The General Theory: a revolution?
The GT constitutes a sea-change in macroeconomic analysis. Keynes demonstrated that unemployment equilibrium was a logical outcome of a macroeconomic system in which decisions are taken by many firms acting independently, all facing uncertain markets.
A revolution in economic method was needed to come to that conclusion, as the prevailing method ruled out any but temporary and self-correcting unemployment. In developing a path-dependent, open-system analysis, Keynes created a theory which reflected reality better than the theories of his predecessors (and most of his successors). There were many possible equilibria, depending on the constraints imposed and, more importantly, policies assumed, and there was no presumption that an actual economy would ever settle into any equilibrium, let alone one in which full employment prevailed.
Monetary factors were allowed their full economic impact, affecting all areas of “real” economic life instead of being confined to determining prices. The “classical dichotomy” between monetary and real factors was abolished and the quantity theory shown to characterize only a very special case.
The GT amounted to a revolution in both economic theory and method. It was an intellectually stunning achievement - so stunning that its path-breaking contributions have either not yet been understood by the majority of economists or have proved unpalatable and been transformed into something else. Whatever the cause, although mainstream textbooks in macroeconomics may claim that their short-run analysis is “Keynesian” or “New Keynesian”, it is easily demonstrated that the theory presented is confined within a neoclassical analytical and methodological framework quite similar to that which Keynes thought he had overturned.
Today, Keynes’s macroeconomic thinking is mainly represented by the national income accounts, which are in use worldwide.