Beyond Keynes, Volume One
Edited by Shelia C. Dow and John Hillard
Chapter 4: Keynes's theory of investment and necessary compromise
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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