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Money and Investment


1. Money and Financial Money Capital within a Keynesian Framework

A riddle is to be solved! In Chapter 17 of the General Theory, Keynes looked at money supply as if it were some exogenously given constraint impinged upon the system he built up, the monetary production economy.
Alain Parguez

2. Notes on Finance, Risk and Investment Spending

Ordinary macroeconomics presents three essentially incompatible theories of investment spending, each corresponding to a separate branch of the subject. When dealing with short-run questions, investment is held to depend on the level of income and the rate of interest, in accordance with the marginal efficiency calculation. It is this function which enters into the construction of the celebrated IS curve. But when the matter of the cycle is broached, investment is suddenly seen to depend not on the level, but on the rate of change of income, appropriately lagged, while the influence of the interest rate quietly evaporates. The crucial parameters are the saving ratio, the capital— output ratio, and the time lags. However, the cycle cannot really be studied without consideration of the trend, which, of course, depends on investment. So to explain the trend we have a third theory of investment. The form of the function is the same, with the same parameters — the saving and capital-output ratios, and time lags — but now the parameters must assume different values. For one range of values will produce cycles, while another is required for exponential growth. So the textbook explanations of growth and the cycle are inconsistent with one another. They both draw on the accelerator mechanism, but they assume different ranges of values for the parameters.
Edward J. Nell

Debt, Credit and the Rate of Investment


3. Financial Structures: Indebtedness and Credit

Our subject is debt, credit and the rate of interest in Keynesian theory and the significance of these variables for economic policy. A particular interest is the significance of the financial structure — i.e., the impact of the particular set of financial institutions and financial relations that exist upon the behaviour of the economy. Modern capitalism is a system in which financial relations are of particular importance in determining what happens. An understanding of the movements in calendar time of contemporary capitalisms depends upon understanding the behaviour and evolution of financial practices and structures.
Hyman P. Minsky

4. Saving and Debt

When he discussed savings and consumption in the General Theory, Keynes distinguished neither between capitalists and workers nor between business and households. Notwithstanding the importance of the first of these two distinctions I shall deal in this chapter only with the second which involves problems of its own.
Josef Steindl

5. The ‘Overdraft Economy’, the ‘Auto-economy’ and the Rate of Interest

J. M. Keynes devoted less space in his work to the classification of financial systems than to the various motives for holding money balances. He did not try to expand on the distinction between a cash economy, a simple credit economy and a complex credit economy that was so important in Wicksell’s analysis.1 Neither did he expressly concern himself in his work with the recently proposed distinction between an ‘overdraft’ economy and an ‘auto-economy’.2 This distinction was first suggested by Hicks (1974), and was subsequently the subject of more thorough investigation in France. In my opinion it is a valuable framework for understanding some significant aspects of Keynes’s analysis and its post-Keynesian interpretation, in particular concerning the formation and the role of interest rates, and the policies designed to influence them.
Christian de Boissieu



6. The Role of Prices in the Establishment of Keynesian Short-run Equilibrium

Keynes does not directly discuss the behaviour of prices in the process of aggregate adjustment, and therefore the role of prices in this process remains unclear. However, we feel that Keynes does give us a few very important tools for analysing the role of prices in macroeconomic adjustment. These tools are summed up in the principal of the determination of effective demand based on the aggregate supply price and aggregate demand price curves. This formulation has a twofold interest. In connection with Says theory of markets, it shows that there is a unique equilibrium point and not an infinite number of possible points. The second important aspect — which is less often stressed — is connected to the quantity theory of money: the effective demand principle provides an explanation for the determination of the general price level which is also different from the ‘Classical’ explanation. Furthermore, Keynes’s explanation offers an answer to a hitherto unexplained phenomenon: the establishment of the general price level. Chapter 21 (‘The Theory of Prices’) in the General Theory opens with a discussion of this question. Keynes contrasts the usual analysis of market price determination (which he calls the theory of value) with the existence of a general price level determination which is totally independent of the first.
Michel Broniatowski, Gérard Kébabdjian

7. Keynesian Assumptions and the Dynamics of Price

The various neoclassical schools share the idea that the theory of prices does constitute the centre of economic theory; it tends to merge with the theory of the general equilibrium and the distribution of resources. Prices play a part at three distinct levels. At first, they are the indicators the economic agents use in order to formulate their plans, and they synthesise in such a way the whole set of useful economic data. They are also the means of micro and macroeconomic adjustments since their changes enable firms to reconsider those plans and to make them be consistent. They express the equilibrium by summing up the results of the various adjustments and thus by providing a system of equilibrium prices.
Christian Barrère

8. On Keynesian Underemployment, Prices, and Wealth Effects of Government Debt

The role of prices in the Keynesian system has long and frequently been misperceived; contemporary coexistence of inflation and unem-ployment has induced repudiation of Keynesian diagnoses and prescriptions. A re-examination of certain critical effects of flexible wages and prices and changing levels of prices is in order.
Robert Eisner

9. The Marshallian Core of the General Theory

The account of the principle of effective demand illustrated by Keynes in Chapter III of the General Theory of Employment, Interest and Money has given rise, ever since the publication of Keynes’s work, to many attempts to discover the microeconomic foundations of the two basic relationships which underlie this principle: the aggregate supply and demand functions. Initially the interest of commentators was concentrated mainly on the aggregate supply function (Hawtrey, 1954; de Jong, 1954; Wells, 1960; Marthy, 1961; Patinkin, 1965, 1978; Tarshis, 1979). Subsequently, after isolated anticipations of the problem (Weintraub, 1957), there has been a growing realisation that the main ambiguities and difficulties of interpretation concern the aggregate demand function (Kregel, 1980; Parrinello, 1980; Casarosa, 1981; Asimakopulos, 1982, 1983).
Sergio Parrinello

10. Policies for Prices and Incomes: An Essay in Honour of Sidney Weintraub

Sidney Weintraub died on 19 June 1983. Until his last breath he had hoped and planned that his health would permit him to address the conference. This is especially significant since he had already rejected an invitation to attend the Royal Economic Society’s ‘Keynes’ Centenary Conference’ at Cambridge in July 1983, despite Lord Kaldor’s generous offer to relinquish his own place on that programme to give Sidney time to set the record straight, or as Sidney would have said ‘to keep the American Keynesians honest’.
Paul Davidson


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