J. M. Keynes on the Neoclassical Theory of the Firm: Keynes Came to Finish the Job, Not to Destroy It, As Attempted by Joan Robinson

Abstract

J. M. Keynes viewed the mathematical, marginalist, microeconomic, neoclassical theory of the freely (Pigou) or purely (Keynes) competitive firm – industry as a necessary, basic foundation that all economists needed to have mastered in order to make any progress in economic theory. Keynes sought to improve this theory, but not to destroy and replace it. This theory is based on the concept of equilibrium. Keynes’s Aggregate Supply Curve, developed in the General Theory initially on page 55, footnote two and then in greater detail in chapter 20, is composed of a set of D-Z intersections that comprise a set of multiple equilibria. All of these equilibria satisfy the necessary and sufficient first and second order conditions needed to maximize expected profits. Keynes introduced uncertainty into the theory of the purely competitive firm through the concept of multiple equilibria. There is not just one equilibrium, as in the case in the standard neoclassical theory of the firm under conditions of certainty or risk as put forth by Pigou in 1933 in his The Theory of Unemployment or Modigliani in 1944 in Econometrica. A directly contrary approach is represented by Joan Robinson, who argued that Keynes’s concept of Involuntary Unemployment was fallacious. Robinson put forth the claim that the very concept of equilibrium is nonsense. Robert Skidelsky has recently and clearly shown that he is a follower of Joan Robinson and not of J. M. Keynes. Further, he has claimed that Keynes never really believed or accepted the microeconomic theory that he was using in the General Theory. Skidelsky’s view of Keynes portrays Keynes as being a dishonest, deceitful, duplicitous manipulator and hypocrite involved in a carefully planned, intellectual deception and legerdemain. Keynes came to fulfill the law, not to destroy it. The Skidelsky-Robinson-Shackle-Davidson Post Keynesian school has been seeking, since 1936, to completely destroy all economic theory as it was theoretically presented in the 1930’s before Keynes wrote the GT. Keynes wrote the GT in order to generalize the special neoclassical theory that only held once a full employment level of output had been attained. He NEVER sought to destroy this special theory. Otherwise, he could not have offered the synthesis he did on pp. 378-379 of the GT. We can now see that the Skidelsky-Robinson-Shackle-Davids on Post Keynesian school of economics is completely hostile to Keynes’s goal of generalizing the neoclassical special theory. Their goal has always been destructive. Keynes completely rejected the ultimate goal of Post Keynesianism in his lifetime. It was only in his last article, published in June,1946 in the Economc Journal, that Keynes finally came to realize what Joan Robinson was up to. However, it was too late to carry through and exorcize the economics profession from the influence of J. Robinson because Keynes passed away in April, 1946. The strange and bizarre claims in the economics literature regarding Keynes’s views on the proper role of formal mathematical analysis in economics, illustrated in the works of Backhouse (2006, 2010, 2015), de Vroey (2000, 2016) and Hoover (2005), show how effective J. Robinson was in completely misleading the entire economics profession about Keynes’s contributions in the GT from 1936 till today.