Shove and Keynes

Shove was not a protagonist of the Keynesian revolution. Despite his longstanding friendship with Keynes, he did not participate in the elaboration of Keynes’s new approach to the analysis of the economy as a whole in any direct way. There is, however, an exchange of letters between Shove and Keynes after the publication of The General Theory that reveals Shove’s sympathetic attitude towards Keynes’s book.

Shove believed that, although concentrating on microeconomic analysis, he had been following a line that was not very different from the one Keynes adopted in the development of his theory of aggregate output and employment. Shove wrote to Keynes:

I have enjoyed reading the General Theory very much ... I thought you were too kind to the ‘classical’ analysis as applied to the individual industry and firm. Unless very special assumptions. are made, it seems to me either wrong or completely jejune. I have been groping all these years after a re-statement of it on lines similar in some respects to your solution for the system as a whole, stressing in particular ‘expectations’ and the influence of current and immediately past experience upon them. But I can’t make it precise (Shove to Keynes,

15 April 1936, in Keynes 1973: 1).

Keynes replied:

What you say about the classical analysis as applied to the individual industry and firm is probably right. I have been concentrating on the other problem, and have not, like you, thought very much about the elements of the system. But you ought not to feel inhibited by a difficulty in making the solution precise. It may be that a part of the error in the classical analysis is due to that attempt. As soon as one is dealing with the influence of expectations and of transitory experience, one is, in the nature of things, outside the realm of the formally exact (Keynes to Shove, 21 April 1936, in ibid.: 2).

In his published works, Shove did not particularly emphasise the role of expectations in the analysis of firms and industries, but he certainly insisted on the complexity of economic phenomena and on the need to develop adequate analytical tools, which could not be too formal and ‘precise’. In this sense, Keynes’s reply is consonant with Shove’s position: the quest for ‘precision’ possibly is one of the ‘mistakes’ of classical analysis.

Keynes, as is well known, never showed much interest in the 1930s debate on imperfect competition. Shove’s contributions to that debate may help us better understand Keynes’s attitude and scepticism on the issue. Keynes could ground his macroeconomic analysis on a notion of markets without any need to become involved with the ‘esoteric abracadabra’ of the contemporary theory of imperfect competition (Keynes 1973: 831). He could refer to a notion of competition and a vision of how markets work in reality that derived from Marshall.

Keynes and Shove belonged to the same generation of Cambridge economists who had been directly influenced and taught by Marshall. They both understood that it was necessary to go beyond Marshall.^[1] Yet they never wavered in their commitment to Marshall’s approach to economic theory, in particular, his readiness to trade off analytical ‘precision’ for the sake of greater realism.^[2]

Other Cambridge economists of the older generation, such as Pigou and Robertson, were less interested in the attempt to develop the Marshallian tradition along new lines; they certainly were less ‘revolutionary’ than Keynes. The younger generation was less ‘generous’ towards Marshall and tried to further economic theory along new and different lines. In the early 1930s, the younger economists concentrated on the attempt to develop a formal analysis of imperfectly competitive markets. Shove clearly did not appreciate that attempt, and Keynes, too, had doubts about the usefulness of the new developments in the analysis of individual firms and industries. In a sense, the younger economists came closer to the Cambridge realistic tradition when they lost their interest in the development of formal microeconomic analysis and turned their enthusiasm to Keynes’s new theory.

• [1] Although Keynes probably had a keener sense than Shove of the limitations of the Marshallianinheritance.
• [2] Like Marshall, Keynes and Shove always looked with suspicion at excessive formalism in economicanalysis, even though their attitude should not be interpreted as a rejection of the use of mathematics ineconomics. Keynes criticised ‘pseudo-mathematical’ methods of formalising economic analysis ratherthan the use of mathematics per se (Keynes 1936 [1973]: 298). Shove, although appreciating the meritsof the mathematical treatment of some economic problems, stressed the need to apply cautiously theresults of formal analysis to the real world. See, for example, his observations on Hicks’s concept of elasticity of substitution and its use in the analysis of real economies (Shove 1933a: 468—469).