In June 1931 Keynes wrote of the ‘prodigious and incredible’ investment activity in the United States: It seems an extraordinary imbecility that this wonderful outburst of productive energy should be the prelude to impoverishment and depression. Some austere and puritanical souls regard it both as an inevitable and desirable nemesis on so much over-expansion, as they call it; a nemesis on man’s speculative spirit . . .. I do not take this view. (Keynes [1931b] 1973, p. 349) His primary concern was to sustain the boom, not repair the bust. Ultimately the world crisis was catalyst to a theoretical scheme which formalised this insight and provided the practical means to its realisation.
The chapter contests the conventional wisdom that Keynes’s impact on the world began only after his death, when policy-makers and economists alike finally saw the state could be a force for macroeconomic advantage. The reality is that Keynes’s call for monetary reform was felt from 21 September 1931 when Britain left the gold standard. The moment of his death was probably the high point of his influence. The vast scale of his influence on economic thinking, policies and outcomes in Britain is restored, with global monetary architecture as necessary context. The chapter concentrates on the period from his first contributions to the high point. His residual influence from his death is then traced more briefly: through the golden age and the complete undoing of his contributions from the 1970s under financial “liberalisation” to the present practical and intellectual catastrophe. An appendix contains relevant annual and decade average macroeconomic statistics.
Keynes's theory of investment and the economic cycle is set out. Against this theory it is argued that the current monetary policy framework is not credible. Rather, given its implicit endorsement of financial liberalisation, it is, and has proved, deeply dangerous. Keynes advocated policies aimed at setting a low long-term rate of interest. Financial liberalisation has led to the dear rates that Keynes understood as the cause of the Great Depression. The discussion also examines Keynes's vigilant approach to inflation and argues that the inflation of the 1970s was connected with liberalisation not Keynes. The loss of the central role for investment and the pre-occupation with inflation in post-Keynesian economics is traced. Finally events from the golden age to the present debt-deflation are examined according to this perspective.
Edited by Sheila Dow, Jesper Jespersen and Geoff Tily
The chapters in this volume, and its companion volume, The General Theory and Keynes for the 21st Century, originated in a celebration marking the happy coincidence that 2016 saw the 80th birthdays both of the publication of Keynes’s General Theory of Employment, Interest and Money and of Victoria Chick, who has contributed so much to the development of Post-Keynesian theory and method. Her monograph Macroeconomics after Keynes: A Reconsideration of the General Theory has been one of the stepping stones for two generations of macroeconomists. As with Keynes, from the very beginning of her career monetary, banking and financial theory have been of special interest: how to analyse the development of money and finance, and the intertwined relationship between financial and real activities. The chapters in these volumes serve as a reminder to academic and professional economists of the narrowness, let alone the limited relevance, of the conventional account of Keynes. They are indicative of a more substantial and richer approach to economics, just as mainstream economics is being forced to confront its grave limitations in the wake of the global financial crisis and subsequent stagnation. Those from the mainstream who are approaching these limitations in a constructive manner are therefore found assessing the nature of money and deposit creation, the role of uncertainty and ideas around multiple equilibria – constant themes of Vicky’s research.