Introduction: The Keynesian Evolution

In The General Theory of Employment, Interest and Money (1936) Keynes set out to answer the question: what determines the employment of the available resources in the monetary- entrepreneur economy? Even to ask that question is to imply that the resources available at any particular time could be employed at different levels. If they could, the output of the economic system as a whole would not be fixed. Other things being equal, the level of output as a whole would correspond with the level at which resources were employed. Hence the question is synonymous with the question: what determines output as a whole? The answer to this question is what, as Keynes said, The General Theory purports to be (CW, VII: xxvi).1 The question is a valid one because (i) we know from experience that the extent to which resources are employed varies from time to time; (ii) the assumptions required to support a theory that resources are normally employed fully or that general unemployment is merely a temporary aberration are not plausible, as is argued below. It is not, however, until the question is addressed in a methodical way that its validity can be fully appreciated. Up to Keynes’s time the ‘pure theory’ relating to the question had ‘seldom been examined in great detail’ (CW, VII: 4). The issue was by no means totally ‘overlooked’, but ‘the fundamental theory underlying it [had] been deemed so simple and obvious that it [had] received, at the most, a bare mention’ (CW, VII: 4–5, footnote omitted).