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 47: Mercantilism

Lars Magnusson


In chapter 23 of the General Theory Keynes presented Mercantilism as a brave heretical school which intuitively had reached a clear and consistent understanding of economic realities not only of the past but also of today. Why Keynes defended Mercantilism must be understood in terms of his own aspiration to formulate a general theory which could master the old laissez-faire orthodoxy. Too little demand in the economy created a downward spiral of recession and depression. The mercantilists’ plea for a favourable balance of trade show that they understood the positive role of plenty of money in circulation, Keynes argued. Moreover, there existed no automatic self-adjusting mechanisms to keep up employment on a “full” level. Hence statesmen’s interventions to achieve a favourable balance of made sense at this time – as other interventions might be useful in more modern times.

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