Keynes, Uncertainty and the Global Economy
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Keynes, Uncertainty and the Global Economy

Beyond Keynes, Volume Two

Edited by Shelia C. Dow and John Hillard

The revival of interest in Keynesian economics since the late 1980s reinstates the importance of Keynes’s contribution to economic theory and policy. This is the second of two volumes in which authoritative contributions are presented by an outstanding group of international experts to celebrate Keynesian economics, and to review and further the developments of post Keynesian economics of recent years.
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Chapter 4: Transactions costs and uncertainty: theory and practice

Beyond Keynes, Volume Two

Peter J. Buckley and Malcolm Chapman

Extract

4. Keynes’s theory of investment and necessary compromise Victoria Chick1 I INTRODUCTION The central point of this chapter is that consistency between a theory of decision making (microeconomics) and the overall outcome of decisions (macroeconomics) cannot, in general, be achieved. Some ‘slippage’, some compromise of internal consistency, is bound to arise. In both Keynesian economics and the economics of Keynes, the problem of consistency has been debated at length, in the ‘search for microfoundations’, and most argue that consistency is lacking. I wish to argue that perfect consistency is not something one can reasonably expect: some compromise of internal consistency is bound to arise, for individual actions have unexpected consequences. Faced with this incompatibility, one must make decisions between the desirability of impeccably logical microfoundations and the logic of the whole. Sacrifices must be made; I have called them necessary compromises. But the choice need not be random or merely expedient; one can give good reasons. The difficulty – impossibility, even – of moving from microeconomics to the macro level is the basis of several criticisms of Keynes’s (1936) theory of investment. These criticisms have distinguished parentage (Kalecki, 1936; Sraffa, 1926) and were developed by Robinson (1964b) and Asimakopulos (1971). They have recently been rehearsed again by Sardoni (1996),2 who adds some new twists of his own. I shall argue that most of these criticisms can be upheld, from a microeconomic point of view, but that it does not necessarily follow that Keynes’s theory of investment should be...

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