THE RELEVANCE OF THE GENERAL THEORY

John Maynard Keynes's The General Theory of Employment, Interest and Money, even though it was first published over 50 years ago, is still an important book for understanding current economic problems and theories. Although it is a theoretical treatise, the book was written by an individual who was very active in the world of economic and political affairs. This world has changed in many ways since Keynes's book was first published. Some of the changes have been prompted, at least in part, by the adoption of economic policies that received theoretical support in his book. There have been many developments in economic theory in the intervening years, but an understanding of the General Theory still yields important insights into current questions of economic policy and theory. Keynes had the rare gift that combined an ability to develop theoretical constructs with a sense of the real world, and it is this special combination that keeps the General Theory relevant.

The General Theory spawned a vast literature, and an approach to economics that was labelled ‘Keynesian’. This approach still has many adherents, in spite of the development of alternative ways of looking at the operation of the economy, such as the monetarist approach (represented by Friedman 1968), and the new classical theory with its emphasis on rational expectations (represented by Lucas 1981). For example, Blinder (1987) considered eight questions that reveal differences between contemporary macroeconomic theories.