The General Theory Of Employment, Interest, And Money John Maynard Keynes

Chapter 1

The General Theory

I have called this book the General Theory of EmploThe General Theory Of Employment, Interest, And Money John Maynard Keynes

Chapter 1

The General Theory

I have called this book the General Theory of Employment, Interest and Money, placing the emphasis on the prefix general. The object of such a title is to contrast the character of my arguments and conclusions with those of the classical(1) theory of the subject, upon which I was brought up and which dominates the economic thought, both practical and theoretical, of the governing and academic classes of this generation, as it has for a hundred years past. I shall argue that the postulates of the classical theory are applicable to a special case only and not to a general case, the situation which it assumes being a limiting point of the possible positions of equilibrium. Moreover, the characteristics of the special case assumed by classical theory happen to be not those of the economic society in which we live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.

(1) "The classical economists" was a name invented by Marx to cover Ricardo and James Mill and their predecessors, that is to say for the founders of the theory which culminated in the Ricardian economics. I have become accustomed, perhaps perpetrating a solecism, to include in "the classical school" the followers of Ricardo, those, that is to say, who adopted and perfected the theory of the Ricardian economics, including (for example) J.S. Mill, Marshall, Edgeworth, and Prof. Pigou.

"This book provides a far more clear explanation of the ideas of standard economic theory (neo-classical economics) thanFrom a review by Joe McCauley

"This book provides a far more clear explanation of the ideas of standard economic theory (neo-classical economics) than do the standard texts (compare with Samuelson, Mankiw, or Barro, e.g.).

The book explains utility maximization, indifference curves, and the assumptions underlying the standard economic model that is used by the IMF, the World Bank and all major western governments. Keen uses simple language that even the lay person can follow. The text should be standard reading for every student of elementary economics, but even an experienced economist like Alan Greenspan might benefit from the clarity of thought displayed therein.

Macroeconomic theory is covered from the right perspective, from the result of Sonnenshein et el - all which shows the basis in microeconomic theory for the standard macroeconomic model.

Kirman is mentioned but his seminal connection of liquidity demand with uncertainty is not discussed. The work of Radner should have been included, but then Samuelson and Varian do not discuss Radner's contribution either. Chapter 7 presents the correct perspective on general equilibrium theory, with good advice for students of econ 101.

Chapter 8 on Keynes is outstanding, presenting the clearest (and even correct!) textbook discussion of Keynes that I am aware of. Marx's contribution to the basics of capitalism, the recognition of the central role played by the profit motive, is also made apparent in the Keynsian context. [In comparison] The profit motive is ignored completely in Samuelson and the other standard texts, which discuss merely pure barter economies and leave out financial markets altogether. Hicks' interpretation of Keynes' ideas is also correctly presented. All in all, students of economics would be well advised to make Keen's book their main econ text." ...more

Natural science and social science and how they are considered different: The example of Philip Mirowski's book More Heat Than Light.

I've been re-reaNatural science and social science and how they are considered different: The example of Philip Mirowski's book More Heat Than Light.

I've been re-reading Non-Natural Social Science: Reflecting on the Enterprise of More Heat than Light - Annual Supplement to Volume 25 History of Political Economy (Edited by Neil de Marchi. Duke University Press). The book is a collection of papers from a conference that grappled with issues raised by Philip Mirowski's book More Heat than Light: Economics as Social Physics, Physics as Nature's Economics (Historical Perspectives on Modern Economics).

In his book, Mirowski' explored the appropriation by founding neoclassical economists (Jevon, Walrus, et el) of field theory from physicists to construct the original theoretic economic model of people and markets i.e. utility, the theory of one price, etc. Mirowski explored much more than history, he weighed in on the substantial theoretical (metaphorical) and mathematical issues at stake, particularly as they divide between the natural and social sciences.

Mirowski charges that neoclassical economists went wrong in three ways:

1. Integrability: The founding economists loved the dynamics of the physicists which involved the math of differentiation (the calculus). Yet, calculations of differentiation must be able to integrate backwards (to be true?). As I understand it, economists can take a market and differentiate the utility preferences or take individual preference and differentiate a market. But they can't integrate back from individual utility to derive market conditions. All of this is over my pay grade but, the math of summing individual utility preferences can't add up to the math of market conditions. In the end, the founders of neoclassical economics settled in to a static analysis and it has not seriously left the static approach since.

2. Secondly, Mirowski argues that the conservation principle, assumed in all physical phenomena, was never maintained by the economists. Economists, however, believe they maintained conservation when newly created money is balanced by a corresponding debt. The math, economics, and physics here is too hard to comprehend but I appreciate the issue and it appears there is substance to the charge.

3. And finally, Mirowski's offers the problem of invariance and its applicability to natural and human social phenomena. Mirowski and many others argue that invariance principles, while the foundation of physics (Hamiltonians?), are generally not applicable to human social phenomena. I disagree with this assertion but appreciate the point.

My direction here is not towards the issues of economics and physics or their underlying math and subject matter. Rather, Mirowski's book (and a huge literature since) was an opening salvo in economics over the nature of social phenomena and the limits of natural science grounded theory to understand social phenomena. Mirowski began his book in 1981 and it reflected the growing upheaval in the philosophy of science beginning in the 1960s and 70s with the rise of the relativistic thinking. Those thinkers (Kuhn, Feyeband, et el) were offered a large opening when in the 1950s the logical positivists philosophical program (which was began in the 1920s) threw in the towel and abandoned their work as a failure. They admitted that knowledge can not be formally operationalized as true through a logical and empirical language.

Ultimately, the whole enterprise of science and its philosophical basis, seems to be buffeted and shaped by junctures in mathematics that eventually filter down and then are embraced by the thinkers and practitioners of science. To mention one such thinker, Kurt Gödel's Impossibility Theorem (1920s) demonstrated that even in math, some statements known to be true can not be proved formally - which apparently shook mathematicians up (there is no formal axiomatic system for arithmetic that is both complete and consistent) Or Turing's theorem that "there is no algorithm possible to decide whether a program will terminate." If it was impossible to prove all truths or solve all problems in mathematics how could the logical positivists ever hope to produce a system of truth through a formal language?

So, the cats out of the bag and biology and conservation biology are now themselves buffeted by intellectual waves produced in mathematics and philosophy starting as far back as the 1850s i.e. the geometry of Riemann....more