ECON 460 History of Thought
Tuesday, September 11, 2012
Keynes: The General Theory of Employment, Interest and Money
Life in 1936
Fascists and communists up, democrats down
Capitalism was doomed
People argued that civilization was at stake
Preface: writing to economists; question their premises
Question the premises of economics (who was Keynes to do so?).
Divergences among economists have destroyed the discipline’s practical influence.
Money not separate.
“A monetary economy, we shall find, is essentially one in which changing views
about the future are capable of influencing the quantity of employment and not
merely its direction.”
Classical theory a special case. His theory is a general theory.
“A long struggle of escape from habitual modes of thought and expression...” (Maybe
not for us, as we live in the Keynesian age.)
“I must ask forgiveness, if in the pursuit of sharp distinction, my controversy is itself
too keen”- however he loves controversy
“A monetary economy is essentially one in which changing views about the future
are capable for influencing the quantity of employment and not merely its direction”
Book I: Introduction Chapter 1: The General Theory
Teaching classical special case “misleading and disastrous.” Characteristics of
the special case “not those of the economic society which we actually live...”
solecism (fn. 1): “a grammatical mistake in speech or writing: a breach of good
manners; a piece of incorrect behaviour”
Chapter 2: The Postulates of the Classical Economics
Who was (poor!) Professor Pigou?
Discussed externalities; pigou taxes; professor at Cambridge Idea of taxes on externalities
Coined poor because he is barely literate by Keynes
What are the two classical postulates?
W= MPL=MDL, what determines wage is MPL; you cant pay more because
you loose money and cant pay less because then labor migrates; graph: MPL
slopes down and MDL slopes up; wage in y-axis and labor in x-axis; if you are
not at L* then people are not accepting that wage and therefore the MDL line
is somewhere else because of min wage, fixed contracts, union contract
How do they determine the level of employment? (What would graphing them look
What is frictional employment?
Spell of unemployment as people change jobs; institutional arrangements can
affect frictional unemployment
What is voluntary employment?
What are “wage-goods”?
Produced and consumed by labor
How do you get an increase in employment in this world?
Only 4 possible means of increasing employment:
1. an improvement in organization or in foresight which diminishes
2. decrease in MDL, as expres