Seventy-Five Years Later
Edited by Thomas Cate
Chapter 2: Keynes, the Neglected Theorist
M.G. Hayes Notwithstanding Keynes’s reputation, very little of his magnum opus, The General Theory, has been received into modern economics. The investment-saving identity is perhaps the only original concept which has been fully accepted into the canon and, while his name is most closely associated with aggregate demand and the multiplier, neither of these really originated with Keynes (Laidler 1999). Furthermore, ‘Keynesian’ economics was rightly criticized for its lack of explanation of its assumption of sticky prices, including wages. In this chapter, I will argue that Keynes’s theoretical contribution, neglected by followers and opponents alike, was to restate the Marshallian theory of value (based on competitive, flexible prices) in a form which took full account of the nature of time and incorporated the theory of money. Keynes showed that perfect competition could not deliver full employment and that sticky wages were the consequence, not the cause of this failure. In doing so, he introduced some highly original concepts, which still have not been fully appreciated and should be, if macroeconomics is ever to progress beyond the Classical orthodoxy to which it has currently reverted. This theoretical neglect has also limited the impact of Keynes on policy, notably in the areas of labour markets, the international monetary system and financial regulation. Underlying Keynes’s approach is an awareness that money plays no essential role in the Classical theory of value and that a proper treatment of a monetary economy (meaning any industrialized economy) requires a theory in which the nature of time...
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