GENERALINTRODUCTION
ThisnewstandardeditionofTheCollectedWritingsofJohnMaynardKeynesformsthememorialtohimoftheRoyalEconomicSociety。HedevotedaverylargeshareofhisbusylifetotheSociety。In1911,attheageoftwenty-eight,hebecameeditoroftheEconomicJournalinsuccessiontoEdgeworth;twoyearslaterhewasmadesecretaryaswell。
Heheldtheseofficeswithoutintermittenceuntilalmosttheendofhislife。
Edgeworth,itistrue,returnedtohelphimwiththeeditorshipfrom1919to1925;MacGregortookEdgeworth\'splaceuntil1934,whenAustinRobinsonsucceededhimandcontinuedtoassistKeynesdownto1945。ButthroughalltheseyearsKeyneshimselfcarriedthemajorresponsibilityandmadetheprincipaldecisionsaboutthearticlesthatweretoappearintheEconomicJournal,withoutanybreaksaveforoneortwoissueswhenhewasseriouslyillin1937。ItwasonlyafewmonthsbeforehisdeathatEaster1946thathewaselectedpresidentandhandedoverhiseditorshiptoRoyHarrodandthesecretaryshiptoAustinRobinson。
InhisdualcapacityofeditorandsecretaryKeynesplayedamajorpartinframingthepoliciesoftheRoyalEconomicSociety。ItwasverylargelyduetohimthatsomeofthemajorpublishingactivitiesoftheSociety¾;Sraffa\'seditionofRicardo,Stark\'seditionoftheeconomicwritingsofBentham,andGuillebaud\'seditionofMarshall,aswellasanumberofearlierpublicationsinthe1930s¾;wereinitiated。
WhenKeynesdiedin1946itwasnaturalthattheRoyalEconomicSocietyshouldwishtocommemoratehim。ItwasperhapsequallynaturalthattheSocietychosetocommemoratehimbyproducinganeditionofhiscollectedworks。
Keyneshimselfhadalwaystakenajoyinfineprinting,andtheSociety,withthehelpofMessrsMacmillanaspublishersandtheCambridgeUniversityPressasprinters,hasbeenanxioustogiveKeynes\'swritingsapermanentformthatiswhollyworthyofhim。
Thepresenteditionwillpublishasmuchasispossibleof[Pagex]THE
GENERALTHEORYOFEMPLOYMENT
hisworkinthefieldofeconomics。Itwillnotincludeanyprivateandpersonalcorrespondenceorpublishlettersinthepossessionofhisfamily。Theeditionisconcerned,thatistosay,withKeynesasaneconomist。
Keynes\'swritingsfallintofivebroadcategories。First,therearethebookswhichhewroteandpublishedasbooks。Second,therearecollectionsofarticlesandpamphletswhichhehimselfmadeduringhislifetimeEssaysinPersuasionandEssaysinBiography。Third,thereisaveryconsiderablevolumeofpublishedbutuncollectedwritings¾;articleswrittenfornewspapers,letterstonewspapers,articlesinjournalsthathavenotbeenincludedinhistwovolumesofcollections,andvariouspamphlets。
Fourth,thereareafewhithertounpublishedwritings。Fifth,thereiscorrespondencewitheconomistsandconcernedwitheconomicsorpublicaffairs。
ThisserieswillattempttopublishacompleterecordofKeynes\'sseriouswritingasaneconomist。Itistheintentiontopublishalmostcompletelythewholeofthefirstfourcategorieslistedabove。TheonlyexceptionsareafewsyndicatedarticleswhereKeyneswrotealmostthesamematerialforpublicationindifferentnewspapersorindifferentcountries,withminorandunimportantvariations。Inthesecases,thisserieswillpublishoneonlyofthevariations,choosingthemostinteresting。
ThepublicationofKeynes\'seconomiccorrespondencemustinevitablybeselective。Inthedayofthetypewriterandthefilingcabinetandparticularlyinthecaseofsoactiveandbusyaman,topublisheveryscrapofpaperthathemayhavedictatedaboutsomeunimportantorephemeralmatterisimpossible。Weareaimingtocollectandpublishasmuchaspossible,however,ofthecorrespondenceinwhichKeynesdevelopedhisownideasinargumentwithhisfelloweconomists,aswellasthemoresignificantcorrespondenceattimeswhenKeyneswasinthemiddleofpublicaffairs。
Apartfromhispublishedbooks,themainsourcesavailabletothosepreparingthisserieshavebeentwo。First,KeynesinhiswillmadeRichardKahnhisexecutorandresponsiblefor[Pagexi]GENERAL
INTRODUCTION
hiseconomicpapers。TheyhavebeenplacedintheMarshallLibraryoftheUniversityofCambridgeandhavebeenavailableforthisedition。Until1914Keynesdidnothaveasecretaryandhisearliestpapersareinthemainlimitedtodraftsofimportantlettersthathemadeinhisownhandwritingandretained。Atthatstagemostofthecorrespondencethatwepossessisrepresentedbywhathereceivedratherthanbywhathewrote。Duringtheyears1914-18and1940-46
KeyneswasservingintheTreasury。Withtheopeningofofficialrecords,manyofthepapersthathewrotehavebecomeavailable。From1919onwards,throughouttherestofhislife,Keyneshadthehelpofasecretary¾;formanyyearsMrsStevens。Thusforthelasttwenty-fiveyearsofhisworkinglifewehaveinmostcasesthecarboncopiesofhisownlettersaswellastheoriginalsofthelettersthathereceived。
Therewere,ofcourse,occasionsduringthisperiodonwhichKeyneswrotehimselfinhisownhandwriting。Insomeofthesecases,withthehelpofhiscorrespondents,wehavebeenabletocollectthewholeofbothsidesofsomeimportantinterchangeandwehavebeenanxious,injusticetobothcorrespondents,toseethatbothsidesofthecorrespondencearepublishedinfull。
ThesecondmainsourceofinformationhasbeenagroupofscrapbookskeptoveraverylongperiodofyearsbyKeynes\'smother,FlorenceKeynes,wifeofNevilleKeynes。From1919onwardsthesescrapbookscontainalmostthewholeofMaynardKeynes\'smoreephemeralwriting,hisletterstonewspapersandagreatdealofmaterialwhichenablesonetoseenotonlywhathewrote,butthereactionofotherstohiswriting。WithouttheseverycarefullykeptscrapbooksthetaskofanyeditororbiographerofKeyneswouldhavebeenimmenselymoredifficult。
Theplanoftheedition,asatpresentintended,isthis。Itwilltotaltwenty-fivevolumes。Ofthese,thefirsteightwillbeKeynes\'spublishedbooksfromIndianCurrencyandFinance,in1913,totheGeneralTheoryin1936,withtheadditionofhisTreatiseonProbability。
Therewillnextfollow,asvols。IXandx,EssaysinPersuasionandEssaysinBiography,[Pagexii]THEGENERALTHEORYOFEMPLOYMENT
graphy,representingKeynes\'sowncollectionsofarticles。EssaysinPersuasionwilldifferfromtheoriginalprintingintworespects:
itwillcontainthefulltextsofthearticlesorpamphletsincludedinitandnotasintheoriginalprintingabbreviatedversionsofthesearticles,anditwillhaveaddedoneortwolaterarticleswhichareofexactlythesamecharacterasthoseincludedbyKeynesinhisoriginalcollection。InthecaseofEssaysinBiography,weshalladdoneortwootherbiographicalstudiesthatKeyneswrotelaterthan1933。
Therewillfollowfourvolumes,XItoXIV,ofeconomicarticlesandcorrespondence,andonevolumeofsocial,politicalandliterarywritings。
WeshallincludeinthesevolumessuchpartofKeynes\'seconomiccorrespondenceasiscloselyassociatedwiththearticlesthatareprintedinthem。
Thefurtherninevolumes,asweestimateatpresent,willdealwithKeynes\'sActivitiesduringtheyearsfromthebeginningofhispubliclifein1905untilhisdeath。Ineachoftheperiodsintowhichweproposetodividethismaterial,thevolumeconcernedwillpublishhismoreephemeralwritings,allofithithertouncollected,hiscorrespondencerelatingtotheseactivities,andsuchothermaterialandcorrespondenceasisnecessarytotheunderstandingofKeynes\'sactivities。ThesevolumesarebeingeditedbyElizabethJohnsonandDonaldMoggridge,anditistheirtasktotraceandinterpretKeynes\'sactivitiessufficientlytomakethematerialfullyintelligibletoalatergeneration。Untilthisworkhasprogressedfurther,itisnotpossibletosaywithexactitudewhetherthismaterialwillbedistributed,aswenowthink,overninevolumes,orwhetheritwillneedtobespreadoverafurthervolumeorvolumes。Therewillbeafinalvolumeofbibliographyandindex。
Thoseresponsibleforthiseditionhavebeen:LordKahn,bothasLordKeynes\'sexecutorandasalongandintimatefriendofLordKeynes,abletohelpintheinterpretingofmuchthatwouldotherwisebemisunderstood;
SirRoyHarrodastheauthorofhisbiography;AustinRobinsonasKeynes\'sco-editorontheEconomicJournalandsuccessorassecretaryoftheRoyalEconomicSociety。Theinitialeditorial[Pagexiii]GENERALINTRODUCTION
taskswerecarriedbyElizabethJohnson。MorerecentlyshehasbeenjoinedinthisresponsibilitybyDonaldMoggridge。TheyhavebeenassistedatdifferenttimesbyJaneThistlethwaite,MrsMcDonald,whowasoriginallyresponsibleforthesystematicorderingofthefilesoftheKeynespapers;
JudithMasterman,whoformanyyearsworkedwithMrsJohnsononthepapers;
andmorerecentlybySusanWilsher,MargaretButler,andBarbaraLowe。GeneralIntroduction[Pageix]
GENERALINTRODUCTION
ThisnewstandardeditionofTheCollectedWritingsofJohnMaynardKeynesformsthememorialtohimoftheRoyalEconomicSociety。HedevotedaverylargeshareofhisbusylifetotheSociety。In1911,attheageoftwenty-eight,hebecameeditoroftheEconomicJournalinsuccessiontoEdgeworth;twoyearslaterhewasmadesecretaryaswell。
Heheldtheseofficeswithoutintermittenceuntilalmosttheendofhislife。
Edgeworth,itistrue,returnedtohelphimwiththeeditorshipfrom1919to1925;MacGregortookEdgeworth\'splaceuntil1934,whenAustinRobinsonsucceededhimandcontinuedtoassistKeynesdownto1945。ButthroughalltheseyearsKeyneshimselfcarriedthemajorresponsibilityandmadetheprincipaldecisionsaboutthearticlesthatweretoappearintheEconomicJournal,withoutanybreaksaveforoneortwoissueswhenhewasseriouslyillin1937。ItwasonlyafewmonthsbeforehisdeathatEaster1946thathewaselectedpresidentandhandedoverhiseditorshiptoRoyHarrodandthesecretaryshiptoAustinRobinson。
InhisdualcapacityofeditorandsecretaryKeynesplayedamajorpartinframingthepoliciesoftheRoyalEconomicSociety。ItwasverylargelyduetohimthatsomeofthemajorpublishingactivitiesoftheSociety¾;Sraffa\'seditionofRicardo,Stark\'seditionoftheeconomicwritingsofBentham,andGuillebaud\'seditionofMarshall,aswellasanumberofearlierpublicationsinthe1930s¾;wereinitiated。
WhenKeynesdiedin1946itwasnaturalthattheRoyalEconomicSocietyshouldwishtocommemoratehim。ItwasperhapsequallynaturalthattheSocietychosetocommemoratehimbyproducinganeditionofhiscollectedworks。
Keyneshimselfhadalwaystakenajoyinfineprinting,andtheSociety,withthehelpofMessrsMacmillanaspublishersandtheCambridgeUniversityPressasprinters,hasbeenanxioustogiveKeynes\'swritingsapermanentformthatiswhollyworthyofhim。
Thepresenteditionwillpublishasmuchasispossibleof[Pagex]THE
GENERALTHEORYOFEMPLOYMENT
hisworkinthefieldofeconomics。Itwillnotincludeanyprivateandpersonalcorrespondenceorpublishlettersinthepossessionofhisfamily。Theeditionisconcerned,thatistosay,withKeynesasaneconomist。
Keynes\'swritingsfallintofivebroadcategories。First,therearethebookswhichhewroteandpublishedasbooks。Second,therearecollectionsofarticlesandpamphletswhichhehimselfmadeduringhislifetimeEssaysinPersuasionandEssaysinBiography。Third,thereisaveryconsiderablevolumeofpublishedbutuncollectedwritings¾;articleswrittenfornewspapers,letterstonewspapers,articlesinjournalsthathavenotbeenincludedinhistwovolumesofcollections,andvariouspamphlets。
Fourth,thereareafewhithertounpublishedwritings。Fifth,thereiscorrespondencewitheconomistsandconcernedwitheconomicsorpublicaffairs。
ThisserieswillattempttopublishacompleterecordofKeynes\'sseriouswritingasaneconomist。Itistheintentiontopublishalmostcompletelythewholeofthefirstfourcategorieslistedabove。TheonlyexceptionsareafewsyndicatedarticleswhereKeyneswrotealmostthesamematerialforpublicationindifferentnewspapersorindifferentcountries,withminorandunimportantvariations。Inthesecases,thisserieswillpublishoneonlyofthevariations,choosingthemostinteresting。
ThepublicationofKeynes\'seconomiccorrespondencemustinevitablybeselective。Inthedayofthetypewriterandthefilingcabinetandparticularlyinthecaseofsoactiveandbusyaman,topublisheveryscrapofpaperthathemayhavedictatedaboutsomeunimportantorephemeralmatterisimpossible。Weareaimingtocollectandpublishasmuchaspossible,however,ofthecorrespondenceinwhichKeynesdevelopedhisownideasinargumentwithhisfelloweconomists,aswellasthemoresignificantcorrespondenceattimeswhenKeyneswasinthemiddleofpublicaffairs。
Apartfromhispublishedbooks,themainsourcesavailabletothosepreparingthisserieshavebeentwo。First,KeynesinhiswillmadeRichardKahnhisexecutorandresponsiblefor[Pagexi]GENERAL
INTRODUCTION
hiseconomicpapers。TheyhavebeenplacedintheMarshallLibraryoftheUniversityofCambridgeandhavebeenavailableforthisedition。Until1914Keynesdidnothaveasecretaryandhisearliestpapersareinthemainlimitedtodraftsofimportantlettersthathemadeinhisownhandwritingandretained。Atthatstagemostofthecorrespondencethatwepossessisrepresentedbywhathereceivedratherthanbywhathewrote。Duringtheyears1914-18and1940-46
KeyneswasservingintheTreasury。Withtheopeningofofficialrecords,manyofthepapersthathewrotehavebecomeavailable。From1919onwards,throughouttherestofhislife,Keyneshadthehelpofasecretary¾;formanyyearsMrsStevens。Thusforthelasttwenty-fiveyearsofhisworkinglifewehaveinmostcasesthecarboncopiesofhisownlettersaswellastheoriginalsofthelettersthathereceived。
Therewere,ofcourse,occasionsduringthisperiodonwhichKeyneswrotehimselfinhisownhandwriting。Insomeofthesecases,withthehelpofhiscorrespondents,wehavebeenabletocollectthewholeofbothsidesofsomeimportantinterchangeandwehavebeenanxious,injusticetobothcorrespondents,toseethatbothsidesofthecorrespondencearepublishedinfull。
ThesecondmainsourceofinformationhasbeenagroupofscrapbookskeptoveraverylongperiodofyearsbyKeynes\'smother,FlorenceKeynes,wifeofNevilleKeynes。From1919onwardsthesescrapbookscontainalmostthewholeofMaynardKeynes\'smoreephemeralwriting,hisletterstonewspapersandagreatdealofmaterialwhichenablesonetoseenotonlywhathewrote,butthereactionofotherstohiswriting。WithouttheseverycarefullykeptscrapbooksthetaskofanyeditororbiographerofKeyneswouldhavebeenimmenselymoredifficult。
Theplanoftheedition,asatpresentintended,isthis。Itwilltotaltwenty-fivevolumes。Ofthese,thefirsteightwillbeKeynes\'spublishedbooksfromIndianCurrencyandFinance,in1913,totheGeneralTheoryin1936,withtheadditionofhisTreatiseonProbability。
Therewillnextfollow,asvols。IXandx,EssaysinPersuasionandEssaysinBiography,[Pagexii]THEGENERALTHEORYOFEMPLOYMENT
graphy,representingKeynes\'sowncollectionsofarticles。EssaysinPersuasionwilldifferfromtheoriginalprintingintworespects:
itwillcontainthefulltextsofthearticlesorpamphletsincludedinitandnotasintheoriginalprintingabbreviatedversionsofthesearticles,anditwillhaveaddedoneortwolaterarticleswhichareofexactlythesamecharacterasthoseincludedbyKeynesinhisoriginalcollection。InthecaseofEssaysinBiography,weshalladdoneortwootherbiographicalstudiesthatKeyneswrotelaterthan1933。
Therewillfollowfourvolumes,XItoXIV,ofeconomicarticlesandcorrespondence,andonevolumeofsocial,politicalandliterarywritings。
WeshallincludeinthesevolumessuchpartofKeynes\'seconomiccorrespondenceasiscloselyassociatedwiththearticlesthatareprintedinthem。
Thefurtherninevolumes,asweestimateatpresent,willdealwithKeynes\'sActivitiesduringtheyearsfromthebeginningofhispubliclifein1905untilhisdeath。Ineachoftheperiodsintowhichweproposetodividethismaterial,thevolumeconcernedwillpublishhismoreephemeralwritings,allofithithertouncollected,hiscorrespondencerelatingtotheseactivities,andsuchothermaterialandcorrespondenceasisnecessarytotheunderstandingofKeynes\'sactivities。ThesevolumesarebeingeditedbyElizabethJohnsonandDonaldMoggridge,anditistheirtasktotraceandinterpretKeynes\'sactivitiessufficientlytomakethematerialfullyintelligibletoalatergeneration。Untilthisworkhasprogressedfurther,itisnotpossibletosaywithexactitudewhetherthismaterialwillbedistributed,aswenowthink,overninevolumes,orwhetheritwillneedtobespreadoverafurthervolumeorvolumes。Therewillbeafinalvolumeofbibliographyandindex。
Thoseresponsibleforthiseditionhavebeen:LordKahn,bothasLordKeynes\'sexecutorandasalongandintimatefriendofLordKeynes,abletohelpintheinterpretingofmuchthatwouldotherwisebemisunderstood;
SirRoyHarrodastheauthorofhisbiography;AustinRobinsonasKeynes\'sco-editorontheEconomicJournalandsuccessorassecretaryoftheRoyalEconomicSociety。Theinitialeditorial[Pagexiii]GENERALINTRODUCTION
taskswerecarriedbyElizabethJohnson。MorerecentlyshehasbeenjoinedinthisresponsibilitybyDonaldMoggridge。TheyhavebeenassistedatdifferenttimesbyJaneThistlethwaite,MrsMcDonald,whowasoriginallyresponsibleforthesystematicorderingofthefilesoftheKeynespapers;
JudithMasterman,whoformanyyearsworkedwithMrsJohnsononthepapers;
andmorerecentlybySusanWilsher,MargaretButler,andBarbaraLowe。EditorialIntroduction[Pagexv]
EDITORIALINTRODUCTION
\'Ihavebeenmuchpre-occupiedwiththecausation,sotospeak,ofmyprogressofmindfromtheclassicalpositiontomypresentviews,¾;withtheorderinwhichtheproblemdevelopedinmymind。WhatsomepeopletreatasanunnecessarilycontroversialtoneisreallyduetotheimportanceinmyownmindofwhatIusedtobelieve,andofthemomentsoftransitionwhichwereformepersonallymomentsofillumination……Youdon\'tmentioneffectivedemandor,moreprecisely,thedemandscheduleforoutputasawhole,exceptinsofarasitisimplicitinthemultiplier。Tome,regardedhistorically,themostextraordinarythingisthecompletedisappearanceofthetheoryofdemandandsupplyforoutputasawhole,i。e。thetheoryofemployment,afterithadbeenforaquarterofacenturythemostdiscussedthingineconomics。Oneofthemostimportanttransitionsforme,aftermyTreatiseonMoneyhadbeenpublished,wassuddenlyrealisingthis。ItonlycameafterIhadenunciatedtomyselfthepsychologicallawthat,whenincomeincreases,thegapbetweenincomeandconsumptionwillincrease,¾;aconclusionofvastimportancetomyownthinkingbutnotapparently,expressedjustlikethat,toanyoneelse\'s。Then,appreciablylater,camethenotionofinterestbeingthemeasureofliquiditypreference,whichbecamequiteclearinmymindthemomentIthoughtofit。Andlastofall,afteranimmenselotofmuddlingandmanydrafts,theproperdefinitionofthemarginalefficiencyofcapitallinkeduponethingwithanother。\'
Withthesewords,KeynestoldR。F。Harrodinthesummerof1936thedevelopmentofhisideastowardstheGeneralTheory。\'[1]
TheoriginsoftheGeneralTheorylieinKeynes\'sdissatisfactionwithhisTreatiseonMoneyevenatthetimeofpublication[2],intheprolongedinternationalslumpoftheyears[Pagexvi]THEGENERALTHEORYOFEMPLOYMENT
after1929,andinthestimulationthatemanatedfroma\'circus\'ofyoungCambridgeeconomistswhobeganmeetingsoonafterthepublicationoftheTreatisetodiscussanddissectitstwovolumes。Itwasthediscussionswithinthisgroup,retailedtohimbyRichardKahn,thatprovidedthebasisforthefirsttransitionalstagebetweentheTreatiseandtheGeneralTheory。\'[3]
ThisstagewassoonfollowedbyKeynes\'sexplicitcommitmenttorevisethetheoreticalfoundationsoftheTreatise,whichhadonlydealtincidentallyintermsofmovementsinoutput。ThusinhisprefaceforJapanesereadersoftheTreatise,datedApril1932,KeynesnotedthatratherthanrevisehisTreatiseheproposed\'topublishashortbookofapurelytheoreticalcharacter,extendingandcorrectingthetheoreticalbasisofmyviewsassetforthinBooksIIIandIV\'。[4]Thiscommitmentbecameclearerintheautumnof1932,whenKeyneschangedthetitleofhiscourseoflecturesfrom\'ThePureTheoryofMoney\',theirtitlesincetheautumnof1929,to\'TheMonetaryTheoryofProduction\',thetitletheyweretohaveuntil1934。Theselectureswereconcernedwithmovementsinoutputasawholeandhadthebeginningsoftheconceptofliquiditypreference,althoughitwasnotuntilhislecturesintheautumnof1933thatittooktheformusedintheGeneralTheory。
ThefirstmajorpublishedindicationsofthedirectionKeynes\'sthoughtwastakingbetweentheTreatiseandtheGeneralTheorycamein1933intheformofanessay\'TheMonetaryTheoryofProduction\',apamphlet\'TheMeanstoProsperity\',anarticle\'TheMultiplier\'whichisincludedintheAmericaneditionof\'TheMeanstoProsperity\',andabiographicalsketchofT。R。Malthus,[5]allofwhicharecastintermsofmovementsofoutputasawholeandreflecteddissatisfactionwithacceptedtheory。
ThusthemajorbuildingblocksoftheGeneralTheoryhad[Pagexvii]EDITORIALINTRODUCTION
beensteadilyaccumulatingeversince1931。Bythespringof1934,infact,allofthemwereinplace,exceptfortheideaofthemarginalefficiencyofcapital,asisclearfromdraftsfromthatperiodandaworkingpaperKeynespreparedduringhisVisittoAmericainMayandJune。[6]Itwasonlyduringthesummerof1934,however,thatthefinalpiecefellintoplace,andbytheautumnKeyneswasdeliveringhislectures,nowentitled\'TheGeneralTheoryofEmployment\'fromproofsheets。
However,beforepublicationtherewastobeanotheryearofintensediscussionandredrafting。KeynescirculatedproofsofthebooktoR。F。
Kahn,JoanRobinson,R。F。Harrod,D。H。RobertsonandR。G。Hawtreyandtookcarefulnoteoftheircommentsandsuggestedimprovements,statingclearlyhispointsofdisagreementwhenhedidnotadoptthem。[7]ThusitwasafteralmostfiveyearsofintensepreparationthatthebookappearedinFebruary1936atapriceof5shillingstoencouragealargesaleamongstudents。
Afterpublicationtherewasstillfurtherdiscussionand,occasionally,controversy。Keyneshimselfencouragedthisdiscussion,for,asheputit[8]
IammoreattachedtothecomparativelysimplefundamentalideaswhichunderliemytheorythantotheparticularformsinwhichIhaveembodiedthem,andhavenodesirethatthelattershouldbecrystallizedatthepresentstageofthedebate。Ifthesimplebasicideascanbecomefamiliarandacceptable,timeandexperienceandthecollaborationofanumberofmindswilldiscoverthebestwayofexpressingthem。
Inthisspirit,Keynesenteredintoconsiderablecorrespondencewithcritics,expositorsandextendersofhisideas。[9]Moreover,asthedebateprogressed,hisownideaswerechangingandbyAugust1936hewaswritingtoR。G。Hawtrey[10]
[Pagexviii]THEGENERALTHEORYOFEMPLOYMENT
ImaymentionthatIamthinkingofproducinginthecourseofthenextyearorsowhatmightbecalledfootnotestomypreviousbook,dealingwithvariouscriticismsandvariouspointswhichwantcarryingfurther。
Ofcourse,infact,thewholebookwantsre-writingandrecasting。ButIamstillnotinasufficientlychangedstateofmindasyettobeinthepositiontodothat。OntheotherhandIcandealwithspecificpoints。
Fromthisperiod,wehaveonedrafttableofcontentstoabookentitledFootnotestoTheGeneralTheoryofEmploymentInterestandMoney,atitlethatechoeshisfirstdrafttableofcontentsafterEconomicConsequencesofthePeace。[11]HealsousedthistitleforthelectureshedeliveredinCambridgeinthespringof1937,fromwhichdraftsoftwolecturessurvive。[12]InfactheseemstohavebeenmakingconsiderableprogresstowardssteppingoutsidetheGeneralTheorybythattime,forhetoldJoanRobinsoninApril1937[13]
Iamgraduallygettingmyselfintoanoutsidepositiontowardsthebook,andamfeelingmywaytonewlinesofexposition。PerhapsyouwillseewhatIhaveinmindinmyforthcominglectures。
Unfortunately,theproposed\'footnotes\'nevergotbeyondthelectures,forKeynessufferedasevereheartattackintheearlysummerof1937andwasneverabletoworkatanythingnearhisoldpaceuntilwarcamein1939¾;andthenhisenergiesweredirectedinotherdirections。HowhewouldhaverevisedtheGeneralTheoryifhehadremainedingoodhealthisimpossibletoguess。Onecanonlybecertainthathewouldhaverevisedit。
SinceitspublicationinBritaininFebruary1936,theGeneralTheoryhasbeenpublishedintheUnitedStatesoriginallyfromsheetsprintedinEnglandandtranslatedintoGerman,Japanese,French,Spanish,Czech,Italian,Serbo-Croat,Hindi,Finnish,Roumanian,HungarianandRussian。
TheGerman,FrenchandJapaneseeditionsallcarriedspecialadditionalprefaceswhichfollowedtheoriginalEnglishpreface。Theseadditionalprefacesareprintedbelow。
[Pagexix]EDITORIALINTRODUCTION
ThiseditionfollowsthereprintedEnglishfirstedition,whichdiffersfromthefirstEnglishprintinginthatacorrectiontolines23-5
ofpage123wasmovedfromanerratumnotefollowingtheindexintothetextandcorrectionsweremadetopages44,113,176,357。InAppendixIwehaveintroducedalistofminortextualcorrectionsfromthereprintedfirstedition。Inaddition,inAppendices2and3wereprintKeynes\'sarticles\'FluctuationsinNetInvestmentintheUnitedStates\'and\'RelativeMovementsofRealWagesandOutput\'whichdealwitherrorsonpages103-4
and9-10respectivelyofthetextitself。ForfurtherdiscussionoftheGeneralTheoryanditsgenesis,thereaderisreferredtovolumesxiiiandxiv。
Inprintingthisvolumewehavemadeitourfirstobjectivetofollowaspreciselyaspossiblethepaginationoftheoriginaledition。Animmenseliteratureofdetailedcriticismandanalysishasgrownuparoundthetextoftheoriginaleditionandwehavebeenanxiousthatreferencesinthatliteratureshouldapplyequallytothisnewedition。Thishasmeantthatwehavebeenunabletofollowpreciselythestandardtypographyoftheothervolumesintheseries。Thegainofreadyreference,inourview,justifiesthiscourse。Asinothervolumesoftheseries,wehavereducedtheexcessivecapitalisationfavouredbyKeynes\'soriginalprinters,butirritatingtoamoderneye。
Preface[Pagexxi]
PREFACE
Thisbookischieflyaddressedtomyfelloweconomists。Ihopethatitwillbeintelligibletoothers。Butitsmainpurposeistodealwithdifficultquestionsoftheory,andonlyinthesecondplacewiththeapplicationsofthistheorytopractice。Foriforthodoxeconomicsisatfault,theerroristobefoundnotinthesuperstructure,whichhasbeenerectedwithgreatcareforlogicalconsistency,butinalackofclearnessandofgeneralityinthepremisses。ThusIcannotachievemyobjectofpersuadingeconomiststore-examinecriticallycertainoftheirbasicassumptionsexceptbyahighlyabstractargumentandalsobymuchcontroversy。Iwishtherecouldhavebeenlessofthelatter。ButIhavethoughtitimportant,notonlytoexplainmyownpointofview,butalsotoshowinwhatrespectsitdepartsfromtheprevailingtheory。Those,whoarestronglyweddedtowhatIshallcall\'theclassicaltheory\',willfluctuate,Iexpect,betweenabeliefthatIamquitewrongandabeliefthatIamsayingnothingnew。
Itisforotherstodetermineifeitheroftheseorthethirdalternativeisright。Mycontroversialpassagesareaimedatprovidingsomematerialforananswer;andImustaskforgivenessIf,inthepursuitofsharpdistinctions,mycontroversyisitselftookeen。ImyselfheldwithconvictionformanyyearsthetheorieswhichInowattack,andIamnot,Ithink,ignorantoftheirstrongpoints。
Themattersatissueareofanimportancewhichcannotbeexaggerated。
But,ifmyexplanationsareright,itismyfelloweconomists,notthegeneralpublic,whomImustfirstconvince。Atthisstageoftheargumentthegeneralpublic,thoughwelcomeatthedebate,areonlyeavesdroppersatanattemptbyaneconomisttobringtoanissuethedeepdivergencesofopinionbetweenfelloweconomistswhichhaveforthetimebeingalmostdestroyedthepracticalinfluenceofeconomictheory,andwill,untiltheyareresolved,continuetodoso。
TherelationbetweenthisbookandmyTreatiseonMoney[Pagexxii]THEGENERALTHEORYOFEMPLOYMENT
[JMKvols。vandvi],whichIpublishedfiveyearsago,isprobablyclearertomyselfthanitwillbetoothers;andwhatinmyownmindisanaturalevolutioninalineofthoughtwhichIhavebeenpursuingforseveralyears,maysometimesstrikethereaderasaconfusingchangeofview。ThisdifficultyisnotmadelessbycertainchangesinterminologywhichIhavefeltcompelledtomake。ThesechangesoflanguageIhavepointedoutinthecourseofthefollowingpages;butthegeneralrelationshipbetweenthetwobookscanbeexpressedbrieflyasfollows。WhenIbegantowritemyTreatiseonMoneyIwasstillmovingalongthetraditionallinesofregardingtheinfluenceofmoneyassomethingsotospeakseparatefromthegeneraltheoryofsupplyanddemand。WhenIfinishedit,Ihadmadesomeprogresstowardspushingmonetarytheorybacktobecomingatheoryofoutputasawhole。Butmylackofemancipationfrompreconceivedideasshoweditselfinwhatnowseemstometobetheoutstandingfaultofthetheoreticalpartsofthatworknamely,BooksIIIandIV,thatIfailedtodealthoroughlywiththeeffectsofchangesinthelevelofoutput。
Myso-called\'fundamentalequationswereaninstantaneouspicturetakenontheassumptionofagivenoutput。Theyattemptedtoshowhow,assumingthegivenoutput,forcescoulddevelopwhichinvolvedaprofit-disequilibrium,andthusrequiredachangeinthelevelofoutput。Butthedynamicdevelopment,asdistinctfromtheinstantaneouspicture,wasleftincompleteandextremelyconfused。Thisbook,ontheotherhand,hasevolvedintowhatisprimarilyastudyoftheforceswhichdeterminechangesinthescaleofoutputandemploymentasawhole;and,whilstitisfoundthatmoneyentersintotheeconomicschemeinanessentialandpeculiarmanner,technicalmonetarydetailfallsintothebackground。Amonetaryeconomy,weshallfind,isessentiallyoneinwhichchangingviewsaboutthefuturearecapableofinfluencingthequantityofemploymentandnotmerelyitsdirection。Butourmethodofanalysingtheeconomicbehaviourofthepresentundertheinfluenceofchangingideasaboutthefutureisonewhichdependsontheinteractionofsupplyanddemand,andisin[Pagexxiii]PREFACE
thiswaylinkedupwithourfundamentaltheoryofvalue。Wearethusledtoamoregeneraltheory,whichincludestheclassicaltheorywithwhichwearefamiliar,asaspecialcase。
Thewriterofabooksuchasthis,treadingalongunfamiliarpaths,isextremelydependentoncriticismandconversationifheistoavoidanundueproportionofmistakes。Itisastonishingwhatfoolishthingsonecantemporarilybelieveifonethinkstoolongalone,particularlyineconomicsalongwiththeothermoralsciences,whereitisoftenimpossibletobringone\'sideastoaconclusivetesteitherformalorexperimental。
Inthisbook,evenmoreperhapsthaninwritingmyTreatiseonMoney,IhavedependedontheconstantadviceandconstructivecriticismofMrR。F。Kahn。Thereisagreatdealinthisbookwhichwouldnothavetakentheshapeithasexceptathissuggestion。IhavealsohadmuchhelpfromMrsJoanRobinson,MrR。G。HawtreyandMrR。F。Harrod,whohavereadthewholeoftheproof-sheets。TheindexhasbeencompiledbyMrD。M。Bensusan-ButtofKing\'sCollege,Cambridge。
Thecompositionofthisbookhasbeenfortheauthoralongstruggleofescape,andsomustthereadingofitbeformostreadersiftheauthor\'sassaultuponthemistobesuccessful,¾;astruggleofescapefromhabitualmodesofthoughtandexpression。Theideaswhicharehereexpressedsolaboriouslyareextremelysimpleandshouldbeobvious。Thedifficultylies,notinthenewideas,butinescapingfromtheoldones,whichramify,forthosebroughtupasmostofushavebeen,intoeverycornerofourminds。
J。M。KEYNES
13December1935
PrefacetoJapaneseEdition[Pagexxix]
PREFACETOTHEJAPANESEEDITION
AlfredMarshall,onwhosePrinciplesofEconomicsallcontemporaryEnglisheconomistshavebeenbroughtup,wasatparticularpainstoemphasisethecontinuityofhisthoughtwithRicardo\'s。HisworklargelyconsistedingraftingthemarginalprincipleandtheprincipleofsubstitutionontotheRicardiantradition;andhistheoryofoutputandconsumptionasawhole,asdistinctfromhistheoryoftheproductionanddistributionofagivenoutput,wasneverseparatelyexpounded。Whetherhehimselffelttheneedofsuchatheory,Iamnotsure。Buthisimmediatesuccessorsandfollowershavecertainlydispensedwithitandhavenot,apparently,feltthelackofit。ItwasinthisatmospherethatIwasbroughtup。I
taughtthesedoctrinesmyselfanditisonlywithinthelastdecadethatIhavebeenconsciousoftheirinsufficiency。Inmyownthoughtanddevelopment,therefore,thisbookrepresentsareaction,atransitionawayfromtheEnglishclassicalororthodoxtradition。MyemphasisuponthisinthefollowingpagesanduponthepointsofmydivergencefromreceiveddoctrinehasbeenregardedinsomequartersinEnglandasundulycontroversial。
ButhowcanonebroughtupinEnglisheconomicorthodoxy,indeedapriestofthatfaithatonetime,avoidsomecontroversialemphasis,whenhefirstbecomesaProtestant?
PerhapsJapanesereaders,however,willneitherrequirenorresistmyassaultsagainsttheEnglishtradition。WearewellawareofthelargescaleonwhichEnglisheconomicwritingsarereadinJapan,butwearenotsowellinformedastohowJapaneseopinionsregardthem。TherecentpraiseworthyenterpriseonthepartoftheInternationalEconomicCircleofTokyoinreprintingMalthus\'s\'PrinciplesofPoliticalEconomy\'asthefirstvolumeintheTokyoSeriesofReprintsencouragesmetothinkthatabookwhichtracesitsdescentfromMalthusratherthanRicardomaybereceivedwithsympathyinsomequartersatleast。
[Pagexxx]THEGENERALTHEORYOFEMPLOYMENT
AtanyrateIamgratefultotheOrientalEconomistformakingitpossibleformetoapproachJapanesereaderswithouttheextrahandicapofaforeignlanguage。
J。M。KEYNES
4December1936
PrefacetoGermanEdition[Pagexxv]
PREFACETOTHEGERMANEDITION
AlfredMarshall,onwhosePrinciplesofEconomicsallcontemporaryEnglisheconomistshavebeenbroughtup,wasatparticularpainstoemphasisethecontinuityofhisthoughtwithRicardo\'s。HisworklargelyconsistedingraftingthemarginalprincipleandtheprincipleofsubstitutionontotheRicardiantradition;andhistheoryofoutputandconsumptionasawhole,asdistinctfromhistheoryoftheproductionanddistributionofagivenoutput,wasneverseparatelyexpounded。Whetherhehimselffelttheneedofsuchatheory,Iamnotsure。Buthisimmediatesuccessorsandfollowershavecertainlydispensedwithitandhavenot,apparently,feltthelackofit。ItwasinthisatmospherethatIwasbroughtup。I
taughtthesedoctrinesmyselfanditisonlywithinthelastdecadethatIhavebeenconsciousoftheirinsufficiency。Inmyownthoughtanddevelopment,therefore,thisbookrepresentsareaction,atransitionawayfromtheEnglishclassicalororthodoxtradition。MyemphasisuponthisinthefollowingpagesanduponthepointsofmydivergencefromreceiveddoctrinehasbeenregardedinsomequartersinEnglandasundulycontroversial。
ButhowcanonebroughtupaCatholicinEnglisheconomics,indeedapriestofthatfaith,avoidsomecontroversialemphasis,whenhefirstbecomesaProtestant?
ButIfancythatallthismayimpressGermanreaderssomewhatdifferently。
Theorthodoxtradition,whichruledinnineteenthcenturyEngland,nevertooksofirmaholdofGermanthought。TherehavealwaysexistedimportantschoolsofeconomistsinGermanywhohavestronglydisputedtheadequacyoftheclassicaltheoryfortheanalysisofcontemporaryevents。TheManchesterSchoolandMarxismbothderiveultimatelyfromRicardo,¾;aconclusionwhichisonlysuperficiallysurprising。ButinGermanytherehasalwaysexistedalargesectionofopinionwhichhasadheredneithertotheonenortotheother。
Itcanscarcelybeclaimed,however,thatthisschoolof[Pagexxvi]THEGENERALTHEORYOFEMPLOYMENT
thoughthaserectedarivaltheoreticalconstruction;orhasevenattemptedtodoso。Ithasbeensceptical,realistic,contentwithhistoricalandempiricalmethodsandresults,whichdiscardformalanalysis。ThemostimportantunorthodoxdiscussionontheoreticallineswasthatofWicksell。
HisbookswereavailableinGermanastheywerenot,untillately,inEnglish;indeedoneofthemostimportantofthemwaswritteninGerman。
ButhisfollowerswerechieflySwedesandAustrians,thelatterof。whomcombinedhisideaswithspecificallyAustriantheorysoastobringthemineffect,backagaintowardstheclassicaltradition。ThusGermany,quitecontrarytoherhabitinmostofthesciences,hasbeencontentforawholecenturytodowithoutanyformaltheoryofeconomicswhichwaspredominantandgenerallyaccepted。
Perhaps,therefore,ImayexpectlessresistancefromGerman,thanfromEnglish,readersinofferingatheoryofemploymentandoutputasawhole,whichdepartsinimportantrespectsfromtheorthodoxtradition。ButcanIhopetoovercomeGermany\'seconomicagnosticism?CanIpersuadeGermaneconomiststhatmethodsofformalanalysishavesomethingimportanttocontributetotheinterpretationofcontemporaryeventsandtothemouldingofcontemporarypolicy?Afterall,itisGermantolikeatheory。HowhungryandthirstyGermaneconomistsmustfeelafterhavinglivedalltheseyearswithoutone!Certainly,itisworthwhileformetomaketheattempt。AndifIcancontributesomestraymorselstowardsthepreparationbyGermaneconomistsofafullrepastoftheorydesignedtomeetspecificallyGermanconditions,Ishallbecontent。ForIconfessthatmuchofthefollowingbookisillustratedandexpoundedmainlywithreferencetotheconditionsexistingintheAnglo-Saxoncountries。
Neverthelessthetheoryofoutputasawhole,whichiswhatthefollowingbookpurportstoprovide,ismuchmoreeasilyadaptedtotheconditionsofatotalitarianstate,thanisthetheoryoftheproductionanddistributionofagivenoutputproducedunderconditionsoffreecompetitionandalargemeasureoflaissez-faire。Thetheoryofthepsychologi-
[Pagexxvii]PREFACETOTHEGERMANEDITION
callawsrelatingconsumptionandsaving,theinfluenceofloanexpenditureonpricesandrealwages,thepartplayedbytherateofinterest¾;theseremainasnecessaryingredientsinourschemeofthought。
ItakethisopportunitytoacknowledgemyindebtednesstotheexcellentworkofmytranslatorHerrWaegerIhopehisvocabularyattheendofthisvolume[14]mayproveusefulbeyonditsimmediatepurposeandtomypublishers,MessrsDunckerandHumblot,whoseenterprise,fromthedaysnowsixteenyearsagowhentheypublishedmyEconomicConsequencesofthePeace,hasenabledmetomaintaincontactwithGermanreaders。
J。M。KEYNES
7September1936
PrefacetoJapaneseEdition[Pagexxix]
PREFACETOTHEJAPANESEEDITION
AlfredMarshall,onwhosePrinciplesofEconomicsallcontemporaryEnglisheconomistshavebeenbroughtup,wasatparticularpainstoemphasisethecontinuityofhisthoughtwithRicardo\'s。HisworklargelyconsistedingraftingthemarginalprincipleandtheprincipleofsubstitutionontotheRicardiantradition;andhistheoryofoutputandconsumptionasawhole,asdistinctfromhistheoryoftheproductionanddistributionofagivenoutput,wasneverseparatelyexpounded。Whetherhehimselffelttheneedofsuchatheory,Iamnotsure。Buthisimmediatesuccessorsandfollowershavecertainlydispensedwithitandhavenot,apparently,feltthelackofit。ItwasinthisatmospherethatIwasbroughtup。I
taughtthesedoctrinesmyselfanditisonlywithinthelastdecadethatIhavebeenconsciousoftheirinsufficiency。Inmyownthoughtanddevelopment,therefore,thisbookrepresentsareaction,atransitionawayfromtheEnglishclassicalororthodoxtradition。MyemphasisuponthisinthefollowingpagesanduponthepointsofmydivergencefromreceiveddoctrinehasbeenregardedinsomequartersinEnglandasundulycontroversial。
ButhowcanonebroughtupinEnglisheconomicorthodoxy,indeedapriestofthatfaithatonetime,avoidsomecontroversialemphasis,whenhefirstbecomesaProtestant?
PerhapsJapanesereaders,however,willneitherrequirenorresistmyassaultsagainsttheEnglishtradition。WearewellawareofthelargescaleonwhichEnglisheconomicwritingsarereadinJapan,butwearenotsowellinformedastohowJapaneseopinionsregardthem。TherecentpraiseworthyenterpriseonthepartoftheInternationalEconomicCircleofTokyoinreprintingMalthus\'s\'PrinciplesofPoliticalEconomy\'asthefirstvolumeintheTokyoSeriesofReprintsencouragesmetothinkthatabookwhichtracesitsdescentfromMalthusratherthanRicardomaybereceivedwithsympathyinsomequartersatleast。
[Pagexxx]THEGENERALTHEORYOFEMPLOYMENT
AtanyrateIamgratefultotheOrientalEconomistformakingitpossibleformetoapproachJapanesereaderswithouttheextrahandicapofaforeignlanguage。
J。M。KEYNES
4December1936
PrefacetoFrenchEdition[Pagexxxi]
PREFACETOTHEFRENCHEDITION
Forahundredyearsorlonger,EnglishPoliticalEconomyhasbeendominatedbyanorthodoxy。Thatisnottosaythatanunchangingdoctrinehasprevailed。
Onthecontrary。Therehasbeenaprogressiveevolutionofthedoctrine。
Butitspresuppositions,itsatmosphere,itsmethodhaveremainedsurprisinglythesame,andaremarkablecontinuityhasbeenobservablethroughallthechanges。Inthatorthodoxy,inthatcontinuoustransition,Iwasbroughtup。Ilearntit,Itaughtit,Iwroteit。TothoselookingfromoutsideIprobablystillbelongtoit。Subsequenthistoriansofdoctrinewillregardthisbookasinessentiallythesametradition。ButImyselfinwritingit,andinotherrecentworkwhichhasleduptoit,havefeltmyselftobebreakingawayfromthisorthodoxy,tobeinstrongreactionagainstit,tobeescapingfromsomething,tobegaininganemancipation。Andthisstateofmindonmypartistheexplanationofcertainfaultsinthebook,inparticularitscontroversialnoteinsomepassages,anditsairofbeingaddressedtoomuchtotheholdersofaparticularpointofviewandtoolittleadurbemetorbem。Iwaswantingtoconvincemyownenvironmentanddidnotaddressmyselfwithsufficientdirectnesstooutsideopinion。
Nowthreeyearslater,havinggrownaccustomedtomynewskinandhavingalmostforgottenthesmellofmyoldone,Ishould,ifIwerewritingafresh,endeavourtofreemyselffromthisfaultandstatemyownpositioninamoreclear-cutmanner。
Isayallthis,partlytoexplainandpartlytoexcuse,myselftoFrenchreaders。ForinFrancetherehasbeennoorthodoxtraditionwiththesameauthorityovercontemporaryopinionasinmyowncountry。IntheUnitedStatesthepositionhasbeenmuchthesameasinEngland。ButinFrance,asintherestofEurope,therehasbeennosuchdominantschoolsincetheexpiryoftheschoolofFrenchLiberaleconomistswhowereintheirprimetwentyyearsagothoughtheylivedtosogreatanage,longaftertheirinfluencehadpassedaway,[Pagexxxii]THEGENERALTHEORYOFEMPLOYMENT
thatitfelltomyduty,whenIfirstbecameayouthfuleditoroftheEconomicJournaltowritetheobituariesofmanyofthem¾;Levasseur,Molinari,Leroy-Beaulieu。IfCharlesGidehadattainedtothesameinfluenceandauthorityasAlfredMarshall,yourpositionwouldhavebornemoreresemblancetoours。Asitis,youreconomistsareeclectic,toomuchwesometimesthinkwithoutdeeprootsinsystematicthought。PerhapsthismaymakethemmoreeasilyaccessibletowhatIhavetosay。ButitmayalsohavetheresultthatmyreaderswillsometimeswonderwhatIamtalkingaboutwhenIspeak,withwhatsomeofmyEnglishcriticsconsideramisuseoflanguage,ofthe\'classical\'schoolofthoughtand\'classical\'economists。
Itmay,therefore,behelpfultomyFrenchreadersifIattempttoindicateverybrieflywhatIregardasthemaindifferentiaeofmyapproach。
Ihavecalledmytheoryageneraltheory。ImeanbythisthatIamchieflyconcernedwiththebehaviouroftheeconomicsystemasawhole,¾;withaggregateincomes,aggregateprofits,aggregateoutput,aggregateemployment,aggregateinvestment,aggregatesavingratherthanwiththeincomes,profits,output,employment,investmentandsavingofparticularindustries,firmsorindividuals。AndIarguethatimportantmistakeshavebeenmadethroughextendingtothesystemasawholeconclusionswhichhavebeencorrectlyarrivedatinrespectofapartofittakeninisolation。
LetmegiveexamplesofwhatImean。Mycontentionthatforthesystemasawholetheamountofincomewhichissaved,inthesensethatitisnotspentoncurrentconsumption,isandmustnecessarilybeexactlyequaltotheamountofnetnewinvestmenthasbeenconsideredaparadoxandhasbeentheoccasionofwidespreadcontroversy。Theexplanationofthisisundoubtedlytobefoundinthefactthatthisrelationshipofequalitybetweensavingandinvestment,whichnecessarilyholdsgoodforthesystemasawhole,doesnotholdgoodatallforaparticularindividual。ThereisnoreasonwhateverwhythenewinvestmentforwhichIamresponsibleshouldbearanyrelationwhatevertotheamountofmyownsavings。Qutelegitimatelyweregardanindi-
[Pagexxxiii]PREFACETOTHEFRENCHEDITION
vidual\'sincomeasindependentofwhathehimselfconsumesandinvests。
Butthis,Ihavetopointout,shouldnothaveledustooverlookthefactthatthedemandarisingoutoftheconsumptionandinvestmentofoneindividualisthesourceoftheincomesofotherindividuals,sothatincomesingeneralarenotindependent,quitethecontrary,ofthedispositionofindividualstospendandinvest;andsinceinturnthereadinessofindividualstospendandinvestdependsontheirincomes,arelationshipissetupbetweenaggregatesavingsandaggregateinvestmentwhichcanbeveryeasilyshown,beyondanypossibilityofreasonabledispute,tobeoneofexactandnecessaryequality。Rightlyregardedthisisabanaleconclusion。Butitsetsinmotionatrainofthoughtfromwhichmoresubstantialmattersfollow。Itisshownthat,generallyspeaking,theactuallevelofoutputandemploymentdepends,notonthecapacitytoproduceoronthepre-existinglevelofincomes,butonthecurrentdecisionstoproducewhichdependinturnoncurrentdecisionstoinvestandonpresentexpectationsofcurrentandprospectiveconsumption。Moreover,assoonasweknowthepropensitytoconsumeandtosaveasIcallit,thatistosaytheresultforthecommunityasawholeoftheindividualpsychologicalinclinationsastohowtodisposeofgivenincomes,wecancalculatewhatlevelofincomes,andthereforewhatlevelofoutputandemployment,isinprofit-equilibriumwithagivenlevelofnewinvestment;outofwhichdevelopsthedoctrineoftheMultiplier。
Oragain,itbecomesevidentthatanincreasedpropensitytosavewillceterisparibuscontractincomesandoutput;whilstanincreasedinducementtoinvestwillexpandthem。Wearethusabletoanalysethefactorswhichdeterminetheincomeandoutputofthesystemasawhole;¾;wehave,inthemostexactsense,atheoryofemployment。Conclusionsemergefromthisreasoningwhichareparticularlyrelevanttotheproblemsofpublicfinanceandpublicpolicygenerallyandofthetradecycle。
Anotherfeature,speciallycharacteristicofthisbook,isthetheoryoftherateofinterest。Inrecenttimesithasbeenheldbymanyeconomiststhattherateofcurrentsavingdetermined[Pagexxxiv]THEGENERALTHEORYOFEMPLOYMENT
thesupplyoffreecapital,thattherateofcurrentinvestmentgovernedthedemandforit,andthattherateofinterestwas,sotospeak,theequilibratingprice-factordeterminedbythepointofintersectionofthesupplycurveofsavingsandthedemandcurveofinvestment。Butifaggregatesavingisnecessarilyandinallcircumstancesexactlyequaltoaggregateinvestment,itisevidentthatthisexplanationcollapses。Wehavetosearchelsewhereforthesolution。Ifinditintheideathatitisthefunctionoftherateofinteresttopreserveequilibrium,notbetweenthedemandandthesupplyofnewcapitalgoods,butbetweenthedemandandthesupplyofmoney,thatistosaybetweenthedemandforliquidityandthemeansofsatisfyingthisdemand。Iamherereturningtothedoctrineoftheolder,pre-nineteenthcenturyeconomists。Montesquieu,forexample,sawthistruthwithconsiderableclarity,[15]¾;MontesquieuwhowastherealFrenchequivalentofAdamSmith,thegreatestofyoureconomists,headandshouldersabovethephysiocratsinpenetration,clear-headednessandgoodsensewhicharethequalitiesaneconomistshouldhave。ButImustleaveittothetextofthisbooktoshowhowindetailallthisworksout。
IhavecalledthisbooktheGeneralTheoryofEmployment,InterestandMoney;andthethirdfeaturetowhichImaycallattentionisthetreatmentofmoneyandprices。ThefollowinganalysisregistersmyfinalescapefromtheconfusionsoftheQuantityTheory,whichonceentangledme。Iregardthepricelevelasawholeasbeingdeterminedinpreciselythesamewayasindividualprices;thatistosay,undertheinfluenceofsupplyanddemand。Technicalconditions,thelevelofwages,theextentofunusedcapacityofplantandlabour,andthestateofmarketsandcompetitiondeterminethesupplyconditionsofindividualproductsandofproductsasawhole。Thedecisionsofentrepreneurs,whichprovidetheincomesofindividualproducersandthedecisionsofthoseindividualsastothedispositionofsuchincomesdeterminethedemandconditions。Andprices¾;bothindividualpricesandtheprice-level¾;emergeastheresultantofthesetwo[Pagexxxv]PREFACETOTHEFRENCHEDITION
factors。Money,andthequantityofmoney,arenotdirectinfluencesatthisstageoftheproceedings。Theyhavedonetheirworkatanearlierstageoftheanalysis。Thequantityofmoneydeterminesthesupplyofliquidresources,andhencetherateofinterest,andinconjunctionwithotherfactorsparticularlythatofconfidencetheinducementtoinvest,whichinturnfixestheequilibriumlevelofincomes,outputandemploymentandateachstageinconjunctionwithotherfactorstheprice-levelasawholethroughtheinfluencesofsupplyanddemandthusestablished。
Ibelievethateconomicseverywhereuptorecenttimeshasbeendominated,muchmorethanhasbeenunderstood,bythedoctrinesassociatedwiththenameofJ-B。Say。Itistruethathis\'lawofmarkets\'hasbeenlongabandonedbymosteconomists;buttheyhavenotextricatedthemselvesfromhisbasicassumptionsandparticularlyfromhisfallacythatdemandiscreatedbysupply。Saywasimplicitlyassumingthattheeconomicsystemwasalwaysoperatinguptoitsfullcapacity,sothatanewactivitywasalwaysinsubstitutionfor,andneverinadditionto,someotheractivity。Nearlyallsubsequenteconomictheoryhasdependedon,inthesensethatithasrequired,thissameassumption。Yetatheorysobasedisclearlyincompetenttotackletheproblemsofunemploymentandofthetradecycle。PerhapsIcanbestexpresstoFrenchreaderswhatIclaimforthisbookbysayingthatinthetheoryofproductionitisafinalbreak-awayfromthedoctrinesofJ-B。SayandthatinthetheoryofinterestitisareturntothedoctrinesofMontesquieu。
J。M。KEYNES
20February1939
King\'sCollegeCambridgeTheGeneralTheory[Page3]
Chapter1
THEGENERALTHEORY
IhavecalledthisbooktheGeneralTheoryofEmployment,InterestandMoney,placingtheemphasisontheprefixgeneral。Theobjectofsuchatitleistocontrastthecharacterofmyargumentsandconclusionswiththoseoftheclassical[16]theoryofthesubject,uponwhichIwasbroughtupandwhichdominatestheeconomicthought,bothpracticalandtheoretical,ofthegoverningandacademicclassesofthisgeneration,asithasforahundredyearspast。Ishallarguethatthepostulatesoftheclassicaltheoryareapplicabletoaspecialcaseonlyandnottothegeneralcase,thesituationwhichitassumesbeingalimitingpointofthepossiblepositionsofequilibrium。Moreover,thecharacteristicsofthespecialcaseassumedbytheclassicaltheoryhappennottobethoseoftheeconomicsocietyinwhichweactuallylive,withtheresultthatitsteachingismisleadinganddisastrousifweattempttoapplyittothefactsofexperience。
PostulatesofClassicalEconomics[Page4]
Chapter2
THEPOSTULATESOFTHECLASSICALECONOMICS
Mosttreatisesonthetheoryofvalueandproductionareprimarilyconcernedwiththedistributionofagivenvolumeofemployedresourcesbetweendifferentusesandwiththeconditionswhich,assumingtheemploymentofthisquantityofresources,determinetheirrelativerewardsandtherelativevaluesoftheirproducts。[17]
Thequestion,also,ofthevolumeoftheavailableresources,inthesenseofthesizeoftheemployablepopulation,theextentofnaturalwealthandtheaccumulatedcapitalequipment,hasoftenbeentreateddescriptively。
Butthepuretheoryofwhatdeterminestheactualemploymentoftheavailableresourceshasseldombeenexaminedingreatdetail。Tosaythatithasnotbeenexaminedatallwould,ofcourse,beabsurd。Foreverydiscussionconcerningfluctuationsofemployment,ofwhichtherehavebeenmany,hasbeenconcernedwithit。Imean,notthatthetopichasbeenoverlooked,butthatthefundamentaltheory[Page5]POSTULATES
OFTHECLASSICALECONOMICS
underlyingithasbeendeemedsosimpleandobviousthatithasreceived,atthemost,abaremention。[18]
Theclassicaltheoryofemployment¾;supposedlysimpleandobvious¾;hasbeenbased,I
think,ontwofundamentalpostulates,thoughpracticallywithoutdiscussion,namely:
I。ThewageisequaltothemarginalproductoflabourThatistosay,thewageofanemployedpersonisequaltothevaluewhichwouldbelostifemploymentweretobereducedbyoneunitafterdeductinganyothercostswhichthisreductionofoutputwouldavoid;
subject,however,tothequalificationthattheequalitymaybedisturbed,inaccordancewithcertainprinciples,ifcompetitionandmarketsareimperfect。
II。Theutilityofthewagewhenagivenvolumeoflabourisemployedisequaltothemarginaldisutilityofthatamountofemployment。
Thatistosay,therealwageofanemployedpersonisthatwhichisjustsufficientintheestimationoftheemployedpersonsthemselves
toinducethevolumeoflabouractuallyemployedtobeforthcoming;subjecttothequalificationthattheequalityforeachindividualunitoflabourmaybedisturbedbycombinationbetweenemployableunitsanalogoustotheimperfections[Page6]THEGENERAL
THEORYOFEMPLOYMENT
ofcompetitionwhichqualifythefirstpostulate。Disutilitymustbehereunderstoodtocovereverykindofreasonwhichmightleadaman,orabodyofmen,towithholdtheirlabourratherthanacceptawagewhichhadtothemautilitybelowacertainminimum。
Thispostulateiscompatiblewithwhatmaybecalled\'frictional\'unemployment。
Forarealisticinterpretationofitlegitimatelyallowsforvariousinexactnessesofadjustmentwhichstandinthewayofcontinuousfullemployment:forexample,unemploymentduetoatemporarywantofbalancebetweentherelativequantitiesofspecialisedresourcesasaresultofmiscalculationorintermittentdemand;ortotime-lagsconsequentonunforeseenchanges;ortothefactthatthechange-overfromoneemploymenttoanothercannotbeeffectedwithoutacertaindelay,sothattherewillalwaysexistinanon-staticsocietyaproportionofresourcesunemployed\'betweenjobs\'。Inadditionto\'frictional\'unemployment,thepostulateisalsocompatiblewith\'voluntary\'
unemploymentduetotherefusalorinabilityofaunitoflabour,asaresultoflegislationorsocialpracticesorofcombinationforcollectivebargainingorofslowresponsetochangeorofmerehumanobstinacy,toacceptarewardcorrespondingtothevalueoftheproductattributabletoitsmarginalproductivity。Butthesetwocategoriesof\'frictional\'
unemploymentand\'voluntary\'unemploymentarecomprehensive。Theclassicalpostulatesdonotadmitofthepossibilityofthethirdcategory,whichIshalldefinebelowas\'involuntary\'unemployment。
Subjecttothesequalifications,thevolumeofemployedresourcesisdulydetermined,accordingtotheclassicaltheory,bythetwopostulates。
Thefirstgivesusthedemandscheduleforemployment,thesecondgivesusthesupplyschedule;andtheamountofemploymentisfixedatthepointwheretheutilityofthemarginalproductbalancesthedisutilityofthemarginalemployment。
[Page7]POSTULATES
OFTHECLASSICALECONOMICS
Itwouldfollowfromthisthatthereareonlyfourpossiblemeansofincreasingemployment:
aAnimprovementinorganisationorinforesightwhichdiminishes\'frictional\'unemployment;
badecreaseinthemarginaldisutilityoflabour,asexpressedbytherealwageforwhichadditionallabourisavailable,soastodiminish\'voluntary\'unemployment;
canincreaseinthemarginalphysicalproductivityoflabourinthewage-goodsindustriestouseProfessorPigou\'sconvenienttermforgoodsuponthepriceofwhichtheutilityofthemoney-wagedepends;
ordanincreaseinthepriceofnon-wage-goodscomparedwiththepriceofwage-goods,associatedwithashiftintheexpenditureofnon-wage-earnersfromwage-goodstonon-wage-goods。
This,tothebestofmyunderstanding,isthesubstanceofProfessorPigou\'sTheoryofUnemployment¾;theonlydetailedaccountoftheclassicaltheoryofemploymentwhichexists。
[19]
II
Isittruethattheabovecategoriesarecomprehensiveinviewofthefactthatthepopulationgenerallyisseldomdoingasmuchworkasitwouldliketodoonthebasisofthecurrentwage?For,admittedly,morelabourwould,asarule,beforthcomingattheexistingmoney-wageifitweredemanded。[20]Theclassicalschoolreconcilethisphenomenonwiththeirsecondpostulatebyarguingthat,whilethedemandforlabour[Page8]THEGENERAL
THEORYOFEMPLOYMENT
attheexistingmoney-wagemaybesatisfiedbeforeeveryonewillingtoworkatthiswageisemployed,thissituationisduetoanopenortacitagreementamongstworkersnottoworkforless,andthatiflabourasawholewouldagreetoareductionofmoney-wagesmoreemploymentwouldbeforthcoming。Ifthisisthecase,suchunemployment,thoughapparentlyinvoluntary,isnotstrictlyso,andoughttobeincludedundertheabovecategoryof\'voluntary\'unemploymentduetotheeffectsofcollectivebargaining,etc。
Thiscallsfortwoobservations,thefirstofwhichrelatestotheactualattitudeofworkerstowardsrealwagesandmoney-wagesrespectivelyandisnottheoreticallyfundamental,butthesecondofwhichisfundamental。
Letusassume,forthemoment,thatlabourisnotpreparedtoworkforalowermoney-wageandthatareductionintheexistinglevelofmoney-wageswouldlead,throughstrikesorotherwise,toawithdrawalfromthelabourmarketoflabourwhichisnowemployed。Doesitfollowfromthisthattheexistinglevelofrealwagesaccuratelymeasuresthemarginaldisutilityoflabour?Notnecessarily。For,althoughareductionintheexistingmoney-wagewouldleadtoawithdrawaloflabour,itdoesnotfollowthatafallinthevalueoftheexistingmoney-wageintermsofwage-goodswoulddoso,ifitwereduetoariseinthepriceofthelatter。Inotherwords,itmaybethecasethatwithinacertainrangethedemandoflabourisforaminimummoney-wageandnotforaminimumrealwage。Theclassicalschoolhavetacitlyassumedthatthiswouldinvolvenosignificantchangeintheirtheory。Butthisisnotso。Forifthesupplyoflabourisnotafunctionofrealwagesasitssolevariable,theirargumentbreaksdownentirelyandleavesthequestionofwhattheactualemploymentwillbequiteindeterminate。
[21]Theydonotseemtohaverealisedthat,unlessthesupplyoflabourisafunctionofrealwagesalone,[Page9]POSTULATES
OFTHECLASSICALECONOMICS
theirsupplycurveforlabourwillshiftbodilywitheverymovementofprices。Thustheirmethodistiedupwiththeirveryspecialassumptions,andcannotbeadaptedtodealwiththemoregeneralcase。
Nowordinaryexperiencetellsus,beyonddoubt,thatasituationwherelabourstipulateswithinlimitsforamoney-wageratherthanarealwage,sofarfrombeingamerepossibility,isthenormalcase。Whilstworkerswillusuallyresistareductionofmoney-wages,itisnottheirpracticetowithdrawtheirlabourwheneverthereisariseinthepriceofwage-goods。
Itissometimessaidthatitwouldbeillogicalforlabourtoresistareductionofmoney-wagesbutnottoresistareductionofrealwages。Forreasonsgivenbelowp。14,thismightnotbesoillogicalasitappearsatfirst;and,asweshallseelater,fortunatelyso。But,whetherlogicalorillogical,experienceshowsthatthisishowlabourinfactbehaves。
Moreover,thecontentionthattheunemploymentwhichcharacterisesadepressionisduetoarefusalbylabourtoacceptareductionofmoney-wagesisnotclearlysupportedbythefacts。ItisnotveryplausibletoassertthatunemploymentintheUnitedStatesin1932wasdueeithertolabourobstinatelyrefusingtoacceptareductionofmoney-wagesortoitsobstinatelydemandingarealwagebeyondwhattheproductivityoftheeconomicmachinewascapableoffurnishing。Widevariationsareexperiencedinthevolumeofemploymentwithoutanyapparentchangeeitherintheminimumrealdemandsoflabourorinitsproductivity。Labourisnotmoretruculentinthedepressionthanintheboom¾;farfromit。Norisitsphysicalproductivityless。Thesefactsfromexperienceareaprimafaciegroundforquestioningtheadequacyoftheclassicalanalysis。
It[22]wouldbeinterestingtoseetheresultsofastatisticalenquiryintotheactualrelationshipbetween[Page10]THEGENERAL