Abstract
“...in the General Theory ...injustice becomes a matter of uncertainty, justice a matter of contractual predictability” (Skidelsky, 1992, p. 223). “The terms in which contracts are made matter. In particular, if money is the goods in terms of which contracts are made, then the prices of goods in terms of money are of special significance. This is not the case if we consider an economy without a past or future… if a serious monetary theory comes to be written, the fact that contracts are made in terms of money will be of considerable importance” (Arrow; Hahn, 1971, p. 356-357, italics added). “In the first place, the fact that contracts are fixed... in terms of money unquestionable plays a large part” (Keynes, 1936, p. 236). “It seems to me that economics is a branch of logic: a way of thinking... One can make some quite worthwhile progress merely by using axioms and maxims. But one cannot get very far except by devising new and improved models. This requires... vigilant observation of the actual working of our system. Progress in economics consists almost entirely in a progressive movement in the choice of models” (Keynes, 1938).
Highlights
“...in the General Theory ...injustice becomes a matter of uncertainty, justice a matter of contractual predictability” (Skidelsky, 1992, p. 223)
The current sub prime mortgage credit crisis in the U.S and its global financial implications has not been properly analyzed by politicians and Central Bankers because their mainstream economic advisors do not understand Keynes’s analytical framework
In an ergodic system where the future can be reliably predicted so that future positive yields of real capital producible assets can be known with actuarial certainty, and where the gross substitution axiom underlies all demand curves, as long as prices are flexible, money must be neutral and the system automatically adjusts to a full employment general equilibrium
Summary
Keynes’s revolution was never understood by the founders of Keynesianism after World War II. The political atmosphere of the time discouraged those who might have attempted to explain Keynes’s revolutionary theory. To illustrate the problem we will use the example of Paul Samuelson’s attempt to propagate Keynesianism and compare it with Keynes’s revolutionary monetary theory. At the end of the talk we will explain why, beginning in the 1970s, J. R. Hicks, progenitor of the ISLM version of neoclassical Keynesianism and winner of the Nobel Prize in 1972 for his “pioneering contributions to general equilibrium theory”, recognized that his classical general equilibrium analysis of Keynes – the ISLM version of Keynesianism – was not representative of Keynes’s general theory framework. In the 1980s, Hicks announced he was after all a Post Keynesian and was “labeling my own point of view as nonergodic”
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