The Elgar Companion to John Maynard Keynes
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The Elgar Companion to John Maynard Keynes

Edited by Robert W. Dimand and Harald Hagemann

The most influential and controversial economist of the twentieth century, John Maynard Keynes was the leading founder of modern macroeconomics, and was also an important historical figure as a critic of the Versailles Peace Treaty after World War I and an architect of the Bretton Woods international monetary system after World War II. This comprehensive Companion elucidates his contributions, his significance, his historical context and his continuing legacy.
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Chapter 34: Say’s law

Harald Hagemann


Keynes attacked Say’s law because for him the acceptance of Say’s law of markets implied the full-employment assumption. However, the meaning of Say’s law as well as the underlying assumptions have changed over time. A classical economist such as Ricardo could easily combine his adherence to Say’s law with the analysis of the machinery problem, that is, the existence of technological unemployment. Keynes in his critique of Say’s law, as well as earlier Marx whom Keynes attested a “pregnant observation”, focused on the consequences of the store of value-function of money allowing the separation of the acts to sell and to buy, an argument first developed by John Stuart Mill and Wilhelm Roscher. In contrast to Mill and Roscher, who did not develop an asset motive to hold money, Keynes elaborated the speculative demand for money into his liquidity preference theory. He strongly rejected the idea that the interest mechanism would equilibrate savings and investment.

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