The General Theory of Employment, Interest and Money
Like many economic classics, the General Theory of Employment, Interest and Money, published in early 1936, is an ill-organized, repetitious, and quarrelsome book. Save for occasional bravura passages on Egyptian pyramids, medieval masses for the dead, and the behavior of stock market speculators, the graceful English stylist of the Economic Consequences of the Peace and the Essays in Biography is little in evidence. On key issues Keynes was frequently either obscure or mistaken. Later theoretical discussion disproved the conception, in the General Theory, of the multiplier, the savings-investment identity, and the determination of the rate of interest. Even good Keynesians have completely discarded such novelties of the master as user cost and wage units. Shortly after it was published, gifted and orderly theorists like Oskar Lange and J. E. Meade constructed systematic mathematical models of Keynes’s theory, far superior in analytic rigor to the original. Later, Roy Harrod in England and Evsey Domar in this country shifted the interest of the profession from Keynes’s central problem, the determination of national income under static short-run conditions, to the new issue of economic growth. The econometric fraternity has enjoyed the game of creating formidable systems of economic equations, suitable for the moderately accurate forecasting of what happened a year or two earlier. The version of Keynesian doctrine to be found in Samuelson’s Economics or Ackley’s more advanced Macroeconomic Theory has about the same relation to the General Theory as the Department of Commerce’s national income estimates bear to the Physiocrats’ Tableau Economique. In short, noneconomists don’t read the General Theory because they can’t and economists don’t read it because it is hopelessly behind the times, all but pre-Keynesian.
But not a word of this judgment detracts in the least from the book’s immediate importance and continuing influence. It is given to few intellectuals to invent an important new branch of their specialty. This is precisely what Keynes achieved. Although he some-what exaggerated his own iconoclasm, although he was undeniably guilty of what Myrdal pleasantly termed unnecessary originality, Keynes and no one else forced economists to supplement their traditional emphasis upon individual prices and markets with the study of the social aggregates—savings, investment, consumption, and national income. Today the study of macroeconomics is considered to be as important as microeconomics, the study of individual prices and markets. Indeed if the survivor of an elementary economics course knows little else, he is at least aware that aggregate demand and total employment are determined by the level of total spending, and that private investment and public deficits are the strategic influences upon total spending.
The last sentence implies Keynes’s second lasting contribution, the transformation of public policy toward the treatment of unemployment. The conventional wisdom of the 1930s argued that the only certain cure for depression was wage and price reductions. Governments for their part could do nothing more wholesome than set everybody a good example by balancing their own budgets. Eminent Cambridge colleagues …