Chapter ǻ: Ļe Keynesian Heritage in Economics ȀȅȆKeynes’s idea was to look at what would happen if prices were “sticky”....
Macro-economic models that assume flexible prices and wages bear the
nameclassical, because it was this assumption that was used by the clas-
sical economists of the early twentieth century.... In theȀȈȂǿs, John
Maynard Keynes began to emphasise the importance of wage and price
rigidities.
Really! A manuscript once sent me by the authors even referred to the
elasticities approach to balance-of-payments analysis as Keynesian.
Among advanced thinkers, or leaders in the overreaction, “Keynesian”
apparently serves as a loose synonym for out of fashion and therefore
wrong. More generally, though, Keynes enjoys automatic charity. It is
widely taken for granted that such a thing as Keynesian economics exists
and makes sense. Discussion concerns just what it is to which the label
“Keynesian” properly applies. Pro- and anti-Keynesians alike could well
use better care in the application of labels and more respect for the history
of thought.
ŗőťŚőş’ş ŘōşŠŕŚœ ōŜŜőōŘ
I do not want to seem too negative. Much can be said in Keynes’s favour.
He actively pursued interests in the arts, public service, and many other
fields. He made contributions in analysing Indian currency and finance,
in assessing economic conditions and the peace settlements after World
War I, in probability theory, and in the study of monetary history and
institutions. He wrote charming biographical and other essays. His con-
tributions in theTractofȀȈȁȂran soundly along lines later called mon-
etarist. Despite unintended influences that his later doctrines may have
had, Keynes himself was a lifelong and eloquent opponent of inflation
(HumphreyȀȈȇȀ).
Here, however, our concern is mainly with theGeneral Ļeory.In writ-
ing it, Keynes was no doubt moved by a benevolent, if perhaps patri-
cian, humanitarianism—he meant well. Assuming that a first-best (mon-
etarist) diagnosis of and policy response to the depression of theȀȈȂǿs was
somehow not in the cards, then the policies seemingly recommended by
theGeneral Ļeorywould have been a good second-best approach. In the
United States, however, what brought recovery was not policies inspired
by Keynes but an almost accidental monetary expansion, unfortunately
interrupted inȀȈȂȅ–ȀȈȂȆ, and finally wartime monetary expansion. Ļe
ideas of theGeneral Ļeorytook several years to filter down through the