Back to a General Theory - An Essay in Persuasion

Sammanfattning: Many Western countries experience failing monetary policy after the 2008 financial crisis. The lack of alternatives to established rules, even when they appear to fail, motivates a close look at the economic ideas John Maynard Keynes developed in his crisis-ridden lifetime, to answer the question: What can Keynes' writings contribute to the contemporary macroeconomic discussion? We trace from the publication of the General Theory (1936) until our time how macroeconomics has narrowed down into theoretical consensus, elevating policy recommendations developed in moderate times to an exclusive status of optimality. Building on the tacit assumption of ergodic (time-homogenous) behavior of economic agents, theory and its application have relied increasingly on the tools of positive economics. Rejecting the ergodic axiom, Keynes' conception of economics required an ethical and logical basis, which is neglected in the contemporary interpretation of his economic theory and offers an alternative to the current methodology of economics as a whole. Keynes' logical theory provides a frame for aspects of decision-making that lie outside the grasp of models that currently frame economic policy: uncertainty, qualitative information and fragmented quantitative information. Irreducible uncertainty and its influence on reasoning are at the core of key concepts Keynes developed to understand the genesis and nature of economic crises. The current economic framework is not logically compatible with Keynes', therefore his General Theory is fertile ground to develop an alternative theory to enrich macroeconomic understanding of crises and devise remedial policies.