Conventions in Keynes’s theory of goods markets: investment and production decisions

Abstract

The role of conventions in Keynes’s theory has been controversial. When dealing with investment and production decisions, Keynes referred to a projective rule that is his main example of convention. In addition, conventions appear in the practical techniques that Keynes attributed to agents concerned with the accumulation of wealth. Two important points have been neglected in existing interpretations. First, all these practical rules are directly present in goods markets and are not just rules used in financial markets that possibly influence agents in goods markets. Second, Keynes’s conventions in investment decisions are characterized by two properties: conformity with conformity and arbitrariness. The mechanisms underlying conformity with conformity include informational differences and possibly epistemic legitimacy, but, in contrast to Keynes’s discussion of financial markets, not a coordination effect with self-fulfilling prophecies. Those two properties are not clear in the case of production decisions.