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Should Keynes’s General Theory book have been titled instead as ‘Special Theory of Employment, Interest and Money’?

Summary:
I had pointed that Monetary Authority of Singapore has completed its 50 years in 1971 and the central bank has released a commemorative volume on its 50 years. In the volume there is a speech (page 8-13) by Dr Goh Keng Swee who was chair of MAS from 1980 to 1985. He reflects on his college days when he studied economics and Keynes released the General Theory: When I was studying economics at Raffles College in pre-War days, the Keynesian revolution broke out with the publication of John Keynes’The General Theory of Employment, Interest and Money. Today, critics, including Sir John Hicks, are agreed that it was a badly written work and made for difficult reading. I can attest to the latter. As an undergraduate, I read the book from cover to cover no fewer than three times, some

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I had pointed that Monetary Authority of Singapore has completed its 50 years in 1971 and the central bank has released a commemorative volume on its 50 years.

In the volume there is a speech (page 8-13) by Dr Goh Keng Swee who was chair of MAS from 1980 to 1985.

He reflects on his college days when he studied economics and Keynes released the General Theory:

When I was studying economics at Raffles College in pre-War days, the Keynesian revolution broke out with the publication of John Keynes’
The General Theory of Employment, Interest and Money. Today, critics, including Sir John Hicks, are agreed that it was a badly written work and made for difficult reading. I can attest to the latter. As an undergraduate, I read the book from cover to cover no fewer than three times, some chapters even more. What puzzled me most was that Keynes measured variables and aggregates, such as National Income and Money Supply, in terms of what he called “Wage Units”. I asked my professor what this meant and why Keynes did this, but could not get a satisfactory reply. Nor did the literature of the day prove more helpful.

Years later, the truth dawned on me. The Keynesian remedy for curing unemployment — the burning issue of the day left behind by the Great
Depression years — involved a serious risk of inflation. Of course, Keynes knew this. The remedy he recommended took the form of expansion of bank credit through central bank policies to finance government expenditure. This extra spending will create additional demand for goods
and services, thereby reducing unemployment. But if economic variables are measured in wage units, inflation would be factored out as wages will rise in keeping with price increases. If variables such as the consumer price index or interest rates and aggregates like money supply, were measured in wage units, their increases would be reduced to the extent to which wages rise.

There is a further difficulty to contend with. The Keynesian system is a closed one, that is, it takes no account of foreign trade. This is admissible in theory, but in practice, since all modern states engage in foreign trade, a Keynesian stimulus will lead eventually to balance of payments deficits if governments do not exercise restraint in time. A part of the increased incomes people receive will be spent on imports and when exports do not increase in proportion, a trade deficit will occur. In the immediate postWar years, Keynesian economics won widespread acceptance in both academic and government circles in Britain and the United States. Confidence increased in the ability of governments to maintain full employment and stable economic growth through Central Bank credit policies and government fiscal (budgetary) policies.

However Keynesian policies backfired in 1960s:

However, by the mid1960s, certain stubborn difficulties appeared and refused to go away. In Britain, this took the form of balance of payments troubles which led to the devaluation of the pound in November 1967.

America experienced troubles in a different form. Because all major world currencies fixed their par values in terms of the US dollar and the 
US dollar was pegged to gold at US$35 per ounce, America could not devalue the dollar except by raising the price of gold. This the government was unwilling to do for political reasons. Eventually, what happened was an increase in inflationary pressure in the US and a decline in confidence over the convertibility of the US dollar into gold at US$35 per ounce because of increasing US dollar balances accumulated overseas as a result of trade deficits. In the end, gold convertibility of the US dollar was suspended in August 1971 and, shortly thereafter, the regime of floating currencies came into being. World currencies continue to float till this day.

He points how Singapore was watching these developments and learnt from them.

Finally he says he is not against Keynes but the General Theory should have been named as

In conclusion, I want to correct any impression this article may have given that I think poorly of Keynes as an economist. I do not. He is the greatest economist the world has produced this century. He introduced a new way of looking at an economic system, in a different way from the classical greats such as Adam Smith, David Ricardo and Alfred Marshall. The classicals saw the system as one consisting of producers and
consumers, each making his own decision as a producer or a consumer. They studied how a free market harmonises their interests. Keynes looked at how the system functions as a whole. Keynes gave birth to a discipline we now call macroeconomics.   

….

If one has to fault Keynes on any point, it would be the title of his book. This should have been The Special Theory of Employment, Interest and Money. His prescriptions were intended to address the special circumstances created by the Great Depression. By calling it a General Theory, he led lesser minds than his into believing that his prescriptions could be applied under all circumstances, with unhappy consequences, as we have noted.

Schumpeter had made similar comments on General Theory as well..

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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