John Maynard Keynes Research Paper

1. His Life

John Maynard Keynes was born at 6 Harvey Road, Cambridge, England on June 5, 1883 into an academic family. He was the eldest son of John Neville Keynes, a logician and economist, and Florence Ada Brown, the daughter of a Congregational divine. He had an outstandingly successful school career at Eton College which was followed by an equally glittering undergraduate one at King’s College, Cambridge, where he gained a first-class honours degree in Mathematics, wrote papers on the medieval theologian Peter Abelard and the Conservative political philosopher Edmund Burke, and became President of the Cambridge Union and the University Liberal Club. Of crucial importance to his intellectual and moral formation was his election, in 1902, to the Cambridge Apostles, an exclusive ‘conversation’ society, where he fell under the influence of the philosopher G. E. Moore, and which brought him the friendship of Lytton Strachey. Moore’s Principia Ethica remained his ‘religion under the surface’ for the rest of his life. It taught that the highest forms of civilized life were friendship, aesthetic enjoyments, and the pursuit of truth.

In 1906 Keynes was placed second in the Civil Service Examination, his worst marks being in economics, which he had studied briefly under Alfred Marshall. After two years in the India Office, in which he wrote a thesis on probability in his spare time, he started lecturing on monetary economics at Cambridge; in 1909, his thesis won him a fellowship at King’s College, which remained his academic home for the rest of his life. His membership of the Bloomsbury Group, a commune of Cambridge-connected writers and painters who lived in the Bloomsbury district of London, dates from the start of his friendship with the painter Duncan Grant, Lyttton Strachey’s cousin, in 1908. In 1913 he published his first book, Indian Currency and Finance, and served on the Royal Commission on Indian Finance and Currency.

Keynes helped to avert the collapse of the gold standard in the banking crisis of August 1914 which accompanied the outbreak of the first world war. From January 1915 to June 1919 he was a temporary civil servant at the Treasury, showing a notable ability to apply economic theory to the practical problems of war finance. He was against military conscription, and would have been a conscientious objector had his Treasury work not exempted him from military service. When Lloyd George succeeded Asquith as Prime Minister, Keynes (in January 1917) became head of the Treasury’s new ‘A’ Division, set up to manage external finance. He helped to build up the system of Allied purchases in external markets, while chafing at Britain’s growing dependence on American loans and the failure to arrange a compromise peace. Keynes was chief Treasury representative at the Paris Peace Conference in 1919, where he tried unavailingly to limit Germany’s bill for reparations, and to promote an American loan for the reconstruction of Europe. His resignation from the Treasury on June 5, 1919 was followed by the publication, in December, of The Economic Consequences of the Peace, the book which first brought him international fame. A bitter polemic, informed by both moral passion and economic argument, against the Allied policy of trying to extort from Germany an indemnity which it could not pay, it reflected his revulsion against Lloyd George’s leadership in both war and peace, and his fears for the future of European civilisation. Unless the Versailles Treaty were drastically revised, ‘vengeance, I dare predict, will not limp’ (Keynes 1919, p. 170)

Between the wars, Keynes’s life was divided between Cambridge, London, and East Sussex. He was a spectacularly successful investment Bursar of King’s College, and despite some major reverses, made about $400,000 for himself over his lifetime—worth $12m. today—out of which he financed a fine collection of pictures and rare books and the building of the Cambridge Arts Theatre in 1935. In London, where he rented a house at 46 Gordon Square, he was, at various times, on the Boards of five investment and insurance companies, the chief one being the National Mutual Life Assurance Company, which he chaired from 1921 to 1937. Between 1923 and 1931 he was chief proprietor and chairman of the Board of the weekly journal, the Nation and Athenaeum, contributing regular articles on financial and economic topics. (He remained chairman of the Board of the New Statesman and Athenaeum when the two journals merged in 1931.) Between 1911 and 1945, he edited the Economic Journal. In the 1920s his ideas on economic policy permeated Whitehall through monthly meetings of the Tuesday Club, a dining club started by his friend and stockbroker, Oswald Falk. In the 1930s, he sought to influence policy through his membership of the Prime Minister’s Economic Advisory Council. In 1925, he took the lease of Tilton, a farmhouse in East Sussex, next door to Charleston, where Duncan Grant lived with the painter Vanessa Bell. This move coincided with his marriage to the Russian ballerina, Lydia Lopokova, who gave his life the emotional stability it had previously lacked, and which provided the necessary background for sustained intellectual effort.

In the 1920s, the postwar European inflations, succeeded in Britain by heavy unemployment, formed the background to his two theoretical books A Tract on Monetary Reform (1923) and A Treatise on Money (1930) which dealt with the causes and consequences of monetary instability, and their remedies. These theoretical exercises were punctuated by two notable polemical pamphlets ‘The Economic Consequences of Mr. Churchill’ (1925) and ‘Can Lloyd George Do It?’ (1929), written with Hubert Henderson. The first attacked Churchill’s decision, as Chancellor of the Exchequer, to put the pound back on the gold standard at an overvalued exchange rate against the dollar; the second was a plea for a large public-works program. Reconciled to Lloyd George in 1926, Keynes attempted to provide the Liberal Party with a social philosophy of the ‘middle way’ between individualism and state socialism, suitable for an inflexible industrial structure. Regulation of demand, he would later write, was the only way to maintain capitalism in conditions of freedom (Keynes 1936, p. 381, 1940, p. 123).

The Great Depression of 1929–1932, together with technical flaws in A Treatise on Money, took Keynes back to the theoretical drawing board. What now seemed to be needed was not an explanation of Britain’s ‘special problem’ of persisting unemployment, but an explanation of how aggregate output could collapse, labor remain unused, and global depression persist in a world in which resources remained scarce. From the autumn of 1931 to the summer of 1935, Keynes worked on a new book of theory, initially entitled ‘The Monetary Theory of Production.’ He was helped not just by older economists like Ralph Hawtrey and Dennis Robertson, but by Roy Harrod and a ‘Cambridge Circus’ of young disciples led by Richard Kahn. There was just one major pamphlet in these years, ‘The Means to Prosperity,’ written in June 1933. On a trip to the United States in 1934 to study the New Deal first-hand, he wrote: ‘Here, not in Moscow, is the economic laboratory of the world.’

The GT, published in February 1936, tried to demonstrate both that ‘underemployment equilibrium’ was logically possible, and how monetary manipulation by the central bank combined with an extensive ‘socialisation’ of investment could maintain full employment. The first proposition, in particular, divided the economics profession, since it rejected the ‘classical’ thesis of a self-equilibrating economy. The publication of the GT confirmed the breach between Keynes and Dennis Robertson and Hubert Henderson, his chief collaborators in the 1920s; at the same time it marked the birth of a ‘Keynesian school’ of economics led by Richard Kahn and Joan Robinson at Cambridge, Roy Harrod and James Meade at Oxford, and Nicholas Kaldor at the London School of Economics. In the United States, the GT supplied the younger generation of (mainly Harvard-trained) economists with a theoretical rationale for the New Deal. Keynes himself joined in the fierce controversies which his book generated, even though he was severely incapacitated, from May 1937 to March 1939, with heart disease. As another European war, and with it, the return to deficit-financed full employment became increasingly likely, Keynes sought to win acceptance for his Revolution by showing how the managment of aggregate demand to avert depression could just as easily be used to contain inflation in a war economy.

The upshot was his pamphlet ‘How to Pay for the War’ (1940), which won the approval of his arch critic Friedrich Hayek, and whose logic influenced Kingsley Wood’s war budget of 1941. Restored to a semblance of health by his doctor, Janos Plesch, Keynes himself returned to the Treasury in August 1940 as unpaid adviser to the Chancellor of the Exchequer, and remained its dominating force for the rest of his life. Elevated to the House of Lords as Baron Keynes of Tilton, his influence was felt in the Beveridge Report on Social Security in 1942, and in the Employment White Paper of 1944 which pledged the government to maintain a ‘high and stable level of employment’ after the war. In 1942, Keynes became chairman of the Council for the Encouragement of Music and the Arts (CEMA), a wartime innovation which, transformed into the Arts Council of Great Britain shortly before he died, inaugurated permanent state patronage of the arts.

The American demand that, in return for Lend- Lease, Britain scrap its imperial preference system after the war, inspired Keynes to his last great constructive effort, his plan for an International Clearing Union (1942). This was designed to shift balance-of-payments adjustment from debtor to creditor countries, so as to avoid the externally-generated deflationary shocks which had spread depression under the gold standard. The Bretton Woods Agreement of 1944, which set up a system of fixed, but adjustable exchange-rates and two new institutions, the International Monetary Fund and the Inter- national Bank for Reconstruction and Development, fell short of Keynes’s hopes. The abrupt US cancellation of Lend-Lease in August 1945 led him to undertake the fifth of his six Treasury missions to the United States to secure an American grant or interestfree loan of $5bn. Forced to accept a semi-commercial loan for an amount far less than he had requested, Keynes gave a brilliant defence of his policy in his last speech to the House of Lords on December 7, 1945.

On April 21, 1946, worn out by his labors, he suffered a fatal heart attack at Tilton, a little short of his 63rd birthday. In an imposing memorial service at Westminster Abbey, Clement Attlee, the prime minster, headed a list of mourners drawn from all walks of life.

2. Major Contributions

Keynes’s main contributions to economics can be grouped under three heads: the theory of deep economic fluctuations; the theory of effective demand; and the technique of stabilization policy based on the second.

2.1 The Theory Of Economic Fluctuations

This cannot be wholly understood apart from Keynes’s distinctive theory of probability. In his A Treatise on Probability (1921), his main contention was that probability is not statistical, but is a logical relationship between the premise and conclusion of an argument which fell short of demonstrative proof. Like Frank Knight (who however used a statistical theory of probability), Keynes distinguished between risk, or situations when agents can form probabilities and thus insure against loss, and uncertainty, when ‘there is no scientific basis on which to form any calculable probability.’ He wrote in 1937: ‘Thus the fact that our knowledge of the future is fluctuating, vague and uncertain, renders wealth a peculiarly unsuitable subject for the methods of the classical economic theory’ (Keynes 1937, p. 113). This may be contrasted with the modern mainstream view that agents maximise with known probability distributions, so that market-clearing models are the most appropriate for analyzing economic behavior. Keynes himself identified as a tacit axiom of the classical theory of the self-regulating economy that ‘at any given time facts and expectations were … given in a definite and calculable form’ (Keynes 1937, p. 112).

Keynes’s theoretical work in the 1920s is devoted to unpackaging the Quantity Theory of Money (QTM) which ruled out, by assumption, the possibility that monetary disturbances can have ‘real’ effects on the economy. This might be true in the long-run, Keynes remarked acidly, ‘but in the long-run we are all dead’ (Keynes 1923, p. 65). Keynes used the quantity of money equation to show that changes in the quantity of money can unsettle business expectations and the distribution of income, thereby causing short-run fluctuations in the level of business activity. In doing so, he emphasised the use of money as a ‘store of value’ or hedge against uncertainty, and the distinction between fixed and flexible prices. Thus in the Tract on Monetary Reform he wrote: ‘The fact of falling prices injures entrepreneurs; consequently the fear of falling prices causes them to protect themselves by curtailing their operations’ (i.e., adding to their cash balances) (Keynes 1923, p. 34). In the Treatise on Money, he argued that the disturbing effects of money can arise not just from inflationary or deflationary policies, but from autonomous changes in business sentiment. Much of the Treatise is devoted to analyzing the consequences of short-run changes in the ‘propensity to hoard’ or ‘velocity of circulation,’ which Keynes identifies, by means of his ‘Fundamental Equations,’ with the emergence of windfall profits and losses, and a disequilibrium between saving and investment. Keynes shows how disequilibrium prices produce an oscillation of boom and slump round a (notional) full employment equilibrium. But such equilibrium is achieved accidentally, in the absence of appropriate monetary policy.

The chief theoretical point which emerges from these two works is the instability in what Keynes would later call the liquidity-preference schedule. His claim was that, in a variety of situations readily encountered in economic life, hoarding money or savings can yield superior utility to investing them, and that this, combined with ‘sticky’ wage and price contracts, can explain quite prolonged lapses from full employment. His contribution up to 1930 was largely a summation of the monetary theories of Irving Fisher and Knut Wicksell, and is properly regarded as a contribution to the theory of economic fluctuations, with increased emphasis on volatile expectations. Like Fisher, Keynes advocated a monetary policy of keeping domestic prices stable; this might be incompatible with adherence to the international gold standard, an institution which Keynes dismissed as a ‘barbarous relic’ (Keynes 1923, p. 138).

2.2 The Theory Of Effective Demand

Keynes’s revolutionary contribution to economics lies not in his theory of business fluctuations but in his theory of how aggregate output is determined. This is the subject matter of his GT. The QTM was a theory of the price level, when the levels of output and employment were explained in real, nonmonetary terms. Following a suggestion from Ralph Hawtrey, Keynes agreed in 1930 that ‘it will probably be difficult in the future to prevent monetary theory and the theory of short-period supply from running together’ (Keynes 1930, p. 146). This was the start of macroeconomics.

The core of the GT is the theory of effective demand. It tells how, when something happens to reduce aggregate demand, aggregate supply and aggregate demand are reconciled, not through falls in the pricelevel of output, but by a reduction in its quantity. It is a short-period theory: prices adjust only after, and as a result of, the fall in output and employment, and even then not completely. In the short-run, the volume of output in an economy is determined by the money demand for that output. The GT is the theory of what determines the level of money demand for output.

In Keynes’s notation Y=C+I. This tautology simply means that National Income (Y?) is equal to the sum of the expenditure on National Output, divided into consumption spending (C) and investment spending (I). Consumption expenditure is governed by Keynes’s ‘consumption function,’ based on the ‘psychological law’ that consumption (and therefore saving, which is Y-C) is a stable fraction of total income, and that the marginal propensity to consume is less than unity. In a progressive economy the gap beween consumpion and production must be filled by investment if full employment is to be maintained. The amount of investment is determined by the relationship between what the investment is expected to yield over its lifetime (‘the marginal efficiency of capital’) and the cost of borrowing the money needed to finance it (the rate of interest). Both are subject to uncertain expectations. Consumption is the stabLevelement in demand; investment the volatile element. Thus, what the community wishes to save may at a particular moment exceed what businessmen want to invest. The revolutionary claim of the GT is that when this happens, the divergent plans are brought into equality by a reduction in the level of income (output). Moreover, if the consumption function is known, it is possible to show, by a mathematical formula (Kahn’s multiplier), by how much the community’s income or alternatively employment must change to reconcile divergent saving and investment plans. The novelty of Keynes’s treatment, as compared not just with the older theory, but his own Treatise on Money, was to demonstrate that an economy might be in equilibrium, with saving equal to investment, and aggregate demand equal to aggregate supply, at less than full employment.

Critics fastened on the most contentious feature of the new doctrine, the theory of ‘under-employment equilibrium.’ They denied that this was a genuine equilibrium; it was a disequilibrium state, frozen by the assumption that certain prices were fixed. Flexible interest rates and wage rates would always ensure the desired level of employment, whatever was happening to aggregate demand.

Keynes could have defended his position by saying that his fixed-price assumptions were realistic but he set out to expose the logical flaws underlying the implicit classical price-adjustment story. He denied, first of all, that the interest rate was, or could be, determined in the market for saving and investment, since the quantity of saving depends on the level of current income. This was the basis of his view that it is changes in income that equilibrate saving and investment plans. In place of the classical theory of interest, he offered his liquidity-preference theory of interest, which makes interest the price for giving up cash. The greater the liquidity-preference of wealth-holders, the higher the yield they will demand for switching from cash into bonds or other securities. Insofar as the rate of interest does move in response to a fall in investment demand, it will be in the wrong direction, since the ‘same circumstances which lead to pessmistic views about future yields (of capital assets) are apt to increase the propensity to hoard’ (Keynes 1937, p. 118).

As far as wage flexibility is concerned, Keynes agreed with the orthodox view that the real wage is inversely related to the quantity of employment, but denied that real wages are determined in the labor market by money-wage bargains, since an all-round reduction in money-wages might, by reducing the general price level, leave the real wage unaffected. The effect of a ‘flexible wages policy’ thus depended entirely on its impact on the components of aggregate demand-consumption and investment—which might well be unfavorable.

Keynes conceded that, in time, the decline in employment (or money-wage rates) would, by de-creasing the amount of money required to satisfy the business demand, lower the rate of interest required to satisfy the ‘propensity to hoard’ (Keynes 1937, p. 118); he also thought that, after a slump, a shortage of capital goods would develop which would revive profit expectations’. (Keynes 1936, pp. 317–18). In short, a slump might eventually bring about the price adjustments which according to the classical economists were supposed to prevent the slump from occurring. He doubted, though, whether even longer-run forces would ensure a gravitational pull towards full employment. ‘We oscillate,’ he wrote, ‘round an intermediate position, appreciably below full employment and appreciably above the minimum employment a decline below which would endanger life’ (Keynes 1936, p. 254).

Despite nonacceptance by the leading economists of key elements in Keynes’s macroeconomic model (Dennis Robertson, in particular, made a damaging attack on his theory of interest), critics were driven to argue for their positions within the analytical frame-work Keynes had set up. Macroeconomic analysis became part of the economists’ tool kit, even if Keynes’s own conclusions were rejected.

2.3 Stabilization Technique

Keynes’s three main theoretical books were all aimed at providing justifications for conscious attempts to stabilize output and employment at a high level. The quest for output stabilization led directly to the development of National Income and Expenditure Accounts, to enable governments to estimate the size of the ‘output’ gap—the gap between what the economy was producing and what it could produce at full employment (or, in later refinement, what it could produce when it was growing to trend)—which needed to be plugged by extra spending. Keynes also insisted that the aggregate demand and supply framework of the GT could be used to work out how much spending needed to be withdrawn from an economy to prevent inflation if aggregate demand exceeded aggregate supply.

In principle, stabilization policy can be either monetary or fiscal, or some combination of both. In practice, Keynes rejected the monetary route to managing demand. He did not deny that investment was interest-elastic. But he thought that interest-rate changes, produced by varying the quantity of bank credit, were too slow-moving in their effects on investment; and he was worried that if interest rates were raised to check a boom it would be difficult to bring them down to check a slump, since the expectation of falling rates would increase the ‘propensity to hoard.’ So he advocated a policy of permanently cheap money, to be buttressed by capital controls and ‘under-funding’ of the National Debt. This left fiscal policy as the main instrument for preventing both slumps and inflationary booms. Keynes’s fiscal philosophy must be distinguished from Keynesian fiscal policy as understood (and sometimes practiced) after his death. It was based on a sharp distinction between the government’s ‘ordinary’ or current-account budget and what he called the ‘capital’ budget, made up not just of government spending on capital projects but the economy’s total investment. The government’s ordinary budget should be balanced at all times, with a surplus earmarked for debt repayment in ‘normal’ times. It was the task of the capital budget to balance the ‘national accounts.’ Keynes believed that a great deal of investment was already ‘socialized,’ that is, subject to public policy even if it was technically private. As he put it in 1943: ‘If two-thirds or three quarters of total investment is carried out or can be influenced by public or semipublic bodies, a long-term programme of a stable character should be capable of reducing the range of fluctuation to much narrower limits than formerly…If this is successful it should not be too difficult to offset small fluctuations by expediting or retarding some items in this long-term programme’ (Keynes 1943, p. 322).

Finally, Keynes attached only minor importance to exchange-rate adjustments. His Clearing Union Plan (1942) provided for fixed, but adjustable rates, and this was a feature of the Bretton Woods Agreement (1944). Keynes’s attitude—like that of most economists of his day—was governed by price-elasticity pessimism. He preferred countries to use, if necessary, capital controls to protect their balance of payments in the framework of a monetary regime of fixed exchange rates, low tariffs, and automatic creditor lending through international institutions.

Keynes was not an ivory-tower theorist. His theorizing was controlled by real world events. His own investment experience enabled him to identify the ‘speculative’ motive for holding money; his sense of political fragility led him to concentrate on the economics of stabilization; his civil service experience enabled him to turn theories into workable plans. His economic theorizing was less directly, but still importantly, controlled by his philosophical beliefs, particularly by his conception of the good life and of the conditions of just exchange.

3. The Legacy

Economics was transformed by its encounter with Keynes. Macroeconomics became for many years a dominant part of the subject; macroeconomic forecasting the main tool of government policy. However, Keynes’s doctrines never won universal acceptance, and key aspects of his theoretical and policy legacy have been challenged. The debated issues can be grouped under four heads.

3.1 Acceptance Of Keynes’s Theory

What Keynes bequeathed was not the same as what was accepted. The first theoretical breach came with demonstrations by Pigou (1942) and by Modigliani (1944) that the Keynesian slogan ‘quantities adjust, not prices’ was true only if money wages were rigid. This became the basis of the ‘neoclassical synthesis,’ which grafted Keynesian macroeconomics on to classical theory, but left the rigidities unexplained. Milton Friedman’s counter-attack was both methodological and theoretical. On the one hand, he argued that it was not acceptable to posit ad hoc supply and demand functions. Second, his own application of neoclassical standards of method to Keynes’s aggregate equations—seen in his permanent income hypothesis (1957), the stable demand for money function (1956, 1963), and the theory of the ‘natural rate’ of unemployment (1968)—undermined the case for Keynesian stabilization policy. Economies were more cylically stable than Keynes had supposed; multipliers were small, or nonexistent; government manipulation of aggregate demand had no permanent ‘real’ effects, but only raised the inflation rate. These ‘policy ineffectiveness’ propositions were to be hardened still further by the ‘rational expectations’ school of Robert Lucas and Thomas Sargent. The tendency of Friedman’s critique (popularly called ‘monetarism’) was to reinsert an updated version of the Quantity Theory of Money into the heart of macroeconomics. It revived the pre-Keynesian notion (adumbrated by Keynes himself in the Tract on Monetary Reform) that the most important macroeconomic function of governments was to keep stable the purchasing power of money.

3.2 Acceptance Of Keynesian Policy

Contrary to widespread mythology, this was patchy. Both the British government and the US Administration committed themselves to targetting ‘high’ levels of employment, but it is often asserted that US policy only became Keynesian in the early, and German policy in the late, 1960s, and that both Keynesian episodes were fairly brief. Much of this discussion begs the question of what one means by ‘Keynesian’ policy. Running a budget deficit is no more a sign of Keynesian virtue than is running a budget surplus in boom conditions anti-Keynesian. An alternative argument is that Keynes’s influence was exerted not so much through national policies as through the US willingness to provide the rest of the world with reserves and liquidity. However, this likewise begs the question of how ‘Keynesian’ this willingness was.

3.3 The Impact Of Policy On Events

For a long time, the canonical view was that Keynesian demand-management policies and Keynesian-inspired institutions (the Bretton Woods system) were mainly responsible for the uniquely successful employment and growth performance of most countries in the 1950s and 1960s. Today most of the credit for the ‘golden age’ is given to opportunities for ‘catching up’ with American technology, recession-proof military spending by the US, and high levels of ‘social’ spending.

In the 1950s and 1960s it was common to argue that Keynesian policy helped to save capitalism by removing the scourge of mass unemployment. (In Marxist terms, it legitimized the capitalist order.) By the 1970s it was being argued that it endangered the long-run survival of capitalism by producing rising inflation, an expanding public sector, and increasingly draconian wage and price controls.

3.4 The Current Debate Over Keynesian Economics

According to the monetarist-cum-rational expectations schools, Keynesian economics failed the predictive test: it led to inflation, still worse ‘stagflation.’ In the 1970s, Keynesian policies were attacked for ignoring the existence of a ‘natural’ rate of unemployment, and (by the Virginia or Public Choice school) for assuming that politicians wanted to maximize the collective social welfare, rather than their own individual utilities. Taken together, these two attacks offered a forceful argument against the use of discretionary fiscal and monetary policy to balance economies.

The use of models of economies with nominal rigidities is still general, but whether these rigidities are to be taken as given is much more questioned than in 1950s and 1960s. The dominant ‘supply side revolution’ of the 1980s chiefly was concerned to dissolve rigidities seen as institutional by deregulating labor markets. Against this, the ‘new Keynesians’ explained how sticky prices are rational because of transactions and information costs, and how shocks to demand can destroy both physical and human capital. These explanations seemed both to strengthen and weaken the case for Keynesian macroeconomic policy. On the one hand, they gave renewed intellectual respectability to stabilization policy. On the other hand, by explicitly introducing inflation into their analyses, they conceded the existence of a rate of unemployment (the so-called NAIRU or Non-Inflation Accelerating Rate of Unemployment) below which unemployment could not be pushed by manipulating demand. Finally, against the mainstream profession’s use of Bayesian statistics and decision theory to model agents’ behavior, a minority school of ‘Post-Keynesians’ continues to assert the fundamental nature of Keynes’s attack on the rationality axiom.

An interim judgment on the Keynesian Revolution would be that the main body of classical economics was too well-entrenched to be overthrown by the frontal assault he mounted. The notion that uncertainty was at the heart, rather than at the financial margins, of economic processes, proved too subversive of the science economics claims to be, to be acceptable. Most economists would say today of Keynes what Marshall said of Jevons: ‘His success was aided even by his faults … he led many to think he was correcting great errors; whereas he was really only adding important explanations.’ Whether this will be the final verdict is still questionable.

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