Methodological Stance: The Marshallian Structure of the General Theory

Abstract

Ever since Hicks’s (1937) pioneering interpretation of the General Theory, traditional Keynesian macroeconomics has been expressed in terms of a vision of interconnected sets of aggregated markets. Thus it has become commonplace for economists to speak of “the” markets for goods, labor, money and bonds, and of the simultaneous equilibrium solution of them considered as a system, when discussing various theoretical or applied macroeconomic issues. In fact, a case can be made that in the postwar era this became the basic meta-theory of macroeconomics and that it is Walrasian in origin and outlook (Weintraub, 1979). It is also true that a textual basis for the interconnectedness of the decisions of consumers, investors and asset holders is clearly present in the General Theory of 1936. Since Walrasian conceptions and mathematical treatments of economic theory were rapidly gaining ground at just the juncture at which Keynes’s book was published, it is not surprising that many young, mathematically trained interpreters “naturally” cast its central message in the form of simultaneous equilibrium equations in the spirit of Walras (Young, 1987; Laidler 1999, Chapters 11 and 12). But this interpretation, so widely accepted to the profession now, is not so natural an interpretation from the alternative perspective of looking backwards from the General Theory in 1936.