New Keynesian Economics/Post Keynesian Alternatives

By Roy J. Rotheim | Go to book overview

1

SETTING THE RECORD STRAIGHT

Paul Davidson

On page IX of the Preface to the printed German language edition of The General Theory of Employment, Interest and Money, published by Duncher and Humblot in 1936, the following sentences appear:

This is one of the reasons which justify my calling my theory a General [emphasis in the original] Theory. Since it is based on fewer restrictive assumptions [weniger enge Voraussetzungen stutz] than the orthodox theory, it is also more easily adopted to a large area of different circumstances. 1

These sentences echo Keynes’s insistent theme that a general theory required fewer restrictive axioms. For example, Keynes declared classical economists

resemble Euclidean geometers in a nonEuclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight…. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required in economics today.

(1936, p.16, emphasis added).

In any logical argument, it is for those who adopt highly special assumptions to justify them, rather than for those who dispense with such axioms to prove a general negative. Thus, by declaring that his analysis was a general theory that required fewer restrictive axioms, Keynes placed the onus on the classical economists to justify their assumptions that an economic system required the axioms of gross substitution (i.e. everything is a substitute for everything else), neutral money and an ergodic economic processes so that the future was not uncertain—rather future outcomes were controlled by immutable objective probability distributions. 2

Galbraith (1994) has noted the relationship between the ‘first three words’ of Keynes’s book (i.e. ‘The General Theory’) and Einstein’s General Theory of Relativity. Galbraith demonstrates that ‘The parallels between Keynes’s economics and Einstein’s relativity theory are deep enough, and evidently intentional enough, to provide a useful framework for thinking about what Keynes meant to do with his scientific revolution’ (ibid., p.62).

-15-

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