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Maria Cristina Marcuzzo

The General Theory is a controversial book, which raises questions about the nature of its assumptions and conclusions. The answers to these questions led to different interpretations which were not mutually compatible and gave rise to controversies and, in some cases, even to distorted interpretations, which transformed the message of The General Theory into something completely different. This chapter discusses a few of the distortions to which Victoria Chick, together with many others, has drawn attention over the years and puts forward a suggestion for why The General Theory might have been liable to be misinterpreted.

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G.C. Harcourt, Peter Kriesler and J.W. Nevile

The General Theory showed that the main determinant of the level of output and of employment at any point of time was the level of effective demand. It did so in an environment of uncertainty using analysis in historical time. Unfortunately, most of Keynes’s insights were soon lost to the profession. This chapter considers why this occurred. The most concerted and sustained attack on Keynes’s position was by Milton Friedman. Friedman argued that his work on permanent income as the major determinant of consumption invalidated Keynes’s use of the consumption function in The General Theory, with important implications for the multiplier and the efficacy of fiscal policy. The attack by the conservative right wing in America on Lorie Tarshis’s excellent 1947 Keynesian textbook also played an important part in the dilution of the Keynesian message as did the resultant rise to dominance of Samuelson’s Economics: An Introductory Analysis. Given the great influence of Samuelson and the increasing tendency of American economics to dominate English language economics, this contributed decisively to the undermining of Keynes’s theory and policy.

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Robert McMaster

The simple answer is ‘Yes’. Care is too important to ignore. Without care, none of us would be around. Feminist economist Julie Nelson (2016, p. 12) argues: ‘The place of care in the economy is everywhere’. Yet the broad corpus of economics, including some heterodox approaches (with the exception of feminist economics) seems to overlook, or under-appreciate this basic fact. Economic accounts featuring care frequently conceptualise it in terms of usually unpaid, heavily gendered activities. Indeed, the separation of the production sphere from the domestic lends to the impression that the site of caring – the domestic sphere – is not really an economic activity. The traditional method of calculating national income further buttresses this fault line. In short, extensive areas of economic activities are largely ignored by much of economics. Arguably, Post Keynesianism is not exempt from such criticism. Whilst elements of Post Keynesianism acknowledge the economy as a system of social provisioning (for example, Lee 2009), to date there has been little in the way of developing the notion, especially concerning the importance of care. In her address to The General Theory and Victoria Chick at 80 (GTVC) conference at University College London in July 2016, Vicky emphasised how Keynes thought that economic growth could/should not be infinite. Chick (2018) maintains that there are signs of a transformation in our economic system that may render economic growth, as we know it, as exhausted or unattainable (see also Chick and Freeman, Chapter 12, this volume). She highlights how in The General Theory, Keynes argued that the marginal efficiency of capital would continuously decline to equal the prevailing interest rate such that investment and saving would be zero. In making this argument, Keynes (and Chick) align to a more Classical tradition of the stationary state. Keynes appears close to John Stuart Mill in considering that a non-growth era could represent a different or high-order opportunity in human development. More recently, the issue of de-emphasising growth has risen in prominence with concerns over climate change. For example, in Prosperity Without Growth, Tim Jackson (2007) discusses Keynesianism and a ‘new green deal’. Others, such as Mariana Mazzucato (2015) and Yanis Varoufakis (2017) support a ‘new deal’, which rejects austerity economics and advocates a universal basic income, and the right to a clean environment, inter alia, as means of fostering human flourishing and combating forces of inequality.

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Victoria Chick and Alan Freeman

This chapter explores the evidence for, and the consequences of, Keynes’s evaluation of the long-term prospects for capitalism. It is 65 years since the Second World War cleared the way for the post-war ‘Golden Age’ of growth and accumulation. The advanced economies now, however, face a marked and persistent slowdown (Blanchard 2015). There is no shortage of suggested causes, ranging from inequality (Piketty 2014), to financialisation (Stockhammer 2004), low real interest rates and low inflation (Summers 2014) and structural budget deficits (Jespersen 2016). Priority, or even causal precedence, has yet to be assigned to any one of these diverse but interlinked factors.

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Bert Tieben

This chapter discusses the troublesome relation between equilibrium and uncertainty because these two words are closely related to both the method of The General Theory and the work of Victoria Chick. The issue is this: why use a static concept like equilibrium if the aim of theory is to say something useful about the real world, which is inherently dynamic? There are pragmatic reasons for theorising in terms of static relationships such as the argument that static theories are easier to understand than dynamic ones. Kohn (1986) argues that pragmatism of this kind explains why Keynes substituted the essentially static framework of The General Theory for the dynamic method that underpinned his Treatise on Money (Keynes [1930] 1973). But pragmatism is too simple an explanation for what essentially is a methodological choice. Adopting equilibrium must have added value in terms of explanatory value or descriptive accuracy to warrant the cost of causing a conflict between the assumptions of the theoretical realm (static) and the economic reality which it purports to explain (dynamic). This chapter focuses on the added value of the equilibrium method in Keynesian theory but also in other schools of thought.

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Penelope Hawkins

The evolutionary theory of banking (or ‘stages of banking’) developed by Chick has considerable appeal, providing a theoretical basis with which to understand the development of the banking system.1 It relates to the exceptional status of banks to create money and their pivotal role in the economy, and links the evolution of banking to monetary policy. In much of the discourse the evolutionary theory of banking relates to the monetary policy function of central banks.2 Central banks are responsible for both monetary policy and bank regulation. The evolution of banking is clearly also a relational story of the banks and the regulatory function of central banks. The chapter attempts to extend the relational story to the non-bank public. The public rely on the convention of confidence in bank money which is intrinsic to the regulation of banks, but of course they are also the users of banking services. The evolutionary approach of banking is a useful point of entry to understand the rise in financial inclusion of previously excluded households, and provides insight into how over-indebtedness can be a consequence of the competitive pressures of banks that are driven to originate loans at all costs. The evolutionary approach also provides insight as to why African Bank, a South African micro-lending bank, failed.

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Anna M. Carabelli and Mario A. Cedrini

A fundamental dimension in macroeconomics, time, is rarely portrayed as a prominent theme, because of the sharp contrasts that have historically divided economists using alternative conceptions of time, but also because of the conundrums brought about by incorporating time into economic models. This chapter provides an interpretation of John Maynard Keynes’s methodological reflections on the concept of time as (among others) complex and manifold magnitudes, which – confounding the choice of units for macroeconomics – requires economists to carefully avoid inconsistent logical reasoning about its characteristics, and instead to focus, as Keynes did, on change and transition.

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Rogério Studart

The world urgently needs to address three daunting challenges. To lay the foundation for lasting, inclusive prosperity, economic growth needs to rise beyond the levels attained in weak recovery since the global financial crisis. We also need to substantially increase the access of excluded populations to energy, clean water, accessible transportation and more inclusive and cleaner urban environments. Finally, climate change threatens our future and we need to move the world onto a low-carbon growth path and mitigate the dramatic consequences of global warming. If properly executed, massive sustainable infrastructure investment can help address daunting challenges simultaneously and pave the way to a more prosperous and sustainable future for all. Not surprisingly, a significant number of communiques coming from global forums (for example Multilateral Development Banks 2015a; 2015b) have elected the boosting of such investment as one of the main goals set for international institutions and even national authorities.

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Jayati Ghosh

For more than half a century, particularly over the period from the second half of the 20th century onwards, financial systems in Asia were known for their diversity that reflected particular national economic trajectories, as well as a significant degree of state control and direction of finance. The history of post-World War II development in the Asian region suggests that these diverse financial structures served these countries well, to the point that such diversity and public control has been seen as central to the realisation of developmental successes in countries such as Japan, South Korea and Taiwan. Despite this, there is also much evidence that monetary, fiscal and financial policies and the associated macroeconomic scenarios have been converging across Asian countries since the onset of financial liberalisation in the early 1990s, and even more so since the Southeast Asian financial crisis of 1997. Thus, a recent feature of financial systems in Asia is a strong trend towards convergence of what were very different, and are still dissimilar, financial structures. The process of liberalisation is establishing in the region financial structures resembling those prevailing in the Anglo-Saxon world, with similar markets, institutions, instruments and regulatory frameworks. This is ironic and somewhat surprising, because as early as the 1990s, the Savings and Loans crisis in the United States had revealed that deregulated financial systems, besides being unsuited to financing long-term productive investments, are prone to institutional failure and even systemic collapse. Thereafter, the Global Financial Crisis of 2008–09, with its origins in the US sub-prime housing debacle, provided even more evidence of the dangers of deregulated finance – dangers that are likely to be much greater in countries where the development project is still incomplete.

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Edited by Sheila Dow, Jesper Jespersen and Geoff Tily

This book is devoted to the lasting impact of The General Theory (and Keynes’s thought) on macroeconomic theory, methodology and its relevance for understanding the post-crisis challenges of the 21st Century. A number of contributions take their departure from Keynes's presentation during the 1930's of his new macroeconomic understanding and its policy implications. Other chapters take a more pluralistic view of Keynes's ideas and their importance for contemporary debates. Further, it is demonstrated that many textbooks often misrepresent The General Theory and therefore cannot be a reliable guide to 21st Century economic policy.