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on immigration in the sense they intend. Nonethe-less, this seems a curious characterisation of theAustralian experience between, for example, 1920and 1970 when restrictions on both immigrationand imports were (together with particular labourmarket regulations and institutions) key compo-nents of an integrated and interventionist developmentstrategy in this labour-scarce economy.

I would strongly recommend this volume toeconomists with an interest in economic history asan admirable collection of research that in mostinstances is at the frontier and written by leadingpractitioners. Specialists in international economicswho appreciate the importance of historical analysisto an understanding of today’s global economyshould find at least two-thirds of the chapters ofdirect interest. For their part, growth economistsshould find at least five chapters of specific relevance;labour economists at least three.

I

an

W. McL

ean

University of Adelaide

REFERENCES

Hatton, T.J. and Williamson, J.G. (1998),

The Age of MassMigration: Causes and Economic Impact

. Oxford Uni-versity Press, New York.

Hatton, T.J. and Williamson, J.G. (2006),

Global Migrationand the World Economy: Two Centuries of Policy andPerformance

. MIT Press, Cambridge, MA.O’Rourke, K.H. and Williamson, J.G. (1999),

Globalizationand History: The Evolution of a Nineteenth-CenturyAtlantic Economy

. MIT Press, Cambridge, MA.

Bright Future: Abundance and Progress in the 21stCentury

, by David McMullen (David McMullen,Melbourne), pp. iv + 240.

Technological optimism and left wing politics arerare companions these days. Lines like ‘The planet’scapacity to comfortably accommodate us is limitedonly by the application of human ingenuity’ usuallyplace a writer in the libertarian camp, following thelate Julian Simon. Not here. David McMullen is thatrarity: a socialist champion of genetically modified (GM)crops and nuclear power. In

Bright Future

, he makesthe case for future food and resource abundance, basedon current and anticipated technological progress.However, this predicted abundance does not end withthe whole world becoming one big USA or EuropeanUnion, but with a transition to socialism.

This combination seems strange in terms ofcontemporary politics, but historically it was thenorm. Early socialists such as Saint-Simon andMarx were champions of progress, celebrating theproductive forces of the industrial revolution thatincreased man’s power over nature while lookingforward to a new social order that would spreadits gains more rationally and justly. McMullenfollows precisely Marx’s narrative of capitalismdeveloping society’s productive forces but eventu-ally becoming an obstacle to their full realisation.He also follows left wing tradition by being harsheron his fellow travellers than his class enemies,labelling the current ‘pseudo left’ as ‘hideouslyreactionary’ for their ‘opposition to modernity’.

Unfortunately, he takes the worst from bothsides, like a hybrid fish with the flavour of codbut the cost of salmon. His global warming scep-ticism relies heavily on defrocked ‘Virginia StateClimatologist’ Patrick Michaels. Even though thisis a minor part of the book, it hurts McMullen’scredibility when it comes to scientific detail. Thistaints his (to this reviewer) more reasonable argu-ments against GM and nuclear scaremongering.

The final chapter, dealing with the practicalitiesof socialism, is worse. Communism only failedbecause it happened in feudal societies. Socialismwill be more productive because it will free workers’creativity, liberate the flow of information andeliminate the waste of wheeling and dealing. Profitswill be simply a ‘book-keeping entry.’ But there willstill be rapid adjustment to changing conditions:‘New entrants ... should have no trouble receivingapproval from a funding agency’. We could be backin the 1920s watching Oskar Lange battling it outwith Ludwig von Mises.

Bright Future

is interesting as a novelty: thesplicing of genes from two currently divergentspecies to recreate a common ancestor. Sadly, theraw material is corrupt, creating a sterile mutant.

D

eclan

T

rott

Australian National University

Involuntary Unemployment: The Elusive Quest fora Theory

, by Michel De Vroey (Routledge,London, UK, 2004), pp. xvii + 296.

In this engaging exercise in intellectual stock-take, the author undertakes to investigate whetherthere exists any theory that successfully captures

2008 REVIEWS

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Keynes’s claims regarding unemployment; namely,that unemployment is (1) involuntary, (2) sociallycostly, (3) produced endogenously by the marketforces, rather than by their obstruction or absence,and (4) capable of being remedied by demandstimulus. De Vroey adds that any theory of unem-ployment that is true to Keynes ought to also haveunemployment that emerges from the simultane-ous interaction of many markets (e.g. goods,money, bonds and labour), rather than flow directlyfrom some pathology in the labour market.

De Vroey’s thesis is that there exists no satis-factory theory of unemployment that captures allthese claims. His method of proof is eliminativededuction: he reviews (almost) all the theories ofKeynesian unemployment since Keynes, and findsthem all wanting.

De Vroey begins by rejecting Keynes’s own attemptin the

General Theory

as ‘a kaleidoscope, minglingincompatible theoretical claims’ (p. 126).

He then turns to the 1940s theorists of Keyne-sian unemployment: Modigliani, Lange, Leontief,Tobin, Klein and Hansen. They managed (rathereasily) to satisfy themselves, and many others,that they had obtained an adequate Keynesiantheory by a variety of means: wage rigidity, moneyillusion, a liquidity trap, and a negative marginalefficiency of investment at full employment. DeVroey notes with curiosity that these authors, ortheir followers, ‘often resort to a combination ofthem as though they think that one alone is insuf-ficient’. However, De Vroey thinks that none ofthese means are adequate: wage rigidity is con-trived; money illusion is irrational; the liquiditytrap a curiosum; and a negative marginal efficiencyof investment ‘special’.

In De Vroey’s judgement, it was the ‘disequi-librium theorists’ of the 1960s (Patinken, Clowerand Leijonhufvud) who first perceived the size ofthe theoretical task at hand. Although they did notrationalise price rigidity beyond it being a ‘fact oflife’, their disciples tenaciously pursued its impli-cations in a neo-Walrasian framework. However,the outcome looked ‘contrived’. The approach‘took off fast but its success was short-lived’.

The quest for a Keynesian theory of unemploy-ment might have petered out among the weakinequalities of these Fix-Price theorists, save forthe attempt of the Chicago counter-revolution tofinish off IS-LM Keynesianism. Lucas advancedthe shocking suggestion that all unemploymentwas voluntary, and the force of this suggestion layin the paltriness of the attempts thus far to modelinvoluntary unemployment as a result of optimisation

within a competitive context. This provoked fromKeynesian sympathisers the thoroughly Lucasianproject to obtain involuntary unemployment inoptimising models. De Vroey spends 60 pages onthe efforts of these ‘New Keynesians’. In hisjudgement they achieve, at best, only some of theseveral properties De Vroey wishes of any Keynesiantheory of unemployment. Therefore, one theory(Howitt and transactions costs) yields welfare ineffi-ciency without involuntary unemployment, whileanother (Stiglitz and shirking) yields involuntaryunemployment without, properly speaking, welfareinefficiency.

‘My investigation leads me’, ends De Vroey ‘tothe conclusion that no model fully succeeds inachieving Keynes program’. What accounts forthis failure? ‘The most plausible explanation isthat Keynes’ programme must be unfeasible’ (p. 245).Therefore, in De Vroey’s telling, the story of thequest for a theory of involuntary unemployment isthe story of 60 years spent in seeking a perpetualmotion machine.

The author’s analysis is often close and wrought,and it is not possible in a review to engage it atclose quarters. However, I would suggest there aretwo attempts at a Keynesian theory of unemploy-ment that are deserving of more attention than DeVroey has given.

First, he pays insufficient attention to the classof models that suggest that unemployment arisesfrom ‘a false interest rate rather than a false wage’.This class includes the ‘liquidity trap’ thesis,which De Vroey understandably dismisses. Butthere is another member in this class of rationali-sation of Keynes’s claims over unemployment:let the Central Bank peg the interest rate, andthereby, through a predetermined expectation ofinflation, peg the real interest rate, in excess ofthe marginal efficiency of investment at fullemployment. There will be unemployment in thissituation, and (more to the point) unemploymentthat conforms with Keynesian claims (1), (2) and(4) above. This situation perhaps does not con-form with claim (3), and yet the situation does notinvolve the actual obstruction of market pressures:there exists no pressure for the rate of interest tobe other than what it is.

Second, De Vroey ignores the Aggregate WageSetting/Aggregate Price Setting (AWS/APS)model that has wage-taking (but price-making)firms setting prices, and price-taking (but wage-making) unions setting wages. This set-up allowsfor unemployment, and unemployment of a kindthat has some appeal for any seeker of a Keynesian

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theory of unemployment. It integrates the ‘demand’aspect of Keynesian unemployment by havingfirms face a demand schedule (rather than a price).Second, the real wage is not chosen by unions: forwhile unions set the money wage, firms set prices.Therefore, the AWS/APS model restores, througha completely different logic, Keynes’s originalobjection to any interpretation as unemploymentas voluntary: at most, only money wages aredecided by employees.

The AWP/AWS model is, without doubt, a messof

ad hocery

and inconsistency. However, that isall the more reason for the author to exercise hisdialectical skills upon it.

My final criticism is that De Vroey overplaysthe dichotomisation of unemployment into ‘volun-tary’ and ‘involuntary’. To his mind, this dicho-tomisation is central and unavoidable. To my mind,it is unhelpful. Persons may, of course, choose tobe forced. And they may, quite rationally, chooseto be forced to be unemployed. We may imaginethat unemployment is the result of rational choiceof the median voter to institute a labour marketlottery, such that winning ticket is a wage higherthan under full employment, and the losing ticketis being forced into unemployment on account ofthat high wage. Therefore, at one level analysis,unemployment is involuntary. But at another level,it is voluntary.

Involuntary Unemployment

will to the teacherconstitute a valuable text in any course on theoriesof unemployment. To the historian of ideas, itdisplays a stimulating disregard for the clichés ofintellectual (pseudo) history. To the general econom-ist, it makes for a sprightly analytical performance,full of position and thought.

W

illiam

C

oleman

Australian National University

The Inflation-Targeting Debate

, by Ben Bernankeand Michael Woodford (eds) (University ofChicago Press, Chicago, IL, 2005), pp. 468.

This volume summarises the proceedings ofa conference asking: ‘Should the United Statesadopt inflation targeting?’ This debate is a live one,given fresh impetus by Bernanke’s appointment tothe Chair of the Federal Reserve. Bernanke issupportive of adopting an inflation target in theright context, but there remains doubt about the

benefits of adopting inflation targeting, includingdoubts raised from within the Federal Reserve.The papers in the conference volume form a nicecollection that addresses most of the substantivetechnical issues around inflation targeting. How-ever, it is the written discussion and transcribedcomments from the floor by top academics andleading monetary policy-makers, that follow everypaper, that add the most value to the volume.

Of course, it will come as no surprise to non-economists to read that whether or not the USA isactually currently practicing inflation targetingappears to be up for debate in the volume. Anaccessible piece by Marvin Goodfriend (now aProfessor at Carnegie Mellon and previously asenior vice president at the Federal Reserve Bankof Richmond) argues that the Federal Reserve hasactually adopted inflation-targeting practices overthe past two decades. Yet Don Kohn’s (Bernanke’snumber two at the Federal Reserve) response toGoodfriend’s paper could not be clearer. It istitled ‘The Federal Reserve Has Not Been Prac-ticing Inflation Targeting’. What is going on?

It turns out that the authors have differentworking definitions of inflation targeting: the devilis in the details. Goodfriend argues that the Fed-eral Reserve has been practicing

implicit

inflationtargeting with Greenspan attempting to ensure that‘the expected rate of change of the general levelof prices ceases to be a factor in individual andbusiness decision making’. Goodfriend surmisesthat although this implicit inflation-targeting goalwas a priority, Greenspan did not dogmaticallypursue inflation objectives at the expense of macro-economic stability. For instance, he points tothe Federal Reserve’s aggressive response to the2001 recession to show that the Federal Reserveconducts active stabilisation policy, providedinflation and inflation expectations remain con-sistent with Greenspan’s qualitative zero inflationtarget.

Usefully, the introduction to the volume by theBank of England Governor Mervyn King, con-trasts the US experience with that of the UK,which adopted an explicit target of 2 per cent inannual consumer price inflation. King details anumber of reasons why an explicit quantitativeinflation target is helpful for setting monetarypolicy, but is also conscious that such a target isnot a cure for all ills.

King notes that it is the government that setsthe inflation target in the UK and that this createsan environment where the central bank ‘has toexplain what it is doing’, such that the central