Chapter ǻ: Ļe Keynesian Heritage in Economics ȀȅȂwho gave insufficient emphasis to its cornerstone, his theory of effective
demand.
So there is no basis for the ... contention ... that the message which
Keynes really meant to convey with hisGeneral Ļeoryhas been distorted
by this interpretation. (PatinkinȀȈȇȀ, in WoodȀȈȇȂ, vol.ŕ: pp.ȅǿȆ–ȅǿȇ)ţōş ŗőťŚőş ō řśŚőŠōŞŕşŠŪ
As a self-taught Keynesian who had read and re-read theGeneral Ļe-
orybefore taking any college courses in economics, and also as a self-
taught monetarist, I long ago was enthusiastic about the apparently mon-
etarist aspects of chapterȀȆin particular. Later I became disillusioned.
In describing the “essential properties” that make money a prime candi-
date for being in excess demand and thereby causing depression, Keynes
emphasises money’s yield. Its liquidity advantages in excess of carrying
costs may well pose a target rate of return that new capital goods could
not match, in the view of potential investors. As a result, investment may
be inadequate to fill the savings gap. Keynes even considers whether assets
other than money, such as land or mortgages, might pose the same sort
of troublesomely high target rate of return. He does not perceive the spe-
cial snarl that results when the thing in excess demand is the medium of
exchange, so that the supply of some goods and services can fail to consti-
tute demand for others. He does not perceive the closely related difficulty
that money, alone among all assets, has no price of its own and no market
of its own. Keynes’s context offered him an inviting opportunity to make
Clower’s point (ȀȈȅȆ), if he really had it in mind, about a possible hiatus
between sales and purchases involving the one thing used in practically all
transactions; yet he did not seize that opportunity.ȁ
Keynes is not entirely consistent with himself throughout theGeneral
Ļeory, but on the whole the book conveys a real, nonmonetary, theory of
macroeconomic disorder. Itdivertedeconomic research and policy away
from monetary disequilibrium theory.
ŐŕşőŝšŕŘŕŎŞŕšř ŠŔőśŞť ōœōŕŚ
Ļat (sounder) theory can explain the consequences of imbalances be-
tween demand for and supply of money when prices and wages are not
ȁFor further argument that Keynes was preoccupied with oversaving as such rather
than with excess demand for holdings of money, see GreidanusȀȈȄǿ, esp. pp.ȁǿȁ–ȁǿȂ.