Keynes on the "Nature of Economic Thinking": The Principle of Non-Neutrality of Choice and the Principle of Non-Neutrality of Money - Focus on Economic Theory - John Maynard Keynes

American Journal of Economics and Sociology, The, Oct, 2001 by Giuseppe Fontana

GIUSEPPE FONTANA (*)

ABSTRACT. In the last two decades there has been a flourishing of writings on the methodological approach of Keynes. Whereas broad interpretations of Keynes's work may have a role to play for future economics the main argument of this paper is to propose a return to the theoretical foundations of a truly Keynesian economics. In the main economic writings of Keynes it is possible to discern a body of beliefs, which is (a) consistent in its own terms and (b) susceptible of being used in the explanation of different realities. That body of beliefs is grounded on (1) the principle of non-neutrality of choice and (2) the principle of non-neutrality of money. Both principles were essential parts of the core of Keynes's A Treatise on Money (1930) and The General Theory (1936), and should be used as foundation for future development of Keynesian economics at the methodological as well as at the theoretical level.

I

Introduction

IN THE LAST TWO DECADES there has been a flourishing of writings on the methodological approach of Keynes. (1) One of the main outcomes of that research is the idea that "a continuity between the Treatise's [A Treatise on Probability (l921/1973a)] epistemology and the method of his [Keynes's] economic writings existed" (Carabelli 1988:7). The idea is that Keynes during his career adopted a particular method of investigation based on the close connection between theory and practice.

More precisely, according to Hicks "one has to talk about Keynes's methods, in the plural, since there are so many of them. It is not merely that there were changes of method between his three main books on money--the Tract on Monetary Reform of 1923, the Treatise on Money of 1930, and the General Theory of 1936. Even in the General Theory itself, the main method is a hybrid, a combination of two, which it is useful to distinguish. And there are the beginnings of other methods also" (Hicks 1985:52). It could be more appropriate to say that if Keynes always made a close connection between theory and practice it is also true that Keynes's thought about the form of that connection went on developing throughout his life.

Recently, Harcourt and Sardoni (1994) have restated the same idea arguing that "Keynes's philosophical attitudes meant that in his economics he never liked to stray very far from actual happenings, from concrete situations and the use of language and concepts and practices which were grounded in them" (Harcourt and Sardoni 1994:134). According to these scholars Keynes's method represents the main legacy for the development of modern economics.

Through the accidents of world history, then, Keynes's concerns seem again to have become our concerns. Of course there are still many differences between his time and ours, and it would be naive to say that we can hope to find concrete solutions for all of the problems of today's world in strategies formulated in the nineteen thirties. What we may reasonably hope to learn from Keynes and the interwar period, however, is something about the general nature of a social and economic reasoning that works in a world which power is diffused, but where the many of the problems facing the world ramify across nations and societies. (Davis 1994b:4)

Whereas it is not difficult to agree with those ideas, the danger of a full commitment to such an approach is also evident. Keynesian economics in recent years has been defined as "a way of thinking" (Samuelson). Keynesian economics seems trapped in a vicious circle: in order to propose theoretical advances an appropriate methodology is recommended but the latter can only be put in place as long as there are important developments in the analytical structure. The main shortcoming of that approach is a never-ending debate on the methodological foundation of Keynesian economics. Moreover, the lack of a definite research agenda for the future of Keynesian economics left a vacuum that simplistic proposal filled. For instance, Chase (1998) speaks enthusiastically of a new approach to Keynesian economics in which Keynes's "philosophical and methodological thought, his political and financial endeavors, his artistic interests and intellectual influences not to mention speculation concerning the role of his sexuality ... provide a more secure foundation for a truly Keynesian economics" (Chase 1998:872). (2)

Whereas broader interpretations of Keynes's life-influences and predilections may have a role to play for the future of Keynesian economics the main argument of this paper is to propose a return to the theoretical foundations of a truly Keynesian economics. (3) In the main economic writings of Keynes it is possible to discern a body of beliefs, which is (a) consistent in its own terms and (b) susceptible of being used in the explanation of different realities. That body of beliefs is grounded on (1) the principle of non-neutrality of choice and (2) the principle of non-neutrality of money. Both principles were essential parts of the core of Keynes's A Treatise on Money (1930) and The General Theory of Employment, Interest and Money (1936), and should be used as foundation for future development of Keynesian economics at the methodological as well as at the theoretical level. Keynes used these principles in different ways according to the specific scope of the analysis. As Carabelli remarked, Keynes adopted a theoretical framework "pliable to different objects and to different cognitive contexts" (Carabelli 1988:8). Keynes used different ways to articulate his analysis (4) (Keynes's methods of Hicks) and he built several consistent pictures of modern economies. (5)