Keynes’s *General Theory*, chapter seven

There's a lot of shadow boxing in this chapter.  Keynes is well aware that he just made a radical move in treating savings as a pure residual (see my discussion of chapter six).  Now he is looking to cover his tracks, make it sound reasonable, and show that other people don't really have a better approach.

Section I recaps.  When Keynes writes "It would certainly be very inconvenient and misleading not to mean this" you should be just a bit astonished.  He knew exactly what he was trying to cram in here and I suspect Keynes himself was smirking when he wrote that line.

Section II covers Hawtrey, an economist hardly discussed these days.  (But wait, the issue pops up here, today!  And here!  Fama I think is wrong but read his 1980 "Banking in the Theory of Finance," Journal of Monetary Economics, for his underlying model)

Section III says that there exists a contorted interpretation of Keynes's earlier Treatise on Money which is consistent with the GT.

Sections IV and V whack the Austrians (again), drawing heavily on Piero Sraffa's 1932 "Dr. Hayek on Money and Capital."  Keynes's basic point is that inflation can push around the redistribution of wealth, and expenditure flows, but that the new allocation of resources will be self-sustaining rather than self-reversing.  He was basically right, unless you are willing to adopt some ancillary doctrine of market failure when specifying how adjustment processes occur.

The first paragraph of Section V is interesting but I don't think it is a correct account of why the Austrians differ from Keynes on this point.  The Austrians had confusing terminology and here I think Keynes is taking them too literally.

The last two paragraphs of this chapter are a nice statement of what macroeconomics is all about.

Psychologically, Keynes feels he has neutralized the alternative approaches to savings and investment, and so he will proceed with the approach which we now call Keynesian.  This chapter is Keynes trying to reassure himself, and reassure the reader.  It's Keynes, the conscious revolutionary, trying to sound conservative.


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