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Chapter 9: Keynes and Money
9 Keynes and money Paul Davidson Introduction John Maynard Keynes was probably the most important and famous economist of the twentieth century. Keynes was primarily a specialist in monetary theory. The words money, monetary, currency appear in the title of all Keynes’s major books on economic theory. His conceptualization of money, however, diﬀers signiﬁcantly from that of classical economic theory, while the latter has dominated mainstream economists’ thought from the eighteenth century to today. The purpose of this chapter is to explain why Keynes’s conceptualization of money is revolutionary. ‘Money’, Nobel laureate John R. Hicks (1967, p. 1) declared, ‘is deﬁned by its functions . . . money is what money does’. While economists have spilled more printers’ ink over the topic of money than any other, confusion over the meaning and nature of money continues to plague the economics profession. A clear, unambiguous taxonomy is essential for good scientiﬁc inquiry. All useful classiﬁcation schemes in science require the scientist to categorize entities by their essential functions and properties. For example, even though a whale looks like a ﬁsh, swims like a ﬁsh, and will die (like a ﬁsh) if it is out of water too long, biologists classify whales as mammals not ﬁsh because whales suckle their young. Even though the uninstructed person may think a whale is more similar to a ﬁsh than to his/her own mammalian self, biologists classify whales according to an essential property and not to similarity in looks. If a successful scienti...
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