J M Keynes’s Very Severe criticism ( '…your argument…is most certainly nonsense.') of J. Robinson in Keynes’s Letter of November 9th,1936 was due to Robinson’s Use of the Incorrect M=L(r) Instead of the Correct M=L(Y,r)

Abstract

Keynes’s very negative reaction to J. Robinson’s misuse of Keynes’s initial, beginning, introductory, preliminary exposition of liquidity preference in chapter 13 of the General Theory is explained by the fact that J. Robinson was repeating the same identical error made by R. Hawtrey, D. Robertson, and H. Henderson, which was to simply ignore Keynes’s M=L(r,Y) analyzed by Keynes on p.199-209 of the General Theory and incorporated on page 298 as part of his formal IS-LM(LP) model presented on pp. 298-299 in chapter 21 in Part IV of the General Theory. Instead, she used M=L( r) and/or M=L2(r). It is impossible to present an analysis of Keynes’s theory of liquidity preference unless (Y,r) space is used. Nowhere in Robinson’s 1935 comments on the final draft of the General Theory, sent to her by Keynes for review and comment, is there the slightest criticism/mention/discussion/query of a conflict between the two functions M=L( r ) and M=L( r,Y). Keynes had made it clear in his exposition in chapter 15 of the General Theory that the exposition in chapter 13 was the alpha, while the exposition in chapter 15 was the omega, with Keynes’s analysis on pp. 179-182 being the equivalent material he used in his tutoring of R. Harrod in the July -September, 1935 time period, after which Harrod acknowledged to Keynes in his letter of August 30th,1935, that the I=S equilibrium was simply a single, downwardly sloping line in (r,Y) space that intersected NOTHING, so that Keynes’s LM curve, M=L(r,Y), was absolutely required for an equilibrium to exist in (r,Y) space. Harrod was very clear. In this letter Harrod credited Keynes with making a fundamental, 'radical reconstitution’ of the theory of the rate of interest. Keynes now realized that Robinson had NEVER EVER understood what he had done in the General Theory, since the M=L(r ) curve could, at best, only be “interpreted “as a single, upward sloping line in (r,Y) space. Robinson’s misinterpretation is repeated in all heterodox, Post Keynesian and Institutionalist discussions such as Tily, who is a good example of the faithful continuing to put forth Robinson’s erroneous claims about Keynes’s theory of the rate of interest being a purely monetary one and as being what Keynes meant in the General Theory.