The “Fall from Grace”
By the late 1970s the generation which had given Cambridge its fame and prestige had amply passed retirement age. While still active, opinioned and vociferous on the public and academic scene, they had lost power in the faculty.
It has been said that there was a failure, “an unwise behaviour” (Pasinetti 2007: 199-204), on their part in selecting and promoting suitable candidates to become their successors. “The trouble is that the postKeynesian school has not proved to be at all good at replicating itself” (Bliss 2010: 650).As a result Cambridge was conquered by a very able new generation of economists who, however, set themselves up as opponents rather than followers. With the appointment of Frank Hahn as professor in 1972, the shift towards mathematical models of general equilibrium and formalism was accomplished. This opened a rift between the “old” Keynesians, who saw these developments as betrayal of the ideas they had fought for, and those who believed that they were a necessary step to break away from Cambridge insularity and engage in competition with the academic world at large.
Since the 1960s, the top US universities had established themselves as the leading centres of postgraduate education in economics. The prominence of their graduate schools in training and supplying cohorts of professional economists to cater for the growing demand coming from institutions and academia worldwide overshadowed the dominant position hitherto enjoyed by Cambridge, which was holding on to its old- fashioned system of teaching mainly to undergraduates and through supervisions, giving little weight to postgraduate lectures and courses (see Tribe 2000: 245).
If we look at the internal development of economics as an academic subject, we find other reasons which may account for the decline of the Cambridge School. As we have seen, the research strategy embraced by Cambridge economists in the post-war years followed two routes: extension and generalization to the long period of the Keynesian theory, and critique of neoclassical theory with a return to classical political economy.
Both enterprises turned out to be at odds with what was being pursued on the research frontier in the major universities, mainly in the US, but also elsewhere (Desai 1983).As far back as the early 1950s, Milton Friedman had launched his attack on Keynesian policies. Not only in Chicago but also elsewhere, increasing dissatisfaction with the neoclassical synthesis had given way to a kind of macroeconomics which discarded many Keynesian features to find more congenial ground in general equilibrium analysis. Monetarism and the “rational expectations” revolution were conquering the discipline within and outside the academic world.
The heated response, by Joan Robinson against “bastard Keynesism” and by Kahn and Kaldor against the “scourge of monetarism”, raised the contraposition between Cambridge and the outside world to an extreme degree. It deepened the gulf between “us and them”, enforcing the perception of isolation and sectarianism of the Cambridge School.
Similarly, Sraffa’s critique of neoclassical theory was rejected by the establishment in the academic world, and the Cambridge economists became increasingly isolated and dismissed. The controversy over the theory of capital between Cambridge, UK, and Cambridge, USA, had raged for two decades. It reached its peak in the late 1960s, when Paul Samuelson tried to defend the theory of capital under attack, first, by constructing a special case of production function and, secondly, by denying the possibility of reswitching. In both cases he ended by honestly admitting that he had been wrong. At this point, Sraffa’s critique, which could not be proven wrong, was accused of being irrelevant: either reswitching was an “exception” that could be ignored or the critique of the concept of capital held only for obsolete versions of the neoclassical theory, the intertemporal general equilibrium models being free from any notion of capital as a single magnitude. In the mid-1970s the approach to the controversy went through a further development.
It was argued by its opponents (see, for instance, Hahn 1982) not only that Sraffian theory was ineffective as a critique of the up-to-date versions of mainstream economics, but also that it was just an application of the general equilibrium theory under special assumptions. This is the interpretation of Sraffa’s book that still prevails in the literature.To the list of factors which may account for the “fall from grace” of the Cambridge School, it must be added the change in the political climate whereby the ideological pendulum swung from government intervention to free market and liberalism, from the endorsement of the Welfare State and participation in mass movements of the late 1960s, to the encouragement of individualism and the philosophy of “homo faber fortu- nae suae” (“every man is the artisan of his own fortune”) which characterized the age of President Reagan and Mrs Thatcher.
The sea-change may have been prompted by the economic facts of high inflation and high unemployment of the 1970s, which contradicted the trade-off between unemployment and inflation predicted by the Phillips curve and made Keynesian policy appear totally ineffective, but it had much deeper reasons which are beyond the scope of this paper (for an overview see Bateman et al. 2010).
In this critical impasse, its internal divisions did not help the cause of the Cambridge School, with the neo-Ricardians accusing the post-Keynesians of not having sufficiently shaken off certain neoclassical traits (for instance, acceptance of the inverse relationship - based on the marginal productivity of factors - between investment and the rate of interest, or between real wage and employment) and the post-Keynesians retorting that in Sraffa’s system there is no room for money and uncertainty, which are the distinct features of a capitalist economy.