The whole of Chapter One

Here it is, the whole chapter, sans footnote, from the Marxists:

I HAVE called this book the General Theory of Employment, Interest and Money, placing the emphasis on the prefix general. The object of such a title is to contrast the character of my arguments and conclusions with those of the classical theory of the subject, upon which I was brought up and which dominates the economic thought, both practical and theoretical, of the governing and academic classes of this generation, as it has for a hundred years past. I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case, the situation which it assumes being a limiting point of the possible positions of equilibrium. Moreover, the characteristics of the special case assumed by the classical theory happen not to be those of the economic society which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.

Short and to the point. And it comes first. It's the first chapter in the book. I think that means something. I think that means Keynes thought it important.

Not insignificant because the chapter is short, but clear because the chapter is short, and important because it comes first. What was it Cochrane said?

A good joke or a mystery novel has a long windup to the final punchline. Don’t write papers like that — put the punchline right up front and then slowly explain the joke.

That's what Keynes did: He put the most important thing first.

When I came upon Chapter One just now, what struck me was its brevity. But what I remembered then was the long back-and-forth between Peter L and Philip Pilkington at Pilkington:About. I am thinking in particular of this from Peter L:

We’re discussing what is an extremely minor point (and I am squarely to blame here!). But here’s one last go at clarification:

1. I noticed you say that the reason why the GT is called “general” is because Keynes saw it as applying to all economies regardless of institutional framework and political system.

On this I think there is no room for misunderstanding we agree that you said this and we agree on what you meant by it. We also agree Keynes was attempting a theory of economic behaviour so of course, mutatis mutandis, if that theory is correct in one set of institutional circumstances, it would fit all.

2. Ok next you cite the German preface of GT in support of your contention in 1 above.

3. My argument is that while Keynes may well have seen his theory as being applicable not only to economies with democratic institutions, that was most definitely not his REASON for using the term “general”.

Unless I’ve missed something (altogether possible of course!) I see no scope for misunderstanding.

While I would contend the German preface is not a place to find Keynes’ theory, I do think what he says on page three is definitive, and I’m sure you know this passage well. (My added emphases).

“I have called this book the General Theory of Employment, Interest and Money, placing the emphasis on the prefix GENERAL. The object of such a title is to CONTRAST the character of my arguments and conclusions with those of the CLASSICAL theory of the subject, upon which I was brought up and which dominates the economic thought, both practical and theoretical, of the governing and academic classes of this generation, as it has for a hundred years past. I shall argue that the postulates of the classical theory are applicable to a SPECIAL case only and NOT to the GENERAL case, the situation which IT ASSUMES being a limiting point of the possible positions of equilibrium. Moreover, the characteristics of the SPECIAL case assumed by the classical theory happen not to be those of the economic society in which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.”

Finally it is surely the case that Keynes really did not think of Marshall et al were simply writing about the Victorian British economy whilst the “general” theory would apply to the Victorian British economy as well as the German totalitarian economy and indeed any others.

His point is that the classical theory applies to NO economy (except in SPECIAL circumstances).

Yes, I made you read the whole of Chapter One twice now. Forgive me. But it's an important paragraph. It's important not to misunderstand it. I think Peter L has it exactly right, emphases and all.

Maynard was telling us that the economy is much bigger than we think, bigger and more of a whole. Economists today argue whether something somebody said a hundred or a hundred and fifty years ago is right or wrong. All else aside, isn't that pathetic? Everybody is wrong sometimes, but most people try to get it right. Any economist who is worth anything tries to get it right. So, taking the best of what someone offers, that part of what they say is probably correct, or close.

So why is it we take these things people said back when, when the economy was different than it is now, why is it we take these things and just call them wrong and reject them? Are we not being most disrespectful? Are we not missing the bigger picture? Are we not dismissing something brief, clear, and important enough to make it into the first chapter of The General Theory?


In Thoughts on Brad’s Thoughts on Economic Theology, Robert Waldmann quotes Joseph Stiglitz (via Brad DeLong):

a peculiar doctrine came to be accepted, the so-called “neoclassical synthesis.” It argued that once markets were restored to full employment, neoclassical principles would apply. The economy would be efficient. We should be clear: this was not a theorem but a religious belief. The idea was always suspect…

Waldmann adds: "Brad notes that the peculiar doctrine is due to Keynes".

DeLong offers a different quote, but that "particular doctrine" is the one Keynes established in the first chapter, which by now you've read at least twice. Stiglitz rejects it. DeLong says "it is not true in practice". And Waldmann rejects it also, saying "I don’t think that, even given full employment, markets are efficient."

I say markets were efficient at the time economists observed efficient markets -- the time of Say and Ricardo and Smith. Today, no -- but that's a different matter.

Here's the thing: Stiglitz and Delong and Waldmann flat-out reject the notion that markets can be efficient even when the "special case" holds true. I think the "special case" is a unique time, a peak in the Cycle of Civilization.

Now really: which view is more interesting?