Everything you wanted to know about The General Theory
You are in for a treat. A collegue of mine (who wishes to remain anonymous) will take us through Keynes’ General Theory chapter by chapter and almost line by line. You are in for an education!
It’s really unnecessary to say that there’s been a revival of interest in John Maynard Keynes General Theory of Employment, Interest and Money in recent days. The trouble is that the level of public discourse on Keynes has basically been something along the lines of “Keynes wrote about bad times, we’re in bad times, so Keynes’ theories must be right”. The revived Keynesianism often seems to amount to no more than a blanket call for government spending, in many cases a call made by people who always seem to be able to find some reason or other for governments to spend more. In bad times it’s to pull us out of recession, in good times it’s to stimulate growth and ensure social justice (especially if accompanied by taxes on dis-favoured groups). In any event, this seems like a good time to take a look at what Keynes actually said in the General Theory, if only because there seems to be a certain disconnect between what some people think he said and what he actually said.
Back in the 60s and 70s there was something of a fad for writing articles on “what Keynes really meant” or, sometimes, on “what Keynes would have meant if he had really understood his own model”. I don’t intend to get into that sort of thing, nor, despite what I said above, to go into the difference between Keynesian Economics and the Economics of Keynes. All I plan to do here is work my way through the General Theory, looking at what Keynes said in that book (and occasionally at what related things he said elsewhere).
So let’s start with Chapter 1. Which is easy, since it’s less than a page in length. Here he says quite simply that his aim is to set out a general theory of aggregate economic activity, encompassing what he refers to as “classical” economic theory as a special case, and a special case, indeed, which depends on assumptions which, according to Keynes, simply don’t hold in the real world.
The only other point which he makes in this chapter is to acknowledge, in a footnote, that his use of the term “classical” doesn’t mesh with anybody else’s. The term Classical Economics was, and is, generally taken to refer to writings between the end of the mercantilist period and Karl Marx – basically up to about 1870. Keynes extends it beyond that date, to encompass people like Pigou, whom we would regard as neoclassicals. Commentators at the time of the publication of the General Theory objected to Keynes’ stretching of the term; he justified it by claiming that Ricardo was a classical economist and that Mill, Marshall, Edgeworth and Pigou had perfected Ricardian economics. Considering how unrelentingly Ricardian many of Keynes disciples were, at least after his death, there’s a certain irony here.
Any background reading for what we’re about to do? Not really – Wapshott’s Keynes Hayek: The Clash that Defined Modern Economics is a fun read on the development of the GT. And for information, I’m working from the Keynes Papers edition of the GT, republished recently by Palgrave Macmillan.
Anyway, so much for Chapter 1. Next time, on to Chapter 2. BF
Tags: Keynes, Keynesian Economics, The General Theory