An Analysis of the Major Error Committed in Evaluating J. M. Keynes's General Theory from 1936-2018: The Claim, that Keynes was a Marshallian, Partial Equilibrium Theorist, Which Keynes, Himself, Completely Rejected in Chapter 21 of the General Theory in 1936
32 Pages Posted: 18 Jul 2018
Date Written: June 26, 2018
The major error made in the history of economic thought concerning Keynes’s General Theory is the false belief that he was a Marshallian who would only use partial equilibrium analysis and would NEVER use systems of simultaneous, mathematical equations .Of course, Keynes was very critical in the General Theory of precisely this Marshallian, partial equilibrium, approach to macroeconomics as used by Pigou in 1933 in The Theory of Unemployment. Keynes’s critique of Pigou was that Pigou had failed to specify equations that would account for and show the interdependences between all the variables that Pigou was analyzing.
Keynes, in the A Treatise on Probability, used an interval valued approach to probability that required the solution of large systems of simultaneous, mathematical, linear and non linear equations.
Economists, who have analyzed Keynes’s theoretical and technical approach in the General Theory, have erred in accepting the claims of the mathematically and economically illiterate economist, Joan Robinson, as regards Keynes’s approach.
Keynes completely rejected the Marshallian, partial equilibrium approach to macroeconomics in his critique of Pigou’s The Theory of Unemployment in the appendix to chapter 19 and in chapter 21 of the General Theory. Keynes’s main point is that Pigou had no IS-LP(LM) model that was needed to consider some of the interdependences operating at the macro level.
Keywords: IS-LM, IS-LP(LM), Reddaway, Champernowne, Keynes, chapter 21, chapter 15, Keynes's views of math
JEL Classification: B10, B12, B14, B16, B20, B22
Suggested Citation: Suggested Citation