THE ANALYTICAL PROBLEM OF THE GENERAL THEORY
Keynes's principal work focused on one central issue: the determination of levels of national income and employment in industrial economies and the cause of economic fluctuations.
Earlier schools of economic thought had given little systematic attention to this problem. The classicists were too preoccupied with questions of long-period economic growth to concern themselves directly with short-period instability; in any event - apart from the post-Napoleonic war years - the matter was not of major significance in their day and age. Marx came closer to Keynesian concerns but his work was always overlaid with the prejudgement that the downfall of capitalism was inevitable; in his view widespread fluctuations were the result of an incurable malignancy within the capitalist system. Though some neoclassical writers made reference to 'industrial fluctuations' and to the 'inconstancy of employment', they were far more interested in the forces influencing output in particular markets than in those governing the output of the economy as a whole. Moreover, they were persuaded that full employment was the long-run equilibrium position toward which the economy naturally gravitated and their analysis was built on this premiss.Even before his doubts about neo-classical presuppositions had crystallized, Keynes was suspicious of this attitude -'in the long run,' he observed, 'we are all dead'. As his thought took shape in the General Theory, economic analysis was reconstructed to bring short-period aggregative problems to the centre of the stage. The microeconomic questions around which the neo-classical tradition had been organized were pushed toward the wings. At the same time, Keynes was at pains to dissociate his position from the Marxist contention that capitalism was doomed. The essentials of the system, he maintained, could be preserved if reforms were
made in time.
An unregulated capitalism, however, was incompatible with the maintenance of full employment and economic stability.Keynes had moved part way towards this conclusion in the mid-1920s with the recognition that conventional laissez-faire was inadequate to the increasingly complex problems of industrialized societies. But his thought was then still in the mould of Marshallian neo-classicism. The writing of the General Theory in the early 1930s was, as he described it, 'a struggle of escape from habitual modes of thought and expression'3 - a struggle made more difficult because 'I myself held with conviction for many years the theories which I now attack....'4 His professional upbringing had taught him to respect the analytical strengths of the neo-classical theory and alerted him to the sources of its staying power. As an elegant logical structure, it had an unquestioned appeal. Nevertheless, the neo-classical system (which in the General Theory he referred to as 'classical theory') Keynes held to represent 'the way in which we should like our Economy to behave. But to assume that it actually does so is to assume our difficulties away.'5
While Keynes declared war on the aggregative strand of the neo-classical tradition, it was not his objective to re-write neo-classical micro-economics. Apart from expressing reservations about its postulates on the degree of competition and their relevance to the prevailing market structure, he largely by-passed this component of the neoclassical model.
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