At Philipji.com, the top post today is James K. Galbraith has not read Keynes. Philip is new to me -- thanks, Jazz -- and I'm just reading quick to get some impressions. But I had to stop when I read this:
Keynes did not ascribe any importance to banks. In his model, money consists entirely of currency, exactly as in the Ricardo that Galbraith excoriates.
Soon as I read that, something Maynard said popped into my head:
As a rule, I shall, as in my Treatise on Money, assume that money is co-extensive with bank deposits.
So Keynes *does* ascribe importance to banks, I think. Money does *not* consist "entirely of currency" for Keynes, but of bank deposits.
For the context of the Keynes quote I provide, see my May Day post.
4 comments:
My knowledge here is limited too. Afaict, the worthwhile content of Philip's remarks is that Keynes in the General Theory did not talk much about banks and finance. As you note, he did, however, in the Treatise on Money and elsewhere.
As one can learn from Schumpeter, the general understanding of money and credit in the 20s to the 50s say was superior to the mainstream of today. The mainstream then was basically the modern, post-Keynesian, loans create deposits, endogeneous money theory.
Schumpeter notes that while Keynes certainly understood banks, finance and debt, their absence from the GT that Philip notes seems to have caused the later Keynesians (who lived in the aftermath of a great crash, with big government deficits, lots of government debt = money & a cautious banking system) to ignore finance and resurrect older (incorrect) theories of banking. Minsky notes the postwar/post 33 conditions were the only ones where you can safely ignore finance in your theories.
If you carefully read the parts from the General Theory that I have quoted you will see that Keynes thought that the only way money could increase was by the actions of the central bank. He thought of bank deposits too as currency.
That money could increase and decrease independently of the central bank was an idea completely foreign to Keynes.
Thanks, Philip.
Philip, as I said, you are right on his GT, but you are wrong on Keynes. His great rival Schumpeter was more generous to him in his History, p1114-1115.
"Nevertheless, it proved extraordinarily difficult for economists to recognize that bank loans and bank investments do create deposits. ... And even in 1930, when the large majority had been converted and accepted that doctrine as a matter of course, Keynes rightly felt it to be necessary to re-expound and to defend the doctrine at length (n5) and some its most important aspects cannot be said to be fully understood even now."
(n5)Treatise on Money ch.2 ... There is however a sequel to Lord Keynes treatment of the subject of credit creation in the Treatise of 1930 of which it is necessary to take notice in passing. The deposit-creating bank loan and its role in the financing of investment without any previous saving up of the sums thus lent have practically disappeared in the analytic schema of the General Theory, where it is again the saving public that holds the scene....
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