Sheila Dow, Jesper Jerspersen, and Geoff Tily, eds., The General Theory and Keynes for the 21st Century (Cheltenham: Edward Elgar, 2018), pp. ix + 208, $130 (hardcover). ISBN: 9781786439871.

Abstract

The purpose of this set of essays-challenging the drift of mainstream opinion away from John Maynard Keynes's macroeconomic thinking-is to emphasize the continuing relevance for the twenty-first century of Keynes's analysis of the working of what he called "a monetary production economy," and, as well, the propriety of Keynes's particular method of "doing economics." Chapters 1, 5, and 6 give attention to the substance of Keynes's theory and to the nature of his methodology. In chapter 1 Victoria Chick summarizes what she sees as Keynes's principal contributions to economic understanding, and asks what, as regards these, might be the implications of recent changes in the economy. She identifies the principle of effective demand as being of primary importance today. She is certainly right in so doing. Recognition of the importance of effective demand means recognition of two presently out-of-fashion but key implications of the General Theory (hereinafter GT): that demand-deficient unemployment is involuntary, and that an austerity policy as a means of deficit reduction is misconceived. Chick takes Keynes's theories of investment and consumption still to be basically sound (though, with deregulation and financialization, the complexity and instability of the financial system have increased and the means of financing of both investment and consumption have altered). Today the money supply is endogenous rather than exogenous (as Keynes assumed in the GT). Chick notes that the banks are nowadays a much less important source of investment funding, a fact that calls into question Keynes's dictum that it is investment (made possible by prior bank lending) that creates saving, rather than vice versa. Despite the changes to the system, she considers the liquidity preference theory of interest "entirely applicable to present circumstances," even if we now need to take account of the liquidity preference of the banks. Apart from the content per se of the Keynes theory, Chick concludes that the methodology of the General Theory, which she describes as being "streets ahead of its time" (p. 14), must be retained. To follow Keynes's methodological lead, her advice is: "Start with the economy as it is; find the relevant simplifications; acknowledge time and uncertainty and the ubiquitous influence of money and finance. Leave the system open to future development, and use closure only as a temporary measure" (p. 14). Keynes makes the working of a complex, interdependent economic system, existing in real time, intelligible by first examining individually its main elements (investment, consumption, etc.)-by whatever methods are appropriate-then bringing these components together to investigate their interactions within the complete system. Likewise, the implications of time and continuing change are rendered manageable by utilizing equilibrium analysis to pin down initially what happens in the short run and only subsequently allowing long-term expectations to affect capacity through investment. Anna Carabelli and Mario Cedrini (chap...