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Edited by Robert W. Dimand and Harald Hagemann

The most influential and controversial economist of the twentieth century, John Maynard Keynes was the leading founder of modern macroeconomics, and was also an important historical figure as a critic of the Versailles Peace Treaty after World War I and an architect of the Bretton Woods international monetary system after World War II. This comprehensive Companion elucidates his contributions, his significance, his historical context and his continuing legacy.
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Robert W. Dimand and Harald Hagemann

“Rereading the General Theory”, wrote Milton Friedman (1997, p. 5), “has reminded me what a great economist Keynes was.” His Chicago colleague, Judge Richard Posner (“How I became a Keynesian” 2009), when driven by the Global Financial Crisis to actually read Keynes’s The General Theory of Employment, Interest and Money, was shocked to discover that he found the book admirable, readable and helpful in understanding the world, and even was converted to Keynesianism (not at all an effect that rereading the book had on Friedman). That Keynes was an economist of sufficient historical influence, both of attraction and repulsion, to warrant inclusion with David Ricardo or Alfred Marshall in The Elgar Companion series hardly seems debatable. We cannot imagine a three-volume biography of any other economist, however well written, being published, let alone being a best seller (Skidelsky 1983–2000, 2003). The evolution of modern macroeconomics cannot be understood without reference to Keynes’s influence – and in the case of monetarism and New Classical economics, to reactions against his influence (see Skousen, Dissent on Keynes, 1992). The Global Financial Crisis has provoked an outpouring of books with titles such as Keynes: The Return of the Master (Skidelsky 2009), Keynes: The Rise, Fall and Return of the 20th Century’s Most Influential Economist (Clarke 2009), Maynard’s Revenge. The Collapse of Free Market Macroeconomics (Taylor 2010), The Return to Keynes (Bateman et al. 2010), The Fall and Rise of Keynesian Economics (Eatwell and Milgate 2011) and Keynes Hayek: The Clash that Defined Modern Economics (Wapshott 2011). Yet even if Keynes had never written General Theory, he would have been historically important as the critic of the Versailles Peace Treaty and author of the Economic Consequences of the Peace, and as a leading Treasury advisor and international negotiator during and after two world wars. His interests and activities, notably as a philosopher and as a cultural entrepreneur, ranged far beyond economics. The Elgar Companion to John Maynard Keynes surveys and samples the scholarship on his life and legacy, the influences on his intellectual development, and the nature and context of his contributions. This body of scholarship, anchored by the great biographies of Keynes by Donald Moggridge (1992) and Robert Skidelsky (1983–2000), has benefitted from the 30 volumes of The Collected Writings of John Maynard Keynes (1971–89, general editors Donald Moggridge and Austin Robinson, volume editors Donald Moggridge and, for four volumes, Elizabeth Johnson), supplemented by T.K. Rymes’s reconstruction of Keynes’s lectures in the early 1930s (Rymes 1989), and by much now-available unpublished material such as declassified Treasury files (see Lekachman 1964, for an overview of earlier studies of Keynes as an economist). It has also benefitted from a changed, and deepened, understanding of Keynes as an economist, notably by Axel Leijonhufvud’s distinction between Keynesian economics (the economics of the mainstream of those who considered themselves Keynes’s followers) and the economics of Keynes himself (Leijonhufvud 1968; see also Minsky 1975, Friedman 1997 and Harcourt and Riach 1997 for other perspectives on the economics of Keynes). Views of Keynes the man also evolved: contrast Jeff Escoffier (1995) on Keynes as a gay man with the reticence of Harrod (1951). Too much can, and all too often has, been made of this: Keynes’s pre- Lydia homosexuality can explain his break from the economic orthodoxy of Pigou and Robertson only if a similarity can explain a difference. The Bloomsbury group, a crucial context for Keynes, is now much better known and understood than it was.

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Minsky’s Moment

An Insider’s View on the Economics of Hyman Minsky

Piero Ferri

At its core this book sets out the analytical and methodological foundations of Minsky’s financial instability hypothesis (FIH). Grounded on the joint work of Piero Ferri and Hyman Minsky, it offers insightful analysis from a unique insider's perspective. The objective is to deepen and enlarge the toolbox used by Minsky and to place the analysis within a dynamic perspective where a meta model, based upon regime switching, can encompass the different forms that the FIH can assume.
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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.