Keynes’s proposal on How to Pay for the War can be read as a supplement to the analytical apparatus of the General Theory, applied to an economy with resource constraints. Demand restriction was needed to prevent inflation. Keynes pointed to a kind of full-employment multiplier, later elaborated by Kaldor, which transformed excess demand into wage and price increases. Instead of raising interest rates or taxes, Keynes suggested a compulsory saving scheme. For stabilization reasons, this had to be extended also to the working class. From a political-reform view point, he assessed this as an advantage as workers, after the war, would profit from owning wealth. However, Keynes was unable to convince the Labour Party and the unions. Rationing and price controls were adopted that helped to control Britain’s stabilization problem.
New Keynesian macroeconomics is built from a synthesis of the real business cycles approach and various post-Keynesian (and neoclassical) theories of nominal rigidities, the inclusion of which was necessary to show that monetary demand shocks have real effects in the short run and the medium run. Its key component is optimisation of intertemporal consumption, as in Ramsey’s theory of optimal saving, whereas investment, compared with Keynes’s General Theory, has no strategic role in income determination. Owing to its emphasis on microeconomics and the active role of interest rate policy, which is necessary for preserving dynamic stability, New Keynesian macroeconomics initially gained approval from various camps, but came under attack later. In spite of numerous piecemeal improvements, which added to its formal complexity, New Keynesian macroeconomics still suffers from fundamental flaws, particular with regard to the treatment of the banking system which intermediates between savers and investors in a loanable funds-like style.
»Uncertainty« indicated a critical post Keynesian argument against neoclassical monetarism, but was taken up by the European Central Bank (ECB) in order to emphasize the importance of the money supply indicator in its »two pillar« strategy. In a state of model uncertainty on behalf of market and policy agents, the quantity of money is meant to control long-term inflation expectations. However, the instability of money demand and the intention to reject the responsibility for the cycle leads the ECB to modify the quantity theory towards a credit theory of nominal income. The ECB decides on the validity of the money-inflation nexus in a discretionary way and thus undermines the credibility of the monetary pillar. Lack of information is also offered in order to defend the ECB's single price-stability target. Following only this target is suboptimal on welfare-theoretic grounds as the ECB indirectly accepts the non-neutrality of money.