Chapter 7: The General Theory of Employment, Interest, and Money after 75 Years: The Importance of Being in the Right Place at the Right Time
Matthew N. Luzzetti and Lee E. Ohanian INTRODUCTION There is no doubt that Keynes’s The General Theory of Employment, Interest, and Money significantly influenced the economics profession and economic policymakers. ‘Google Scholar’ at the time of writing showed 14 585 citations to The General Theory. To put this in perspective, Robert Lucas’s famous 1972 paper ‘Expectations and the Neutrality of Money’, and Finn Kydland and Edward Prescott’s famous 1982 paper ‘Time to Build and Aggregate Fluctuations’, both of which helped supplant The General Theory as the dominant macroeconomics paradigm, and both of which were cited by the Nobel committee when these economists won Nobel Prizes in 1995 and 2004, respectively, had combined citations that account for less than half of the number of The General Theory’s citations. And The General Theory’s citation count doesn’t fully reflect the fact that the Keynesian revolution was perceived by many economists between the late 1930s and 1970, including Nobel Laureates Laurence Klein, Paul Samuelson, Robert Solow and James Tobin, as the only game in town for analysing business cycle fluctuations and for developing government policies to stabilize the economy. For much of this period, Milton Friedman’s path breaking work on the quantity theory of money and the associated tenets of monetarism took a backseat to The General Theory. Perhaps the best one-liner that represents the influence of Keynes, at least in policymaking circles, was President Richard Nixon’s statement ‘I am now a Keynesian in economics’ after he eliminated the United States’ remaining ties to...
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