Monday, December 1, 2008

Learning about Keynesian Economics at the Source

Tyler Cowen is starting a new "book club" on the Marginal Revolution blog. He's going to discuss John Maynard Keynes' General Theory of Employment, Interest and Money one chapter at a time, beginning next Monday, December 8.

Given the renewed interest in Keynesian policies, as well as the overworked comparisons to the Great Depression, this is an opportune time to learn and understand one of the most important and frequently misunderstood works in economics. I'm going to break out my old copy and try to keep up with him. You can find copies in public libraries (I hope), and according to Tyler, the Kindle version is only about $4.00. If you can't or don't want to follow along, (time is a resource and scarcity is an operative concept) I would recommend you consider reading the blog and posts as he proceeds through the book.

(HT to the Arnold Kling.)

Here's a link to a free version of The General Theory.


Arthur James said...

Keynes, “The General Theory”, chapter 24, pages 381-83:

“I have mentioned in passing that the new system might be more favourable to peace than the old has been. It is worth while to repeat and emphasise that aspect.

“War has several causes. Dictators and others such, to whom war offers, in expectation at least, a pleasurable excitement, find it easy to work on the natural bellicosity of their peoples. But, over and above this, facilitating their task of fanning the popular flame, are the economic causes of war, namely, the pressure of population and the competitive struggle for markets. It is the second factor, which probably played a predominant part in the nineteenth century, and might again, that is germane to this discussion.

“I have pointed out in the preceding chapter that, under the system of domestic laissez-faire and an international gold standard such as was orthodox in the latter half of the nineteenth century, there was no means open to a government whereby to mitigate economic distress at home except through the competitive struggle for markets. For all measures helpful to a state of chronic or intermittent under-employment were ruled out, except measures to improve the balance of trade on income account.

“Thus, whilst economists were accustomed to applaud the prevailing international system as furnishing the fruits of the international division of labour and harmonising at the same time the interests of different nations, there lay concealed a less benign influence; and those statesmen were moved by common sense and a correct apprehension of the true course of events, who believed that if a rich, old country were to neglect the struggle for markets its prosperity would droop and fail. But if nations can learn to provide themselves with full employment by their domestic policy (and, we must add, if they can also attain equilibrium in the trend of their population), there need be no important economic forces calculated to set the interest of one country against that of its neighbours. There would still be room for the international division of labour and for international lending in appropriate conditions. But there would no longer be a pressing motive why one country need force its wares on another or repulse the offerings of its neighbour, not because this was necessary to enable it to pay for what it wished to purchase, but with the express object of upsetting the equilibrium of payments so as to develop a balance of trade in its own favour. International trade would cease to be what it is, namely, a desperate expedient to maintain employment at home by forcing sales on foreign markets and restricting purchases, which, if successful, will merely shift the problem of unemployment to the neighbour which is worsted in the struggle, but a willing and unimpeded exchange of goods and services in conditions of mutual advantage.”

The only discussions I know of this and related passages in the GT (including in chapter 23) on Keynes’s belief in economic causes of war and that his economics might help promote peace are:

- Hyman P Minsky, “John Maynard Keynes”, Columbia University Press, 1975, page 159
- Donald Markwell, “John Maynard Keynes and International Relations: Economic Paths to War and Peace”, Oxford University Press, 2006, pages 178-190

It's also worth looking at

Tim Schilling said...

I agree. I didn't recall much from my first reading of of the GT some years ago that indicated he bought into the economy as a cause for war.