Keynes - The General Theory - Chapter I

So we begin: "I have called this book the General Theory of Employment, Interest and Money , placing the emphasis on the prefix general." One of the criticisms of Keynes is that he paid too much attention to the Great Depression in writing A General Theory. Obviously an economist writing when Keynes did would have the latest recession firmly in mind, but by his own standard, we should be able to find, in his theory, a policy recommendation--even if that recommendation is to do nothing--for any situation which could confront those with monetary authority. If we can't find this, his theory is not general at all.

In a footnote, Keynes defines classical as it regards economics: "'The classical economists' was a name invented by Marx to cover Ricardo and James Mill and their predecessors, that is to say for the founders of the theory which culminated in the Ricardian economics. I have become accustomed, perhaps perpetrating a solecism, to include in 'the classical school' the followers of Ricardo, those, that is to say, who adopted and perfected the theory of the Ricardian economics, including (for example) J. S. Mill, Marshall, Edgeworth and Prof. Pigou."

I'm too ignorant to comment on the prudence of lumping all of these men together. Certainly Keynes was aware of differences of opinion among economists--he comments on them in the Preface. Still, the biggest oversight here might be in leaving out other schools; Mises was forgotten by his point, but are Schumpeter and Hayek--the latter of whom was well known by Keynes--to be thrown in with Marshall et. al.? Hayek's name appears in the index, so I suppose we shall see.

He continues: "I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case, the situation which it assumes being a limiting point of the possible positions of equilibrium." This is clumsily worded. He seems to be saying that the classical theory only deals with the economy as it exists in equilibrium--or, weaker yet, only a subset of this. I'm not sure what "the possible positions of equilibrium" could be.

More from Keynes: "Moreover, the characteristics of the special case assumed by the classical theory happen not to be those of the economic society which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience." In other words, equilibrium is a theoretical construction; in the real world, the economy is always moving toward of falling away from equilibrium, a point it never reaches because it is always changing.