I have a few minor points:
(1) It is important not to let Keynes’ use of the expression “animal spirits” confuse people. Austrians and libertarians seize on this point, as I pointed out long ago here. Keynes used “animal spirits” in the sense of “a spontaneous [human] urge to action rather than inaction” as relevant to the actions of business people and economic agents. But this concept isn’t the important point in Keynes’ theory of business decision-making: the point was that business people are given over to waves of pessimism and optimism, and most of their decisions about investment are subject to varying degrees of qualitative uncertainty, and the probability of future events relevant to their decision-making cannot be given an objective probability score as in a priori probabilities.Skidelsky has written some excellent introductory work on Keynes’ economics, as follows:
The waves of business pessimism and optimism are a very great cause of the aggregate level of investment, and hence the booms and busts in a capitalist economy.
(2) George L. S. Shackle summed up the essence of Keynes’ theory as follows:[sc. Keynes’s] ... theory of involuntary unemployment is perfectly simple and can be expressed in a paragraph, or in a sentence. If you express it in a sentence, you simply say that enterprise is the launching of resources upon a project whose outcome you do not, and cannot, know. The business of enterprise involves investment, the investing of large amounts of resources--huge sums of money--in things whose outcome you cannot be certain of, which could perfectly well turn into a disaster or a brilliant success.(3) the collapse of Keynesian theory and policy from the 1970s was the collapse of Neoclassical synthesis Keynesianism, not the heterodox Post Keynesian tradition that has been a far more accurate and realistic development of Keynes’ economic theory.
The people who do this kind of investing are essentially gamblers and they can lose their nerve. And if they decide to withdraw from trade, they sweep their chips up from the table. If they decide it’s too risky, if their nerve gives out and they can’t bring themselves to go on investing, they cease to give employment and that is the explanation. When business is at all unsettled--when there’s any sign at all of depression--or when there’s been a lot of investment and people have run out of ideas, or when their goods are not selling quite as fast as they have been, they no longer know what the marginal value product of an extra man is—it’s non-existent. How can you say that a certain number of men have a certain marginal productivity when you can’t know what the per unit value of the goods they would produce if you employed them would sell for?”
“An Interview with G.L.S. Shackle,” The Austrian Economics Newsletter, Spring 1983.
(4) An interesting point that Skidelsky makes from 1.18.14 is that Keynes’s General Theory did not use the more realistic imperfect competition model of his time (which had also been partly developed at Cambridge) but assumed competitive markets, and Keynes pointed out that all his arguments in the General Theory were fully valid in a world of competitive markets, not just in a world of imperfect competition.
Skidelsky, R. J. A. 2010. Keynes: The Return of the Master (rev. and updated edn.). Penguin, London.See also Skidelsky’s excellent three-volume biography of Keynes:
Skidelsky, Robert. 2011. “The Relevance of Keynes,” January 17
Skidelsky, R. J. A. 1983. John Maynard Keynes: Hopes Betrayed 1883–1920 (vol. 1). Macmillan, London.Realist Left
Skidelsky, R. J. A. 1992. John Maynard Keynes: The Economist as Saviour 1920–1937 (vol. 2). Macmillan, London.
Skidelsky, R. J. A. 2000. John Maynard Keynes: Fighting for Britain 1937–1946 (vol. 3), Macmillan, London.
Realist Left on Facebook
Realist Left on Twitter @realistleft
Realist Left on Reddit
Realist Left Blog
Realist Left on YouTube
Lord Keynes on Facebook
Social Democracy for the 21st Century: A Realist Alternative to the Modern Left
Alt Left on the Internet:
Alternative Left on Facebook
Alt-Left on Google+
Samizdat Broadcasts YouTube Channel
Samizdat: For the Freedom Loving Leftist
I’m on Twitter:
Lord Keynes @Lord_Keynes2