Coordination and Growth: Essays in Honour of Simon K. Kuipers

273 Pages·2001·13.149 MB·English

by  Gerard H. Kuper, Elmer Sterken, Els Wester (auth.), Gerard H. Kuper, Elmer Sterken, Els Wester (eds.)

Coordination and Growth
Essays in Honour of Simon K. Kuipers
Coordination and Growth
Essays in Honour of Simon K. Kuipers
Edited by
Gerard H. Kuper
Elmer Sterken
Els Wester
Department of Economics
University of Groningen^ The Netherlands
Springer Science+Business Media, LLC
Library of Congress Cataloging-in-Publication Data
Coordination and growth: essays in honour of Simon K. Kuipers / edited by Gerard H.
Kuper, Elmer Sterken, Els Wester,
p.cm.
Includes bibliographical references.
ISBN 978-1-4613-5609-7 ISBN 978-1-4615-1549-4 (eBook)
DOI 10.1007/978-1-4615-1549-4
1. Kuipers, S.K. (Simon Klaas) 2. Economists-Netherlands. 3. Macroeconomics. I.
Kuipers, S.K. (Simon Klaas) II. Kuper, G.H. (Gerard H.) III. Sterken, E. (Elmer) IV.
Wester, E.
HB111.K85 C66 2001
338.9--dc21
2001038473
Copyright ® 2001 Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers in 2001
Softcover reprint of the hardcover 1st edition 2001
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system or transmitted in any form or by any means, mechanical, photo-copying, recording,
or otherwise, without the prior written permission of the publisher, Springer
Science+Business Media, LLC
Printed on acid-free paper.
Preface: Personal Recollections by Jan Pen
I
The editors excused me from the obligation to write a scientific article;
instead I'm allowed to write a personal note. Indeed, I know Simon for a
very long time. Longer than the other authors do. Our first encounter took
place when he was a student, which must have been in the beginning of the
1960s. On behalf of the students he was member of a committee in charge of
organising an excursion abroad. On the very last moment the number of
participants turned out to be too large: an extra professor had applied. The
question was whether one of the students should be excluded. No, Simon
said, and he got his way. He persisted in a very polite way, and that was a
characteristic that I would again witness many times later.
In the forty years that I know him I saw him develop from student to
assistant professor (with Frits J. de Jong), PhD candidate (with De Jong as
promotor (supervisor) and Pen as co-referent (consulting supervisor)),
colleague in the same faculty (he for general economics, I for public
finance), dean of the university and chairman of the board of the university.
So, every now and then he was my boss. Together we were members of the
editorial board of De Economist, founded in 1852, of which Simon is now
Honorary Editor. In that capacity we had a meeting every three months at the
house of one of the editors, followed by a dinner together with our wives.
One can write a book about that circle of friends.
I have very good memories of the recent period, during which Simon was
my host on the fifth floor of the WSN-building where the Faculty of
Economics is housed. That was from 1986 through 1992. After my
retirement from the Faculty of Law, Simon invited me to move into a room
I Translated by Els Wester and Richard Gigengack.
vi Preface: Personal Recollections by Jan Pen
on the same floor as he. It was a room with a nice view, surrounded with
nice people. I could sit there at times that suited me, mostly in the morning.
There I read, wrote, looked out of the window and held conversations with
who ever felt the desire to walk in. For me, after having spent years with
jurists, a new fertile period set in. I was impressed by the skill of the new
generation and spoke more with Simon than ever before. He reported about
these meetings himself - I can restrict myself to my side ofthe story.
My account starts in the 1960s. Simon was not one of my students, but
attended classes in public finance every now and then. That was not unusual
- Duisenberg, who graduated in 1961, also dropped in sometimes. The fact
is that there was a rumour about me telling another story about
macroeconomics than the man who was paid for that, viz. Frits de Jong. That
rumour was correct. Of course it was all about Keynes. De Jong's lectures
were strongly oriented towards monetary phenomena. He was interested in
the creation and contraction of money, in hoarding and dishoarding and in
the velocity of money. Moreover, he interpreted the difference between S
and J as a matter of time, in the spirit of the Swedish school. In fact it was a
variant of Dennis Robertson's ideas, whose elegant book Money I had read
for my Master's exam in 1946. If you believed this story there was nothing
new in Keynes. In my lectures Keynes was pictured as the man of
autonomous investment that influences national income through its impact.
Money follows expenditures, banks accommodate. The two approaches can
be concisely summarised as MV versus C+J (the title of an article that I
wrote at that time in the journal of the central bank of Belgium.) Students
like that: a dispute between two people they can see and hear.
With hindsight there is a case for both points of view and in any case
Frits de Jong was right in his contention that formally the two theories can
be converted into each other. But at the time I opposed that although
Keynesian and monetary models may be formally equivalent, the stories
differ. One narrator places different accents than the other; the language
differs. Frits de Jong did not embrace the proposition that stories are part of
our profession. In that respect Simon Kuipers resembles his master: in his
opinion storytelling easily degenerates into journalism. Upon that we
disagree - in my opinion economic research, no matter how theoretical or
empirical, should be crowned with a story, preferably excitingly told. The
listener or reader should think: "And that's the way it is!"
I had a rather intensive contact with Simon when he was working on his
PhD thesis: The Significance of Demand and Supply Factors in One-Sector
Models of Economic Growth (1970). It dealt with growth, more specifically
2 Brakman, S., H. Garretsen and S.K. Kuipers (eds.) (1993), Met Jan Pen in debat,
Amsterdam: Amsterdam University Press.
vii
with disequilibrium growth. Frits de Jong, supervisor, stayed for a year in the
United States and I was consulting supervisor, a not very clearly defined
role. The drafts that were submitted to me were in a pretty advanced stage. It
seemed very original to me but not always easy to understand. I learned a lot
about disequilibria, whether or not simultaneously occurring, - excess
demand, excess supply, capital shortage, labour abundance etc. etc. -
classified in full-page charts. It was pure macroeconomics, a field in which I
had occasionally been active myself, but I couldn't always find the relations
between the new and the existing literature. The prose, staccato with lots of
enumerations, didn't sound like music to me. It was more like a lecture note
than a thesis. However, the prevailing impression was: here is a creative
expert speaking. Nowadays we would call it pioneering. Several rumours
circulate about the conversations between the PhD candidate and me, but for
sure Simon never changed anything to please me. Again I learned to
appreciate his determination. On a few points I maintained my criticism - I
don't believe for instance that a negative marginal product of capital is a real
phenomenon; the thesis asserts the contrary. The doctorate was bestowed
cum laude, which I totally agreed with. The thesis itself is only as a
mimeograph available. It belongs in the category scarce tracts in economics,
copies of which are worth much money.
The way in which Simon developed as a monetarist, a Keynesian or
whatever, in the course of time, can easily be discovered by consulting his
publications. That's not a job, however, to tackle at any odd moment. He is
extremely diligent and his work continuously evolves. The dissertation alone
demands a few days of study. Before 1970 he rewrote, in collaboration with
others, the standard textbook of Korteweg and Keesing Het moderne
geldwezen. This book originates in the 1930s, but the first edition, delayed
by World War II, was published in 1946. Even at that time it wasn't really
modem. Various teams set about to modernise it. In the end only the team
from Groningen remained. The result was a miraculous multiplication. More
and more volumes and parts came along and they became more and more
voluminous. I have in my library the 14th edition (1986) of Part III. The
subject is monetary theory. It's loaded with models. One of the chapters
analyses the influence of money creation on the price level with eighty-eight
equations. And that is only one part of the book that consists of 407 pages.
Anyone who is aware of the relatively limited mathematical knowledge
of the original authors acknowledges the enormous advance in professional
and technical skill. On the other hand, it also becomes clear how these
models can obscure the mind. After working through Part III you are not
only longing for a holiday, but also get the impression that in the world of
models everything is possible. Depending on the assumptions the model
produces results. The more modem the theory the richer the possibilities.
viii Preface: Personal Recollections by Jan Pen
One of the great multipliers was the theory of expectations - if those are
a
rational la Lucas every policy is suppressed. In my opinion it is a foolish
story, but you will never hear that qualification from Simon. At least not
explicitly and not in writing. In private conversations he has firm opinions
but in the scientific business he is tolerant.
Anyone who wants to get an impression of Simon's tolerance in science
should compare the pure theoretical dissertations that are completed under
his supervision. There is a world of difference between the works. They are
predominantly Keynesian, in the sense that they describe disequilibrium
situations, but the nature of disequilibrium diverges.
Jan Snippe constructed a world described by a quarterly model with one
macro-firm in which national income stops now and again. Nothing happens
then. The sole firm then gets going again, don't ask how. Halfway through
his (funda)mental research the PhD student realised that this wasn't the way
things work. His mind also threatened to stop, but Simon appreciated the
effort - Snippe obtained his doctorate with everyone's approval and later
became a respected banker. Lex Hoogduin was a Keynesian of the
fundamental-uncertainty type: the essentials of money were supposed to be
located in that uncertainty. I thought this rather strange and I got the
impression that Simon also struggled with the idea, but that doesn't matter -
it was a solid thesis and the new-born PhD nowadays manages the
econometric research department of De Nederlandsche Bank (the Dutch
central bank).
Hans van Ees en Harry Garretsen recreated Keynes, following the
Walrasian idea that there exists a fundamental equilibrium that would
emerge were it not that prices show rigidities. I thought that this was too
much of a concession to the neoclassicals, but Simon went along with it.
Subsequently, Fieke van der Lecq started to explain those nominal rigidities
- a splendid thesis, but about a problem that is hardly a problem. Those rigid
prices in fact are not rigid at all and if they adjust slowly there are obvious
reasons for it. The shopkeeper has to change his price tags and that is an
annoying job even with a computer. This thesis was much more theoretical
and profound than the others were. The nice thing about Simon is that he
gives everyone the opportunity to tell his or her own story. If it is told in a
reasoned way, he will always help and support.
With such an approach, however, his own story remains hidden. This
becomes clear when we examine the best book that emerged from the
Groningen School in recent years: Evenwicht, conjunctuur en groei (1994)
(Equilibrium, the Trade Cycle and Growth), by S.K. Kuipers, H. van Ees, H.
Garretsen, G.H. Kuper, E. Sterken and E. Wester. It is a textbook and the
product of many authors. Its is based on lectures given in the 1980s and the
beginning of the 1990s. It gives a complete picture of macroeconomics and
ix
the book is modem in the sense that the latest developments are covered. It is
crystal clear and shows that it is possible to have two theories at the same
moment that have completely different conclusions. Neoclassical theory, the
Keynesian theory for the short run, the Keynesian monetary theory, the New
Keynesian theory, Keynesian and neoclassical growth theory, etc. It is a
well-stocked shop window and the economist may choose his wares.
Such an abundant supply of choices of course has a drawback. If we
accept the authors, no theory is better than another. Almost no
recommendations are given, not even on empirical grounds. Nor is anything
discouraged. Some readers will appreciate this tolerance; others will see it as
a drawback. I personally would have been rather more "directive" - that is to
say I would have told a story that I found to be more convincing at the time I
wrote it. If only in a concluding chapter.
Moreover, my favourite story is not found in the book. It is a Post
Keynesian story and at its centre lies the vertical demand curve. A few
elements: if expenditure is high enough production depends on the
production function and the available labour, capital and nature. In that case
neoclassical growth theory applies, in which technical progress explains
about eighty percent (the labour share) of growth. However if expenditure is
deficient, a Keynesian model determines production. We have a different
regime then. Prices don't matter (with the interest rate as an exception),
because we are talking about the general price level and this doesn't
influence aggregate demand. Nor, for that matter, does the nominal wage
rate influence the demand for labour (this is Chapter XIX of the General
Theory). Aggregate demand is vertical because every price rise of domestic
origin also creates income. Not the money supply but last year's price level
and inflation determine the price level today. Inflation depends
predominantly on the increase of the nominal wage rate minus the increase
of the productivity of labour (if desired one can incorporate the influence of
government, for instance through taxes).
The increase in nominal wages arises from the negotiations between
employers and workers. The money supply accommodates, that is what
banks are for. The central bank has hardly any control of the money supply.
The crucial element in this story is the increase of the nominal wage rate,
which should be explained by economists - that part of the theory is missing
in Evenwicht, conjunctuur en groei. It's about power, bargaining theory, the
"polder model". Neither can one find the vertical demand curve in the book.
Unfortunately, I think, because the idea can be the basis of macroeconomic
thinking in terms of growth rates. It is not the ultimate truth, but a starting
point.
My comments above on the development of ideas in Groningen show
that I had frequent conversations with Simon, but that I didn't do the best I
x Preface: Personal Recollections by Jan Pen
could to convince him of the Post Keynesian story. Admittedly it is an
apocryphal story. An inelastic aggregate demand curve conflicts with the
traditional economic way of thinking. Economists usually attach a decisive
role to prices - and they are right, in microeconomics. But the
macroeconomic world is constructed differently. There, incomes dominate
the picture, prices have only indirect and - in my view - weak effects. The
fundamental difference between micro- and macroeconomics is at the root of
all economic wisdom. In my days this was standard material for introductory
courses, at least for law students. They were warned of the fallacy of
composition. These warnings I miss in modem teaching. It may be that, 25
meters above the ground, a work of art portrays the "micro-macro-Ieap" on
the front of the WSN-building, but on the lower floors it doesn't show very
much.
About such things Simon and I used to converse when I walked into his
room in Paddepoel, about ten years ago. There is an ongoing trend in our
meetings, which started during my lectures at the Boteringestraat in the
1960s and that now ends with the presentation of this volume. The contact
which Simon and I had all the time is difficult to characterise. Even in the
beginning it was not the standard relationship between a teacher and a
student. From the very start I saw him as a person in his own right, a man
who could perhaps be convinced, but only with very good arguments. In that
it helped that we didn't belong to different schools; we are both eclectic and
aimed at a kind of synthesis between neoclassical and Keynesian ideas. It is
not very helpful for our communication that we are both rather busy. I prefer
writing and Simon nowadays leans more towards managing. Moreover, I am
impatient and not inclined to listen very long. Simon is better at that than I
am. For me he is the personification of Groningen. He was born in Sauwerd,
ten kilometres from the city. He went to university at 44 Boteringestraat, the
same building where he now holds office as the highest-level boss of the
university. He lives within walking distance of the WSN-building. As ever,
he goes to work by bike. During the last half century I met many Groningers
and tried to understand the workings of their mind. I came to the well
considered conclusion that they all differ. It is therefore convenient that there
is one man I know whom I can consider to be symbolic for all of them -
something like Marshall's Representative Firm: Simon is the Representative
Agent from Groningen.
Haren, February 2001
Jan Pen
Contributors
Bas Bakker, International Monetary Fund, Washington DC
Steven Brakman, Department of Economics, University of Groningen
Nanne Brunia, Department of Economics, University of Groningen
Sijbren Cnossen, Erasmus University Rotterdam and Maastricht University
Jouke van Dijk, Department of Spatial Sciences, University of Groningen
Ruud Dorenbos, NEI, Rotterdam, Division of Labour and Education, and
World Bank Institute, Human Development Division
Hans van Ees, Department of Economics, University of Groningen
Casper van Ewijk, CPB Netherlands Bureau for Economic Policy Analysis,
Tinbergen Institute and University of Amsterdam
Martin Fase, Econometric Research and Special Studies Department, De
Nederlandsche Bank N.V. and University of Amsterdam
Harry Garretsen, Department of Applied Economics, University of
Nijmegen
Reyer Gerlagh, IVM, Institute for Environmental Studies, Vrije Universiteit,
Amsterdam