Jonathan Levy’s ‘The Real Economy’ is a fascinating compendium of diverse papers. It’s not a book as such, nor is it new, since 6 of its 9 chapters are reprints from prior publications written between 2014 and 2020, which don’t cohere to any overall theme. There’s some disingenuity on the part of Levy and Princeton Press in not making this clear on the cover.

Chapters 4 and 5 track the formation of nonprofit corporations in the early 20th century USA and are somewhat repetitive. Chapter 7 examines Irving Fisher’s concept of stocks and flows in the economy but doesn’t include coverage of Wynne Godley’s more established stock-flow consistent modelling, with its identity of a zero-sum balance between private, government and trade sector balances. Chapter 9 offers an amusing history of Thorstein Veblen’s critique of the commercialisation of US research universities and his serial dismissals between them. It’s all informed by extensive literature research, but each paper is of limited specialist interest. In a particularly esoteric chapter 6 ‘Primal Capital’, Levy seeks to root Keynes’s General Theory in Freud’s ‘Totem and Taboo’ claiming ‘The General Theory was possible only because it was written in the aftermath of Freud’ (p145), and ‘I do not think it is too much of a leap to suggest that the rentier’s quest for interest on money capital – ‘the breeding of money because the offspring resembles the parent’ – can rise to the equivalent of the primal father’s incest’ (p162). Wow!

This does leave a central theme discernible across other chapters. Levy supports Milton Friedman’s claim in his 1953 ‘The Methodology of Positive Economics’ that theory is not invalidated by false assumptions, relying instead on correct model outcomes, and the ‘as if’ argument for assumptions (p8). He makes no mention of the substantial challenges to Friedman’s claim, eg George Blackford’s 2017 ‘On the Pseudo-Scientific Nature of Friedman’s ‘as if’ Methodology’ or Sid Winter’s ‘Satisficing, Selection and the innovative remnant’ (QJE, 1971, 85, 237-61).

Levy also insists on an accounting framework for the economy (p20), since real variables need a unit of measure. He is right that money is an inevitable component of a capitalist economy, with important effects, eg in the enabling of liquidity preference, and thereby of involuntary unemployment. But he fails to examine a crucial dysfunctional socio-economic result of according primacy to monetary metrics (p143), rather than to the ‘real economy’ of his title. When governments regard money as a real resource, and their financial balance or debt ceiling as the main constraint on their expenditure, and then apply austerity, they are in danger of operating the economy at less than full employment of real resource availability, and of imposing avoidable social harm. Both in this omission, and in his failure to address real economic phenomena and outcomes, Levy unfortunately ignores the real economy. He discusses financial vs physical definitions of capital (chapter 3), rather than admitting both.

Where Levy does shine is in his strong insistence on the correct interpretation of Keynes’s view of saving and investment. Saving does not drive investment. They are not rendered equal by the interest rate. Rather ‘radically uncertain’ expectation of future demand drives investment which raises income and thereby saving to equal investment but only as a post-hoc identity, (p149,213). Many contemporary economists and economic journalists still fail to comprehend this key point. He is also right to claim that capitalist economies can be demand constrained, although he doesn’t examine how this might arise either from wage depression, or from technological automation. Levy makes much of Keynes’s liquidity preference as the leakage inhibiting investment, but otherwise, he is weak on Keynes. Keynes was concerned to challenge neoclassical price theory, that lower wages would increase employment, or that lower interest rates would increase investment. Hence his invention of liquidity preference to challenge the latter. Keynes was demonstrably far more motivated by the social and economic depression of the time, than he was in following Freudian lines of thought. Leijonhufvud gets no mention in Levy ☹. But overall, it’s an unusual and interesting book – even weird and wonderful in places.