The Aggregate Theory Summarised

Abstract

The model presented piecemeal in the preceding eight chapters will be more easily comprehended if the functional relationships and the conditions necessary for payments balance are assimilated into a formal, ex post, flow model. However, the creation of such a model with its apparent generation of steady-state solutions runs the danger of de-emphasising the inevitability of period-to-period variation in the flows. This potential variability in the flows is fundamental to the theory. Professor Joan Robinson has pointed out the damage done to Keynes’ concepts by formal models:¹

Out of [the complete collapse of the market economy in the thirties] emerged what has become known as the Keynesian revolution. After the war, Keynes became orthodox in his turn. Unfortunately, the Keynesian orthodoxy, as it became established, left out the point ... Consider what was the point of the Keynesian revolution on the plane of theory and on the plane of policy. On the plane of theory, the main point of the General Theory was to break out of the cocoon of equilibrium and consider the nature of life lived in time — the difference between yesterday and tomorrow. Here and now, the past is irrevocable and the future is unknown.