisher (1990, ch. 12) and now outmoded since the advent of rational expectations and DSGE on account of their ‘ad hoc’ treatment of expectations—that used to account for an active role of effective demand in terms of shocks hitting the stable structure of the economy (defined in the traditional sense as reflecting deep parameters). With respect to these, Akerlof and Shiller’s work can certainly be seen as a Keynesian contribution insofar as it shifts the focus of the analysis onto significant social features of human be-haviour. However, insofar as it retains an ultimately exogenous element (i.e. individual nature), it can also be seen as a contribution to the development of the neoclassical RP itself concerning fluctuations along the lines suggested, for example, by Ohanian: The literature on general equilibrium business cycle models has made considerable progress in understanding how different model economies respond to what we call abstract shocks: shocks that do not have a precise definition or acknowledged source. This category includes product-ivity shocks, preference shocks, financial shocks, risk shocks and markup shocks, among others. However, because the focus of the literature has been on studying the effect of different types of shocks in different types of economies, there has been less progress on developing and testing theories about the nature and sources of these abstract shocks.
(Ohanian, 2010, p. 48) Indeed, when seen in this perspective, the two authors do make a contribution to the definition of the nature of the shocks. While the standard paradigm relies on ‘abstract’ shifts in individual preferences, their work amounts to a clarification of the fact that such shocks are ultimately due to a number of natural or psychological features of human behaviour that economists usually neglect. One may note, for example, that Akerlof and Shiller’s work is useful in rationalising a number of ‘popular’ explanations’ of the Great Recession, tending to ‘personalise’ some of its proximate causes—such as consumers’ gullibility, mortgage brokers’ greed, flaws in the US regulatory system, securitisation processes, investment bankers (who dreamed up the new security products), rating agencies—mentioned in Blinder’s (2007) article entitled ‘Six Fingers of Blame’.
5. The ‘Ulysses’s journey’ metaphor
5.1 The ‘General Theory 4.0 RP’
... there is nobody that can be more similar to the modern man than Odysseus. In fact, Odysseus wasn’t like all the other heroes – blonde, young, or particularly ambitious, but simply an incred-ibly smart king who only wanted to end the war as soon as possible in order to go back to Ithaca to his son and wife. However, because of his thirst of knowledge, combined with other events, such as being hated by many gods, Odysseus will travel, losing his men and treasures, for ten long years before finally arriving in Ithaca.
(Caruso, 2015) As already noted, reference to the metaphor of Ulysses, one of the protagonists of European culture, is certainly not new in many fields, including economics. However, in this paper, I use the metaphor as a starting point for a potentially new RP, which
may be labelled as the ‘General Theory (GT) 4.0 RP’,17 aimed at providing an
alter-native understanding of Keynes’s vision, with respect to Farmer, Akerlof and Shiller. While these authors share the belief that Keynes focuses on ‘pathologies’, such as depression and high unemployment, rather than on normal economic life, the new agenda holds instead that Keynes makes a distinction between two different sides of macroeconomic activity, both of which must be considered as ‘normal’. One part con-cerns ‘crucial’ decision-making about how much to consume and invest. The other part instead concerns the carrying out of ‘regular’ production processes and consumer expenditures in the light of a given level of income, determined once those crucial de-cisions are made. In the GT, the focus is on the first part; the second is not neglected but lies ‘frozen’ in the background.
It should be noted that this dichotomy is not a sign of incompleteness but of ‘mod-ernity’. Indeed, it represents a feature that the GT shares with other modernist land-marks in various fields, such as Einstein’s relativity theory, Joyce’s Ulysses and Picasso’s paintings,18 all stressing the need to consider multiple perspectives to better understand
their respective objects of study or art, after the end of the Laplacian ‘mechanistic dream’ of a unified account of the physical world in the nineteenth century based on atomism.19
As I suggest below, this dichotomy can only be established on the grounds of a different type of ontology, which is the hallmark of the interpretation of the GT pro-posed here, based on the attempt to carry out an internally consistent reconstruction of Keynes’s RP capable of matching the high standards of presentation of the standard RP. It is for the purpose of clarifying this ontology that the Ulysses metaphor proves to be especially useful.
5.2 Cosmological beliefs
In order to see why this might be the case, let us start by noting that the Ulysses meta-phor helps to capture the cosmological beliefs underlying the GT. Although, as already noted, Keynes did not formulate a full-blown RP and, in particular, failed to specify such beliefs in a clear-cut manner (for a full argument, see Togati, 2019), within his mature writings one can nevertheless distil the following three key assertions: a) the economy is internally unstable, b) the monetary economy is an irreducible datum and c) value is based on conventional factors. The new metaphor shows intuitively how these cosmological beliefs actually ‘fit together’ into a picture of the economy that is quite alternative to the standard one.
5.2.1 Internal instability
First of all, like rollercoaster ‘rides’, Ulysses’s journey is a dynamic ‘experience’ useful in expressing the idea that the economy is internally unstable. In particular, this metaphor manages to do so by helping to bring the processual ontology underlying
17 I label this interpretation ‘TG 4.0’ because it seeks to remedy the fact that this book fails to provide a
full-blown RP, as this concept was not available in Keynes’s time.
18 For a discussion of the links between such revolutions, see e.g. Togati (1998, 2012).
19 Strictly speaking, as revealed by the metaphors used by Farmer, Akerlof and Shiller, atomism too
pro-poses a reconciliation between Keynes and standard theory on the grounds of ‘dichotomies’, such as that be-tween the stable structure of the windy boat and an ‘unconventional’ shock, like animal spirits or that bebe-tween the rollercoaster and the ‘normal’ structure of the economy: i.e. between strong rationality and irrational moves included under the animal spirits label. However, such dichotomies—unlike modernist ones—do not represent alternative, though equally normal, standpoints but deviations or anomalies from normal cases.
Keynes’s macroeconomics to the fore (for a definition of this ontology, see e.g. Lawson, 2015, p. 143, Renault, 2016). Some key features of this perspective are described by Whittington (2001) in his analysis of strategic behaviour, quite effectively summarised by Mazzucato as follows:
The processual perspective holds that economic outcomes emerge from the interactions between in-dividuals and their environment. The result of this interaction is unpredictable because actions are often unintended. Humans are not perfectly rational but ‘bounded’ in their rationality. This, along with the fact that interaction between individuals is guided not only by self-interest but also by collective bargaining and compromise, causes economic dynamics to be fuzzy and unpredictable.
(Mazzucato, 2002, p. 9) Let us deal with them in more detail.
a) Strategic goals: The analogy between Ulysses and entrepreneurs
Just as Ulysses is a ‘positive’ hero who strives to defeat the angry gods and monsters in order to reach home to save his wife and kingdom, so entrepreneurs, like modern Ulysses, strive to achieve ‘the social object … to defeat the dark forces of time and ignorance which envelope our future’ (Keynes, 1936, p. 155): that is, entrepreneurs— taken as a class, rather than individuals because this social outcome is unintended by each of them—seek to carry out those investment projects that could grant the survival of the economy by defeating monsters such as speculators.
b) Outcomes emerge from the interactions between individuals and their environment Just as Ulysses can succeed in his enterprise only if he manages to build a strong ‘team spirit’ within his ‘crew’, entrepreneurs as a group need the support of a group of workers/consumers (i.e. the ‘we are on the same boat’ argument). The organic rela-tionship between these two groups of agents allows one to make sense of the principle of effective demand and the various paradoxes and fallacies (e.g. the paradox of thrift, why cutting wages does not benefit firms and so on) which inevitably arise if one looks at the economy from the standpoint of individual entrepreneurs or consumers: if, that is, one sticks to atomistic ontology.
c) Humans are not perfectly rational but ‘bounded’ in their rationality
Just as Ulysses represents the highest expression of human ability or ‘rationality’, which has nothing to do with the gods’ perfect rationality but amounts to the capacity to adapt to a wide variety of challenges by choosing the ‘right tricks’ (including conventional rules such as the choice of which star his crew should look at), in the GT entrepreneurs make decisions in the face of uncertainty by relying on a vast array of ‘tricks’ (see e.g. Keynes, 1937). In particular, instead of making probability calculations, they follow their ‘instincts’, which, in this processual perspective, are no longer ‘spontaneous’ or natural features, as they appear to be when seen through atomistic lenses. Indeed, as Keynes points out in chapter 12 of his book, they are heavily influenced by the ruling conventions that ‘work’, not because they are absolutely true but because they emerge from interaction and are shared by the whole group of peers in a given context.20 For
20 Strictly speaking, in order to capture some of the Keynesian insights about rationality the processual
perspective should be integrated by what Whittington labels as the systemic perspective, according to which, for example, ‘The “rationality” of a particular strategy depends on its specific historical, social and cultural context. Strategic behaviour is “embedded” in a network of social relations that includes cultural norms, class and educational background, religion and so on. Hence what is labelled as “irrational” behaviour in one context may be perfectly rational in another’ (Mazzucato, 2002, p. 10).
this reason, ‘animal spirits’ are not an attribute of individual entrepreneurs but of a whole class of people who hold the responsibility for accumulation.21
d) Dynamics is fuzzy and unpredictable
Just as the Ulysses story shows that conventional rules are intrinsically fragile—any events occurring during the journey may easily disrupt them, thus generating bewilder-ment or discomfort within the crew and unexpected deviations from the captain’s main goals (e.g. crew members abandoning the ship to become lotus eaters) —in the GT the fragility of conventions is a dynamic feature that may give rise to unexpected behav-iour—such as a sudden cumulative loss of confidence and people holding money rather than buying goods, thus generating seemingly erratic fluctuations in the economy.
Now, as already noted, some of these features also underlie Akerlof and Shiller’s con-tribution, since, after all, rides too reflect a dynamic, processual experience. However, one crucial point of departure of the GT 4.0 agenda from their behavioural approach is that, unlike the rollercoaster, the journey turns out to be not a temporary excess or departure from some ‘normal’ or ‘true’ life, but a long, ‘normal’ experience or activity that is not necessarily successful—there is no ‘necessary’ going back to Ithaca—so it must be understood ‘on its own’. Similarly, Keynes’s GT should not be understood as a deviation from a norm reflecting the ‘true’ structural state of the economy, as was emphasised long ago by Hicks:
(in the GT)…it is no longer allowed that ordinary (static) theory can give a correct analysis of even normal conditions. But if there is no norm which we have understood, it is useless to dis-cuss deviations from it. The changing, progressing, fluctuating economy has to be studied on its own, and cannot usefully be referred to the norm of a static state.
(Hicks, 1936, p. 86). But does this mean that any notion of ‘structure’ is irrelevant to macroeconomics? Once again, the Ulysses metaphor sheds light on this vital question. It can be argued that be-hind Ulysses’s journey there is a ‘structure’: we could assume that the ship is actually built on Ithaca. However, the crucial point is that this structure does not determine the journey, but only makes it possible. I hold that this is exactly the way we should interpret the key claim made in chapter 18, in which Keynes summarises his GT:
To begin with, it may be useful to make clear which elements in the economic system we usually take as given, which are the independent variables of our system and which are the dependent variables.
We take as given the existing skill and quantity of available labour, the existing quality and quantity of available equipment, the existing technique, the degree of competition, the tastes and habits of the consumer, the disutility of different intensities of labour and of the activities of supervision and organisation, as well as the social structure including the forces, other than our variables set forth below, which determine the distribution of the national income. This does not mean that we assume these factors to be constant; but merely that, in this place and context, we are not considering or taking into account the effects and consequences of changes in them. Our independent variables are, in the first instance, the propensity to consume, the schedule of the marginal efficiency of capital and the rate of interest, though, as we have already seen, these are capable of further analysis.
Our dependent variables are the volume of employment and the national income (or national dividend) measured in wage-units.
21 For a view of animal spirits as social and cultural phenomena, see e.g. Dow (2013).
The factors, which we have taken as given, influence our independent variables, but do not com-pletely determine them. For example, the schedule of the marginal efficiency of capital depends partly on the existing quantity of equipment which is one of the given factors, but partly on the state of long-term expectation which cannot be inferred from the given factors.
(Keynes, 1936, pp. 245–6) In my view, the impression one might receive from this passage is that there are two sides to ‘normal’ macroeconomic activity with regard to the income-generating pro-cess. Using our metaphor, it can be argued that one thing is the ‘economics of the journey’, where the key interaction between entrepreneurs and consumers generates the level of aggregate demand that plays a causal role in the determination of a cer-tain level of income and another is the ‘economics of Ithaca’, which focuses on how this given income is produced more or less smoothly, in fairly competitive markets. Although the two sides are obviously interconnected,22 in his book Keynes provides a
dichotomous account, focussing on the first side while taking the other more or less for granted.
5.2.2 The irreducibility of a monetary economy
Let us now focus on how the metaphor helps clarify Keynes’s second cosmological belief. Unlike rides, which are predetermined by the rollercoaster machine, Ulysses’s journey is not predetermined by the structure of the ship. Similarly, in contrast with the individualist perspective held by Akerlof and Shiller, for Keynes, the fluctuations of the economy and events such as booms and crashes are not predetermined by the (stable) natural laws of the human mind. In the light of processual ontology, they ap-pear to be the autonomous product of agents’ interaction. From the analytical point of view, this implies that the macroeconomics of income determination is an autonomous subject that must be studied from a systemic perspective based on aggregates as irre-ducible, emergent entities. In the GT, this autonomy is stressed in various ways, in par-ticular by underlining the fact that the properties of a full-blown monetary economy cannot be inferred from those of a barter economy.23
How can this autonomy be justified? Why are aggregates irreducible entities? These two features are strictly linked for one basic reason: not unlike other modernist
22 Strictly speaking, it should be noted that our metaphor involves two different meanings of the ‘going
home’ expression. On one side, it is true that what the journey actually determines is only the level of ag-gregate demand. In order to determine income (at any level), the ship must ‘go home’ to allow agag-gregate demand to interact with aggregate supply, that is with Ithaca’s productive apparatus. On the other side, the expression obviously implies the successful conclusion of the journey: i.e. the attainment of full employment and growth for the island, which is a highly uncertain outcome. In my view, this is not a sign of inconsist-ency (indicating a limitation of the use of the metaphor), but of the fact that the income-generating process actually involves two different stages. It is an important merit of the Ulysses metaphor that it brings them to the fore, in contrast with the simultaneous logic of general equilibrium analysis, which simply makes them indistinguishable. A plausible reconciliation of the two meanings is, however, possible. In what follows, I retain the second meaning and assume that, during the journey, a level of income consistent with under-employment is determined on the grounds of the principle of effective demand, in correspondence with the moments of temporary equilibrium reached by the ship at various points on the map. After all, even during the journey, aggregate demand interacts with elements of supply derived from the economics of Ithaca, such as the ship and technology used by the crew.
23 As Keynes puts it, ‘So long as we limit ourselves to the study of the individual industry or firm on the
assumption that the aggregate quantity of employed resources is constant, and, provisionally, that the con-ditions of other industries or firms are unchanged, it is true that we are not concerned with the significant characteristics of money. But as soon as we pass to the problem of what determines output and employment as a whole, we require the complete theory of a monetary economy’ (Keynes, 1936, p. 293).
revolutionaries, in order to better convey the object of his analysis—namely a full-blown monetary economy—Keynes is forced to drop the single, unifying perspective of standard theory and consider a ‘multiple perspectives’ approach. This means, for ex-ample, that when dealing with macroeconomics, one needs to consider an object or an agent from differing viewpoints. For example, money is not just a unit of account and a means of payment but also a store of value, which accounts for the lack of aggregate demand and the possibility of underemployment. If one adopts a single perspective, such as the standard general equilibrium model, the latter aspect simply disappears.
Similarly, one also needs this double perspective to understand the role of entrepre-neurs. On the one hand, they make ‘routine’ decisions to carry out a given (individual) production plan; on the other hand, they decide strategic investment projects, which— when considered all together (viewing entrepreneurs as a class) —change individual production plans. Moreover, as already noted, behind the principle of effective demand is the vital interaction between the entrepreneurs and consumers taken as groups or aggregates. Note once again that this double role of entrepreneurs disappears com-pletely if one sticks to individualist ontology. Following the latter, both aspects of their activity are subsumed under the production function. For example, investment ap-pears essentially derived from the state of technology (through the marginal product-ivity of capital), as well as from the rate of interest. In particular, the vital interaction between entrepreneurs and consumers—which only emerges if one adopts an aggre-gate perspective—is either ignored or subsumed under the ‘given expectations’ label. 5.2.3 Value
The metaphor ultimately helps clarify Keynes’s conception of value. Unlike the windy boat or the rollercoaster, Ulysses’s journey back home may be blocked not primarily by mechanical failures due to external factors, but by the weakening of the ‘internal’ pact that binds Ulysses to his crew. For example, the ‘collective’ aim of the journey could be at risk if some crew members were to pursue their self-interest, like just stopping somewhere to become lotus eaters. The same holds for Keynes’s GT, in which the so-lidity of conventions (such as the use of fiat money) ultimately rests on an implicit or explicit pact among people (e.g. collective trust in the central bank).
The key role of pacts and ‘internal’ market norms also underlies the notion of ‘value’ in the GT, which appears relatively irreducible to pure self-interest, as reflected in the standard parameters of utility and scarcity. Indeed, macroeconomic prices such as the money wage and interest rate are not determined by such parameters. On the one hand, according to Keynes, the wage rate does not reflect the factors of labour productivity and workers’ preferences underlying the labour market as in standard theory. It is, rather, the product of social factors, such as collective bargaining, ethical norms or notions of ‘fair-ness’. On the other, the rate of interest does not reflect the standard ‘external’ factors of productivity and thrift on the capital market, but factors ‘internal’ to the money market, such as agents’ liquidity preference and, in particular, the interplay of their expectations leading to the emergence of notions of ‘normal’ rates of interest.
5.3 Methodology
Let us now see how the new GT 4.0 agenda could represent an alternative to the main-stream at the level of hard-core methodological principles too. Once again, this point can be made clear by comparing the key metaphors. Like the rollercoaster, Ulysses’s
journey has two heterodox features. First, it is not an internally stable object. Bearing in mind Homer’s poem, ‘there exists a journey’ conveys the idea of a fairly chaotic ex-perience. Secondly, this journey cannot be studied on the grounds of self-contained models. This means that, like the behavioural approach, the new agenda calls for a shift of emphasis from pure deductivist forms of analysis to the observation of agents’ actual behaviour and ceases to regard the economy as a self-contained subset isolated from society, in contrast with the ‘internalist’ logic and the clear-cut distinction between en-dogenous and exogenous variables underlying the standard approach.
However, there are crucial differences between the two metaphors that have deep methodological implications. The key point is that, unlike the rollercoaster, Ulysses’s journey is a long, normal process, which must be studied ‘on its own’ rather than being regarded as a temporary deviation from a normal state of full rationality, meaning or-dinary life on Ithaca. In methodological terms, this means that it is not a ‘disequilib-rium’ phenomenon, since there is no necessary return to Ithaca (and of course, other than the fact that it influences the minds of the sailors, the latter has no real power of attraction). While, in principle, the process could be studied in evolutionary or histor-ical terms, it is not clear how these approaches comply with the use of concepts such as ‘equilibrium’ and formal ‘models’, necessary for macroeconomics as ‘abstract’ theory, that Keynes also had in mind.24
Following the GT and many post-Keynesian contributions, the new agenda con-siders the study of a process as being consistent with ‘equilibrium’, if by this term we mean either a temporary state of ‘rest’—clearly, in its long journey, there must be mo-ments in which the ship is not moving (for example, when it stops at a natural port) —or a period in which the system appears to be functioning ‘smoothly’ like when the ship is on an even keel (i.e. while it rolls from side to side, there might be a strong ten-dency to stay upright). Such moments, though not necessarily desirable, are important because they clarify the scope of modelling for Keynes. This is intrinsically ‘open’ be-cause it is meant to capture not the whole journey as an irreducible phenomenological datum (with all the stops on various islands, the accidents and challenges), but essen-tially its ‘determinants’, which can be established at a single point of time. One can think of structural determinants, such as the ship itself, the ‘technology’ possessed by sailors and the fishing nets taken from Ithaca, as well as the number and age of the sailors, all of which can be taken as data: then we have the crew’s propensity to travel courageously, Ulysses’s ability or propensity to exercise his leadership and the degree of ‘team spirit’, which can also be taken as data. Such propensities are conventional, fragile data, which, however, are sufficiently long-lasting to warrant modelling based on a (temporary) equilibrium analysis.
6. Conclusion
This paper has proposed a new agenda, the GT 4.0, based on the Ulysses’s journey metaphor, in order to clarify the ontology of the GT and favour the emergence of new methods in macroeconomics. By making a systematic comparison between the new
24 Note, for example, the following quotations: ‘Can I persuade German economists that methods of
formal analysis have something important to contribute to the interpretation of contemporary events and to the moulding of contemporary policy?’. (Keynes, 1936, p. xxvi) and ‘It seems to me that economics is a branch of logic, a way of thinking … one cannot get very far except by devising new and improved models’. (Keynes, 1938, p. 296).
metaphor and alternative ones, such as Farmer’s ‘windy boat’ and Akerlof and Shiller’s ‘rollercoaster’, it suggests a few main conclusions.
First of all, using the new metaphor it is possible to provide a consistent formulation of Keynes’s cosmological beliefs about internal instability, value and aggregate behaviour.
Secondly, the metaphor leads us to establish that the relevant dichotomy is not be-tween macro and micro but bebe-tween two sides of ‘normal’ macroeconomic activity.25
One thing is the process of (critical) decision-making on how much to spend for in-vestment and consumption, which plays a causal role in the determination of income and quite another is the flow of (routine) decision-making on how this given income is produced and allocated. In terms of our metaphor, one thing is the ‘economics of the journey’, and another is the ‘economics of Ithaca’.
Thirdly, this new dichotomy helps to understand the significant features of Keynes’s method:
a) It underlines Keynes’s distinction between two sets of data: primary and sec-ondary.26 The former are the propensities (and the variables, such as the interest
rate, that emerge from interaction ‘during the journey’) that play a casual role in the determination of the level of income. The latter, instead, concern the structural features that are relevant for the economics of Ithaca, which produces the ship and the technology used by the sailors. Such factors are obviously important but play only an enabling role in the income/journey story. It should be clear that this key distinction is easily lost if one neglects the hard-core cosmological beliefs and thinks, as standard macroeconomists usually do, simply in terms of ‘models’, where all these data are treated on a par, that is as ‘exogenous’ variables. Not surprisingly at this formal level, differences between alternative approaches simply disappear, as was the case with the interpretations of the GT based on the IS-LM model. b) It suggests that the search for microfoundations, as we normally understood it, is quite
misleading. In particular, in terms of our metaphor, trying to derive microfoundations for Keynes’s aggregates is like trying, for example, to explain Ulysses’s journey on the grounds of individual sailors’ states of mind, in line with Akerlof and Shiller’s behavioural approach. In this perspective, the journey would likely appear to be just an ‘illusion’ or a mad enterprise, as if it had no really rational aim—such as ‘going home’, namely implementing the decision to invest by defeating the dark forces of ignorance—but represented simply an undesirable, crazy detour from ‘true’ life on Ithaca (it would be so much better if people stayed there all the time). Alternatively, the journey could be explained in terms of the ‘fundamentals’ of life on Ithaca, in line with standard microfoundations stories. In this case, it would likely become something like regular tourist trips around the island, the nautical equivalent of Euclidean geometry criticised by Keynes in the GT.
c) It implies that the equilibrium at a point in time is the analytical link between the two sides of macroeconomic activity; in other words, the journey as a process can be studied by focussing on its determinants at a given point in time.
25 It is true that Keynes’s famous ‘right dichotomy’ argument—‘The right dichotomy is, I suggest,
be-tween the theory of the individual industry or firm and of the rewards and the distribution bebe-tween different uses of a given quantity of resources on the one hand, and the theory of output and employment as a whole on the other hand’ (Keynes, 1936, p. 293)—is usually regarded as stating a macro/micro dichotomy. However, this is mainly due to the fact that in his book Keynes was criticising Pigou’s Marshallian partial equilibrium approach.
26 A formulation of this distinction is made in Togati (1999) and Togati (2006). For comments on this
distinction, see Chick and Dow (2001, p. 151).
d) It clarifies that the scope for modelling is limited in macroeconomics. It can be ar-gued that, in the light of the GT 4.0 agenda, modelling is necessary for at least three reasons: a) to avoid ‘getting lost in the woods’ in the face of complexity; b) to translate the distinction between primary and secondary factors into ‘operational’ terms; and c) to allow one to draw policy conclusions, which is the raison d’être of macroeconomics. However, it is also true that modelling is intrinsically limited by its link with instantaneous equilibrium. In particular, this means that modelling must be ‘open’ to introduce the consideration of historical factors to the analysis. Indeed, to use our metaphor, the journey can be fully understood only in the light of the specific encounters made by the crew in a given historical period.
Conflict of interest statement. None declared
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