May 28, 2015

Who said what to whom — and does it matter?

Comment on ‘Keynes "hadn't got round to it"’


Keynes is always right because, as a genuine political economist, he said many plausible things and also the opposite.

“It is well known that John Maynard was born anew every morning; for this reason, his colleagues at Bretton Woods commented that he was too intelligent to be consistent.” (Valentino, 1988, p. 239)

The problem with Keynes is that he never developed a consistent theory. As a centerpiece of his General Theory he formulated the foundational syllogism of macroeconomics:
“Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (1973, p. 63)

This two-liner is conceptually and logically defective because Keynes did not come to grips with profit.

“His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson and Bezemer, 2010, pp. 12-13, 16)

The fault in Keynes's two-liner is in the premise income = value of output. It can be rigorously demonstrated that this equality holds only in the limiting case of zero profit in both the consumption and investment good industry (2014; 2011).

Keynes dealt with a zero profit economy without being aware of it. And it is post-Keynesians who hadn't got round to it until this very day.

As Keynes put it: “Insufficiency of cleverness, not of goodness, is the main trouble.”

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL
Valentino, R. (1988). Discussion. In H. Hanusch (Ed.), Evolutionary Economics. Applications of Schumpeter’s Ideas, pages 238–249. Cambridge, New York, NY, etc.: Cambridge University Press.