Money, Investment and Consumption
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Money, Investment and Consumption

Keynes’s Macroeconomics Rethought

Omar F. Hamouda

Contrary to the commonly perpetuated belief that Keynes’s theory is appropriate only to economic depressions, the author of this provocative book maintains that Keynes provided a complete set of macroeconomic relations and the ingredients of a new theoretical model, much more reflective of and analytically appropriate to the 21st century than those on which current macroeconomics is based.
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Chapter 1: The Financial Crisis of 2008 and the UnKeynesian Keynes

Omar F. Hamouda

Extract

1 The financial crisis of 2008 and the unKeynesian Keynes Resurgence of the name of Keynes has never caught more attention among journalists and politicians nor provoked such debate worldwide than since the start of the current financial crisis. What is presumed under the name of Keynes is, however, in fact Keynesianism – in sum, government interventionism in the form of three policies, all geared to promote consumerism in order to sustain employment: (1) there must be aggregate Demand management; (2) monetary and fiscal policies should be used to sustain Demand; (3) High Demand must be achieved, even if it means Budget Deficits. There is so much written about Keynes that one would have thought everything about his theory would be known by now. Ongoing economic policy controversies attest, however, to the contrary. Keynes was indeed an extremely prolific writer and a fierce debater whose use of the language presented the world with many quotable quips. If one leaves, however, his analogies, cynical twists, and self-deprecating humour to the cartoonists, and focuses on a thorough reading of the core of his theory, as found in A Treatise on Money and The General Theory, one would find that no part of the triad above resembles what Keynes’s theory proposed. Keynesianism itself is a product of neoClassical economics of whose very foundation Keynes was critical. Keynesianism old and new would have been an anathema to Keynes. A return to the theory of Keynes himself would set remedies to the 2008 economic crisis in...

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