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Raising Keynes

A Twenty-First-Century General Theory
Language: English
Published/Copyright: 2020

About this book

Back to the future: a heterodox economist rewrites Keynes’s General Theory of Employment, Interest, and Money to serve as the basis for a macroeconomics for the twenty-first century.

John Maynard Keynes’s General Theory of Employment, Interest, and Money was the most influential economic idea of the twentieth century. But, argues Stephen Marglin, its radical implications were obscured by Keynes’s lack of the mathematical tools necessary to argue convincingly that the problem was the market itself, as distinct from myriad sources of friction around its margins.

Marglin fills in the theoretical gaps, revealing the deeper meaning of the General Theory. Drawing on eight decades of discussion and debate since the General Theory was published, as well as on his own research, Marglin substantiates Keynes’s intuition that there is no mechanism within a capitalist economy that ensures full employment. Even if deregulating the economy could make it more like the textbook ideal of perfect competition, this would not address the problem that Keynes identified: the potential inadequacy of aggregate demand.

Ordinary citizens have paid a steep price for the distortion of Keynes’s message. Fiscal policy has been relegated to emergencies like the Great Recession. Monetary policy has focused unduly on inflation. In both cases the underlying rationale is the false premise that in the long run at least the economy is self-regulating so that fiscal policy is unnecessary and inflation beyond a modest 2 percent serves no useful purpose.

Fleshing out Keynes’s intuition that the problem is not the warts on the body of capitalism but capitalism itself, Raising Keynes provides the foundation for a twenty-first-century macroeconomics that can both respond to crises and guide long-run policy.

Reviews

Marglin has taken 80 years of neoclassical distortions of Keynes, presented them with great clarity in their own language, and then pounded them into dust, pushing the detritus back into the faces of the high priests of the neoclassical synthesis, the New Keynesians, and the New Classical Economists. Raising Keynes issues a challenge that they would be cowardly to refuse—which is not to suggest that they won’t do their best to ignore it.
-- James K. Galbraith Project Syndicate

Stephen Marglin’s magnum opus makes a powerful case that we cannot expect the economy to solve its own problems, and that instead economists and policymakers need to put persistent unemployment at the center of their thinking in order to both better understand the economy and to make a stronger case for using fiscal and monetary policy to change it for the better.
-- Jason Furman, Harvard University, former Chairman of the U.S. Council of Economic Advisers

This is a thought-stimulating reconstruction of John Maynard Keynes’s insight that market economies do not automatically gravitate to full-employment equilibrium even if prices are flexible. Stephen Marglin shows, with modern analytical tools and (yet) in an often entertaining style, how normal signal processing leads to real-time adjustments to shocks that can move a competitive economy out of equilibrium in the short run and into a different equilibrium in the long. He succeeds in demonstrating this without invoking all those frictions and imperfections so indispensable to New Keynesians. The book opens a wide array of unorthodox, but well-founded perspectives on past and current issues of economic policy. It is the fruit of life-long research, and it deserves a wide readership.
-- Hans-Michael Trautwein, University of Oldenburg, Germany

Raising Keynes is a work of great significance that anyone seriously interested in how capitalism functions and malfunctions should read carefully. Stephen Marglin succeeds in clarifying the central ideas in John Maynard Keynes’s revolutionary macroeconomic framework, while also extending and deepening those ideas in important ways, applying the ideas to our contemporary conditions, and also delivering devastating critiques of orthodox macroeconomic theory and practice. The book is also highly accessible for a work of this nature, without skimping at all on technical details—an almost impossible combination to pull off.
-- Robert Pollin, University of Massachusetts Amherst

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  • Publicly Available

    Frontmatter

    i
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  • Publicly Available

    Contents

    vii
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  • Publicly Available

    Notation

    xi
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    Prologue: What Is This Book About?

    1
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  • Part I. Background: The Rise and Fall
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    1 Introduction: Is This Resurrection Necessary?

    17
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    2 What Were They Thinking? Economics Before The General Theory

    50
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  • Part II. Keynes Defeated: Static Models and the Critics
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    3 The Determination of Output and Employment: First and Second Passes at Equilibrium

    77
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    4 Equilibrium with a Given Money Supply: Critical Perspectives on the Second-Pass Model

    122
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  • Part III. Keynes Vindicated: A Theory of Real-Time Changes
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    5 The Price Mechanism: Gospels According to Marshall and Walras

    159
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    6 The General Theory without Rigid Prices and Wages

    191
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    7 Dynamics vs. Statics: Can the Economy Get from the Here of Unemployment to the There of Full Employment?

    222
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    8 A Dose of Reality: The Evidence of the Great Depression

    261
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  • Part IV. Building Blocks
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    9 Consumption and Saving

    307
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    10 Investment

    340
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    11 The Theory of Interest, I: Liquidity Preference in a World of Money and Bonds

    376
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    12 The Theory of Interest, II: Liquidity Preference as a Theory of Spreads

    409
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    13 Taking Money Seriously

    497
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  • Part V. Fiscal Policy in Theory and Practice
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    14 Functional Finance and the Stabilization of Aggregate Demand

    529
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    15 Did the Obama Stimulus Work?

    544
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    16 Functional Finance and the Composition of Aggregate Demand

    594
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  • Part IV. Keynes in the Long Run
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    17 First Steps into the Long Run: Harrod, Domar, Solow, and Robinson

    647
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    18 Keynes in the Long Run: A Theory of Wages, Prices, and Employment

    675
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    19 Inflation and Employment Empirics in the Keynesian Long Run

    754
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    Notes

    797
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    References

    857
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    Acknowledgments

    881
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    Index

    883
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Publishing information
Pages and Images/Illustrations in book
eBook published on:
July 5, 2021
eBook ISBN:
9780674246225
Pages and Images/Illustrations in book
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https://doi.org/10.4159/9780674246225
eBook ISBN: 9780674246225
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