Transcript The General Theory After 80 Years Fernando Ferrari Filho

The General Theory After 80 Years
Fernando Ferrari Filho
Professor of Economics at UFRGS and Researcher at
CNPq
http://www.ppge.ufrg.br/ferrari and [email protected]
IX International Conference of the Brazilian
Keynesian Association
São Paulo, September 3, 2016
The Keynesian revolution
• The General Theory (GT) revolutionizes economics at least in
two ways:
(i) Policy → It introduces a new framework in economics, that is,
fiscal policy*;
(ii) Theory → It presents a theory in which the capitalist system is
inherently unstable and the economic “equilibrium” depends on
the level of effective demand.
(*) The Means to Prosperity, 1933.
How this revolution is developed?
• From Treatise on Money (TM) to GT:
(i) TM → “Asset choice theory” (industrial and financial circulation
of capital and bull and bear agents) and endogenous money.
“in equilibrium (...) when the factors of production are fully
employed, when the public is neither bullish nor bearish of securities
and is maintaining in the form of savings-deposits neither more nor
less than the ‘normal’ proportion of its total wealth, and when the
volume of saving is equal both to the cost and to the value of new
investments – there is a unique relationship between the quantity of
money and the price-levels (...) if the quantity of money were double
the price-levels would be double also. But (...) if the volume of
saving becomes unequal to the cost of new investment, or if the
public disposition towards securities takes a turn, even for good
reasons, in the bullish or in the bearish direction, then the
fundamental price-levels can depart from their equilibrium values
without any change having occurred in the quantity of money or
in the velocities of circulation.” (Keynes, 1976: 147)
“By Industry we mean the business of maintaining the normal
process of current output, distribution and exchange and paying
the factors of production their incomes (...) By Finance, on the
other hand, we mean the business of holding and exchanging
existing titles to wealth (...) including Stock Exchange and Money
Market transactions, speculation and the process of conveying
current savings and profits into the hands of entrepreneurs.”
(Ibid.: 243)
“a ‘bear’ (...) is one who prefers at the moment to avoid securities and
lend cash, and correspondingly a ‘bull’ is one who prefers to hold
securities and borrow cash – the former anticipating that securities
will fall in cash-value and the latter that they will rise.” (Ibid.: 250)
(ii) The Distinction Between a Co-operative Economy and an
Entrepreneur Economy → The modus operandi of a “monetary theory
of production” (uncertainty-money-unemployment).
“[e]ffective demand may be defined by reference to the expected
excess of sale proceeds over variable cost.” (Keynes, 1979: 80)
“Money is par excellence the means of remuneration in an
entrepreneur economy (…) the use of money is a necessary condition
for fluctuations in effective demand.” (Ibid.: 86)
(iii) GT → “Asset pricing theory” and government intervention to
stabilize the economic system. Quotations:
“unemployment develops (…) – men cannot be employed when the
object of desire (i.e. money) is something which cannot be produced
and the demand for which cannot be readily choked off.” (Keynes,
2007: 235)
“I see (...) the rentier aspect of capitalism as a transitional phase
which will disappear (...) I am advocating (...) the euthanasia of the
rentier (...) I conceive (…) that a (…) socialisation of investment
will prove the only means of securing an approximation to full
employment.” (Ibid.: 376 and 378)
The relevance of Keynes today
• The 2007-2008 financial crisis is a failure of the market system
(globalization and financial innovation) that was built according to
the idea of “the love of money as a possession*” (Keynes, 1972:
329).
• Since 2007-2008, fiscal and monetary policies have been
implemented to mitigate the “great recession” and assure “full
employment”.
• The world economic reform “require[s] restricting the role of
finance [financial globalization]” (Skidelsky, 2009: 173). A new
Bretton Woods/Clearing Union Plan?
• Inflation Targeting Regime vis-à-vis Nominal GDP Growth Target.
(*) Economic Possibilities for Our Grandchildren (1930).
References
KEYNES, J.M. (1972). Essays in Persuasion. London: Macmillan.
_____ (1976). Treatise on Money: The pure theory of money:
volumes I and II. New York: AMS Press.
_____ (1979). The General Theory and After: A supplement.
London: Macmillan.
_____ (2007). The General Theory of employment, Interest and
Money. New York: Palgrave Macmillan
SKIDELSKY, R. (2009). Keynes: the return of the master. New
York: Public Affairs.