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The Brazilian economy entered a deep recession in 2015–2016 and since then has shown a sluggish recovery. In this paper, we offer an interpretation for the slow growth based on Minsky’s financial instability hypothesis and recent literature on financialization and growth. We analyze the balance sheet of large non-financial companies over the period 2012–2019, a period that comprises the positive investment cycle—initiated during the commodities boom which lasted from the second half of the 2000s until 2014—the 2015–2016 recession, and the period preceding the shock of the COVID-19 pandemic. Based on Minsky’s taxonomy of financial profiles, we map a proxy for financial instability at the firm level based on Davis et al. (2019). We also propose an aggregate financial stability index. We conclude that after the 2015–2016 recession, companies have been restructuring their debt profile and adopting a defensive behavior, increasing their liquidity preference. Our analysis supports the interpretation that, even with the sharp fall in domestic real interest rates, the degree of confidence on expectations to recover investment in productive assets is low. This corroborates with the thesis that agents’ decisions do not respond only to supply stimulus, but are guided by expectations of future returns, which fundamentally depend on the performance of aggregate demand. Since 2015, Brazilian economic policy has been driven by fiscal consolidation, which has proven ineffective in increasing economic growth.

This is the peer reviewed version of the following article: Horii, R. & Ono, Y. (2021) Financial crisis and slow recovery with Bayesian learning agents. International Journal of Economic Theory, 1– 29, which has been published in final form at https://doi.org/10.1111/ijet.12322. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited., In a simple continuous-time model where the learning process affects the willingness to hold liquidity, we provide an intuitive explanation of business cycle asymmetry and postcrisis slow recovery. When observing a liquidity shock, individuals rationally increase their subjective probability of re-encountering it. It leads to an upward jump in liquidity preference and a discrete fall in consumption. Conversely, as a period without shocks continues, they gradually decrease the subjective probability, reduce liquidity preference, and increase consumption. The recovery process is particularly slow after many shocks are observed within a short period because people do not easily change their pessimistic view.

Based on comparative empirical evidence for 22 major OECD countries, I argue that country differences in cumulative mortality impacts of SARS-CoV-2 are largely caused by: (1) weaknesses in public health competence by country; (2) pre-existing country-wise variations in structural socio-economic and public health vulnerabilities; and (3) the presence of fiscal constraints. The paper argues that these pre-existing conditions, all favorable to the coronavirus, have been created, and amplified, by four decades of neoliberal macroeconomic policies – in particular by (a) the deadly emphasis on fiscal austerity (which diminished public health capacities, damaged public health and deepened inequalities and vulnerabilities); (b) the obsessive belief of macroeconomists in a trade-off between ‘efficiency’ and ‘equity’, which is mostly used to erroneously justify rampant inequality; (c) the complicit endorsement by mainstream macro of the unchecked power over monetary and fiscal policy-making of global finance and the rentier class; and (d) the unhealthy aversion of mainstream macro (and MMT) to raising taxes, which deceives the public about the necessity to raise taxes to counter the excessive liquidity preference of the rentiers and to realign the interests of finance and of the real economy. The paper concludes by outlining a few lessons for a saner macroeconomics.

If cryptocurrencies are perceived as financial innovations that could disrupt domestic and international financial systems, it becomes imperative for economists to incorporate these virtual currencies into existing money market models. Cryptocurrencies, when fully adopted by the general public, would transmit into the financial system via money demand. Cryptocurrencies serve as money and non-money assets and have no perfect substitute, whereas they are perfect substitutes for M1. Therefore, how much impact would the popularity of cryptocurrencies have on domestic and international capital mobility? To isolate interest rate differentials across countries, the Mundell-Fleming model that assumes a constant interest rate in domestic and world economies was applied. Cryptocurrencies acquired in past periods that are acceptable worldwide would abrogate exchange rate differentials. This study theoretically finds that fiscal and monetary policies would have different impacts on income in economies with high cryptocurrency circulations compared to economies with only M1. Also, there is a critical interest rate where cryptocurrencies would be more attractive to investors than other non-money assets. Moreover, using the Keynesian aggregate income and aggregate expenditure model, without interest and exchange rate differentials, the worldwide use of cryptocurrencies in international trade would unveil the link between the twin deficits and international capital flows.

Purpose: The purpose of the paper is to identify students' attitudes in Poland towards saving and investment and evaluate determinants that influence the probability of accumulating funds and subjective satisfaction of financial results. Design/Methodology/Approach: The analysis was conducted using survey data collected in August 2018. Over 400 questionnaires were collected from Polish students using CAVI method. The structure of the sample corresponds to the target sample of students reported in another research. Statistical methods of analysis are used, i.e., analysis of empirical distribution and its characteristics and correlation measures. Logit regression models for microdata are used to evaluate the impact of factors that determine the probability of saving and investing money. Findings: In the sample, most students were fully aware that savings are important. However, the amount of money they were able to save is not big. Due to the liquidity preference, students typically keep money in ready cash and bank accounts. The factors determining propensity to save, propensity to invest and subjective satisfaction from savings have been specified. Practical Implications: The research results are useful for comparisons with other reports on savings and investment. They are useful for financial institutions policy creation and financial education. Originality/Value: This research's value lies in the original survey prepared under the supervision of a financial institution and applying the advanced econometric methodology., peer-reviewed

The analytical tension in post-Keynesian thought between the theory of endogenous (credit) money and the theory of liquidity preference, brought to our attention by Dow and Dow (1989), can be viewed through the lens of the money view (Mehrling 2013) as a particular case of the balance between the elasticity of payment and the discipline of funding. Further, updating Fullarton’s 1844 “law of reflux” for the modern condition of financial globalization and market- based credit, the same money view lens offers a critical entry point into Tobin’s fateful 1963 intervention “Commercial Banks as Creators of ‘Money’” which established post-war orthodoxy, and also to the challenge offered by so-called Modern Money Theory.

A discussão sobre o papel da moeda na economia e no desenvolvimento regional, só cresce ao longo dos anos. Na literatura muitos autores defendem que a moeda é neutra, mas outros autores baseados na teoria pós-keynesiana, consideram que a não neutralidade da moeda pode ajudar a aumentar ou diminuir a desigualdade no desenvolvimento regional, ou seja, moeda é endógena ao sistema econômico. Portanto, seguindo essa linha, o atual artigo tem como objetivo verificar o grau de preferência pela liquidez dos bancos e do público nos clusters de municípios presentes no estado do Rio de Janeiro. A partir de uma análise multivariada de cluster e baseados na teoria pós-keynesiana, foi possível observar a disparidade no grau de preferência entre os clusters. Em geral, quanto mais desenvolvido é o cluster de municípios, menor é o grau de preferência pela liquidez, seja dos bancos, seja do público, ficando evidente que o centro das regiões tende a concentrar a disponibilidade de crédito dos bancos e da utilização desses créditos por parte do público.

The recent experience during the debt and banking crises in the European Monetary Union (EMU) has demonstrated how important it is to consider liquidity (or rather the lack thereof) in macroeconomics. Similar to the Fed's policy during the US real estate crisis, the ECB took huge efforts to insert liquidity into the banking sector to prevent further financial turmoil, only to find that the transmission mechanism was severely hampered. Strong heterogeneity during the crises accentuated the difficulties of a common monetary policy. The main contribution of this paper is to show that properly measured liquidity contains substantial information on macroeconomic dynamics. Liquidity overcomes two problems of using interest rates (and interest rate spreads) as the main indicator of the monetary and financial side of the economy. First, contrary to the policy rate, they include information on the different impacts of monetary shocks between countries, thereby accounting for heterogeneity in the transmission mechanism and the different states of the banking sector. Second, (growth rates of) liquidity indicators are not subject to the zero lower bound problem and are thus particularly useful when considering samples, such as the recent crisis. We propose a range of liquidity indicators, based on Theil-Tornqvist index number, that are designed to account for measurement problems during times of financial turmoil, when liquidity preference – and thus the price of liquidity – can change quickly. We then study the information content of those variables.

According to Lavoie and Reissl, stock-flow consistent (SFC) modeling with “fully specified” financial sector allows for a better understanding of the dynamics of monetary economies than less detail...

One of the most surprising recent developments in financial markets has been the emergence of negative yields on long-term debt. This development contradicts the notion of the zero lower bound which, until recently, was taken as a given in monetary policy discussions. In this paper, I look at the phenomenon of negative yields through the lens of Keynes's liquidity-preference theory of interest. I review changes to the financial market environment that have led to a shift in the liquidity of government bonds relative to bank deposits, and with this empirical context in place, I argue Keynes's theory is consistent with the phenomenon of negative bond yields. Finally, I consider Keynes's thought in relation to a negative interest-rate policy (NIRP) and argue that while he would be opposed to a NIRP as a temporary expedient, a mildly negative policy rate fits with his long-run vision for a world with a zero risk-free long-term interest rate.

Post Keynesian Economics has shifted away and even renegade from Keynes' original research program, i.e., the Unemployment Equilibrium thesis, endogenous money and liquidity preference determination of interest rate in which money and uncertainty play a fundamental part. This paper attempts to bring back the Keynesian counter-revolution spirit into Post Keynesian Monetary Theory by introducing a Non-Compensatory Disequilibrium Framework (NCDF) that allows structural breaks in budget constraints that lead to a model where Walras’ Law does not hold.

This chapter summarizes the theoretical development in the concept of interest and the essential assertions of the prominent interest theories developed on various conceptions such as productivity, abstinence, labor, exploitation, impatience, lendable funds, liquidity preference, and time preference. It introduces Bohm-Bawerk’s time preference theory of interest in detail by presenting his reason for developing a theory distinct from the existing ones. The significance of Bohm-Bawerk is not only for being considered as the founder of the modern theory of interest. His approach of dealing with the issue by making a distinction between the positive and normative aspects of the problem seems to be crucial in performing a scientific study and preventing the mistakes made in the former interest theories. The chapter also reviews the critiques of Bohm-Bawerk’s theory made by various scholars and the works that are testing the validity of the theory in the current economic system.

[enter AbsIn a recent paper Tunez (2016) has reviewed the validity of Walras’Law for a Monetary Exchange Economy using a Non-Compensatory Disequilibrium Framework (NCDF). This paper will apply the same theoretical Framework to a Monetary Productive Economy with Bonds to demonstrate that, conflicting with Maurer’s (2009) and Patinkin’s (1965) models, general excess supplies might exist, i.e., Keynes’ thesis of Unemployment Equilibrium is hence a valid theoretical possibility as Walras’ Law does not always hold. The paper will also examine the debate between the loanable funds vs liquidity preference theories using the NCDFtract Body]

Sraffa made a number of margin notes in chapter 17 in his copy of the General Theory .Contrary to Joan Robinson’s 1978 claim ,that Sraffa had uncovered logical and mathematical errors in Keynes’s liquidity preference theory of the rate of interest when he generalized his theory in chapter 17,the margin notes made by Sraffa are all erroneous . Sraffa’s margin notes hold only in the very special case where the evidential weight of the evidence,V(a/h) =w ,0≤w≤1,equals 1,so that the evidential weight of the evidence is complete. Sraffa accepted F P Ramsey’s subjectivist theory of probability where Ramsey conflates degree of belief with degree of confidence, since for Ramsey the subjective probability estimate is the degree of confidence. There is no uncertainty in Ramsey’s theory because all probability estimates are additive and linear.This means that there is no vagueness or ambiguity ,so that there is no need for a second decision variable called the evidential weight of the argument .Sraffa is unable to deal with uncertainty in his original own rate construction.Sraffa is dealing only with risk . However, Keynes’s analysis in chapter 17 is based on the existence of uncertainty and lack of confidence in future price and profit expectations .It was simply impossible for Sraffa to grasp the fact that Keynes had generalized Sraffa’s approach by specifically linking the demand for money to uncertainty about the future rate of interest . Sraffa’s critique assumes that there is no uncertainty about future expectations concerning prices or profits.In this very special case ,there is no impact on the demand for money and M2 balances are equal to 0.Keynes’s liquidity premium ,l, drops out of the analysis in chapter 17 completely. One is then left with Sraffa’s original results concerning the ratio of present to future prices. Sraffa’s generally erroneous comments concerning Keynes’s analysis follow from his own ignorance of the theory of the evidential weight of the argument that was contained in chapters 6 and 26 of the A Treatise on Probability ,as well as his refusal to accept Keynes’s definition of uncertainty on page 148 of the General Theory in footnote one defining uncertainty as an inverse function of the evidential weight of the argument,a variable that can’t exist in Ramsey’s subjectivist theory due to his acceptance that all probabilities are additive ,so that the mathematical probability calculus is always applicable .

We argue that even in the case that banks are able to maintain the interest rate at a level that they want (the most "radical" version of the theory of endogenous money), liquidity preference continues to constitute a key element when determining the real equilibrium of the economy. In a framework of endogenous money, the Keynesian theory of liquidity preference still constitutes a theory that determines level of income. Financial markets matter, and the Kaldorian idea that liquidity preference "ceases to be of any importance" can only be defended under a set of very restrictive assumptions. JEL: E12; E40; E44; E51. Resumen En este artículo argumentamos que incluso en el caso de que los bancos puedan mantener la tasa de interés al nivel que deseen (la versión más "radical" de la teoría de dinero endógeno), la preferencia por liquidez sigue constituyendo un elemento clave en la determinación del equilibrio real de la economía. En un marco de dinero endógeno, la teoría keynesiana de preferencia por la liquidez es aún una teoría para la determinación del nivel de ingreso. Los mercados financieros importan, y la idea kaldoriana sobre la relevancia de la preferencia por la liquidez solo puede defenderse con un conjunto de supuestos muy restrictivos. JEL: E12; E40; E44; E51. RESUMO Neste artigo argumentamos que inclusive em caso de que os bancos possam manter a taxa de juros ao nível esperado (a versão mais "radical" da teoria de dinheiro endógeno), a preferência por liquidez continua constituindo um elemento chave na determinação do equilíbrio real da economia. Em um marco de dinheiro endógeno, a teoria keynesiana de preferência pela liquidez é ainda uma teoria para a determinação do nível de ingresso. Os mercados financeiros importam, a ideia kal-doriana sobre a relevância da preferência pela liquidez só pode defender-se com um conjunto de supostos muito restritivos. JEL: E12; E40; E44; E51.

In modern, sophisticated banking systems, in addition to endogenously creating money, banks have the ability to innovate and stretch constraints on their portfolio to potentially raise profits. They fulfill demand for credit according to their liquidity preference and expectations of profits. On the other hand, the monetary authority influences credit supply by changing the availability of liquid assets compared to other assets through monetary policy instruments. By managing liquidity in the reserves market, central banks modify the price of access to short-term liquidity – the interest rate – and, thereby, cause changes in the yield curve and transform banks’ propensity to expand credit. Even though determining credit supply is a difficult task since it depends on expectations and cannot be calculated in advance, this paper aims to determine a credit supply function for Brazil. Our empirical strategy was to estimate a dynamic panel data model on a large cross-section bank-level dataset from the Brazilian Central Bank using balance sheet information from the fifty largest banks operating in the country from 1999 to 2016. Credit outstanding was matched with time-varying indicators that were prepared using data from banks’ portfolios and then combined with macroeconomic variables. We use a Post-Keynesian framework to analyze the relation between credit supply and the balance sheet composition of banks. Our findings suggest that variations in banks’ liquidity preference which are reflected on their changes in flexibility and leverage indicators have a significant impact on credit supply in Brazil. JEL codes: E51, E52, E47 Dans les systèmes bancaires modernes et sophistiqués, en plus de créer de la monnaie de forme endogène, les banques ont la capacité d’innover et d’étirer les contraintes sur leur portefeuille et d’augmenter le profit potentiel. Ils satisfont la demande de crédit en fonction de leur préférence de liquidité et des attentes de gains futurs. L’autorité monétaire, à son tour, influence l’offre de crédit en modifiant la disponibilité des actifs liquides par rapport à toutes les autres classes d’actifs par le biais de ses instruments de politique monétaire. En gérant la liquidité sur le marché des réserves, la banque centrale peut modifier le prix d’accès à la liquidité à court terme - le taux d’intérêt - et, de ce fait, provoquer des changements dans la courbe de rendement et transformer la propension des banques à accroître le crédit. Cet article vise à déterminer une fonction d’offre de crédit pour le Brésil, bien qu’il s’agisse d’une tâche intrinsèquement difficile, car l’offre de crédit dépend des attentes et n’est pas calculée à l’avance. Notre stratégie empirique consistait à estimer un modèle de données de panel dynamique sur un grand ensemble de données transversales de la Banque centrale du Brésil au bilan des cinquante plus grandes banques opérant dans le pays de 1999 à 2016. Le crédit total a été jumelé à des indicateurs variant dans le temps qui ont été préparés à partir des données du portefeuille des banques, puis combinés avec des variables macroéconomiques. Nous utilisons un cadre Post-Keynésien pour analyser la relation entre l’offre de crédit et la composition du bilan des banques. Nos résultats suggèrent que les changements dans la préférence de liquidité des banques qui se reflètent dans les ajustements qu’ils apportent aux indicateurs de flexibilité et de l’effet de levier ont un impact significatif sur l’offre de crédit au Brésil.

One of the most overlooked and least analyzed elements of Mises’ economic theory is his concept of originary interest. This is distinct from the theory of the natural rate of interest proposed by Wicksell and developed by subsequent economists. The latter concept is determined endogenously by market processes and tends to manifest itself under hypothetical equilibrium conditions. For Mises, the concept of originary interest is exogenous to the economy. Neither does it result from government intervention. It determines economic conditions, rather than being determined by them. Its provenance is never completely clear from Mises’ work, although Mises seems to think that it has an innate quality. It is suggested in this paper that the basis of originary interest is in an evolutionary adaptation of the human species. There is a discussion as to why this might arise and the role originary interest might play in aiding evolutionary development. Comparison is then made between Mises’ concept of originary interest and Keynes’ theory of liquidity preference with which it shares many similarities. Finally, the theoretical structure presented is utilized to suggest approaches to the problem of consilience of economics and the social sciences in general with other disciplines.

Keynes‘s first paragraph in his letter of the 9th of November,1936, is the following two lines: “I beg you not to publish. For your argument as it stands is most certainly nonsense.” Anyone who reads this correspondence will soon realize that it was simply impossible for Joan Robinson to have aided or contributed in any way to the development of the General Theory between 1930 and February, 1936, given the nature of these exchanges. Keynes is very specific as regards his Liquidity preference theory of the rate of interest: “You do not seem to realize that if you are right the whole theory of liquidity preference has to be thrown overboard…Such a conclusion cannot be brought in as a tacit inference from an unargued obiter dictum,”(Keynes,1936,CWJMK,Vol.14, p.146). Over the course of the two month correspondence from September 8th, 1936 till November 13th 1936, Keynes spent a great deal of time and effort trying to correct her many errors about his Liquidity Preference Theory of the Rate of Interest. J. Robinson compounded her original errors by making more additional errors due to her attempt to argue that Keynes was mistaken. Keynes finally realized that J. Robinson simply did not know what she was talking about. R. Skidelsky accused Roy Harrod of covering up certain aspects of Keynes’s life in his 1951 biography of Keynes in order to ”protect” Keynes’s reputation. This is correct, although Skidelsky overlooked Harrod’s additional failure to cover Keynes’s original multiplier-accelerator model of August, 1938 and Keynes’s careful tutoring of Harrod in correspondence, between July and September, 1935, of Keynes’s IS-LM model, which is presented by Keynes formally in the General Theory in chapter 21 in Part IV on pages 298-299. Unfortunately, Skidelsky has done exactly what he condemned R. Harrod of doing in 1951. Skidelsky never covered these exchanges between J M Keynes and Joan Robinson in the period between September and November, 1936 in any published work of his in the 20th or 21st centuries. It is then straightforward to show that other claims related to the General Theory made by Robinson can’t possibly follow ,given her complete and total ignorance of Keynes’s Liquidity preference theory of the rate of interest.

The following is a summary of Keynes’s main contribution in his General Theory. The General Theory traces its initial beginning to December, 1933. J. M. Keynes presented his first public version of his IS -LM model in December,1933 in a lecture to his students at Cambridge University, England. However, Keynes’s IS-LM model went through a number of different versions that incorporated various improvements before the final version was inserted into Section Four of Chapter 21 of the General Theory in February,1936. A second version appeared in 1934 in the first draft of the General Theory where Keynes had replaced his state of the news variable, W, with E, where E represented the confidence a decision maker had in his expectations about future prices and profits. In the third, late 1935 version of his IS-LM model, available from Lorie Tarshis’s student notes, Keynes had incorporated Y into the LM equation. Keynes’s final, fourth version adds an explicit mpc term and Investment multiplier to his consumption function, so that the I=S(IS curve )equation from page 63 of the General Theory is explained in a more complete, mathematical model on pages 114-115 of chapter 10,where C=f(Y) and Y=C+I, and page 137 of chapter 11 of the General Theory ,where I =g(r). Keynes’s LM equation, on page 199,is identical to the third version of his 1935 IS-LM model ,so that M=M1+M2=L1(Y) +L2 (r), where it is obvious that L1(Y) +L2 (r) must equal L. Keynes had removed E, expectations, from his IS-LM model, for two reasons. First, it is not possible to include a third independent variable in any type of two dimensional graph, figure, or diagram, as was used by Keynes on page 181 of the General Theory. Second, it is mathematically incorrect to mix actual or realized variables, like Y, actual aggregate Income and r, with expected or anticipated variables, like D,Z and p, expected price, together in the same equation. Keynes incorporated expectations of future prices, p, and expected profits, P, into a separate ,supporting D-Z model ,which generated an ASC, an aggregate supply curve,that specified a set of expected D values, which represented expected or anticipated Aggregate Income. Only one member of the set of expected D outcomes will match the actual Y value that is explicitly used in the IS-LM model because the D=Z locus( ASC) is continuous and monotonically increasing in N,aggregate employment. Hicks’s IS-LM model is identical to Keynes’s IS-LM model in chapter 21 if we eliminate Keynes’s D-Z model. J. Robinson, due to her extraordinary and extreme mathematical illiteracy ,had absolutely no clue about what Keynes was doing with his IS-LM and D-Z models in chapters 20 and 21 of the General Theory. J. Robinson, aided by R. Kahn, A. Robinson, and R Harrod, started claiming that there was no IS-LM model in the General Theory because complete and total uncertainty of the future made any type of mathematical representation of any possible position of macro equilibrium an impossibility. Keynes discovered Robinson’s complete and total ignorance of his General Theory only in correspondence with her in the September-November, 1936 time period when he concluded that her exposition of his Liquidity Preference theory of the rate of interest in her forthcoming book in 1937 was complete “nonsense” . J. Robinson continued to claim during her entire career that Keynes’s theory of the rate of interest was a function of the interest rate,r, only in spite of Keynes’s explicit correction. Economists, writing on Keynes’s theory of the rate of interest ,have universally overlooked the tedious and time consuming task engaged in by Keynes in his instruction of Harrod about his IS-LM model in the July-August - Septemeber,1935 time period, where Harrod conceded that Keynes had totally reconstructed the neoclassical theory of the rate of interest by showing that the neoclassicals had no LM equation to intersect their poorly developed IS equation. Without an understanding of the Keynes-Harrod correspondence of late 1935, the Keynes Townshend correspondence of 1936-1938 or an understanding of Section 4 of Chapter 21 of the General Theory, economists anchored on Keynes’s mention of J. Robinson’s name in the Preface to the General Theory ,which was used by Robinson to support her claim that she had worked closely with Keynes on the writing of the General Theory,to conclude that Keynes must not have had any IS-LM model in the General Theory because J. Robinson said that such a model conflicted with Keynes’s theory of fundamental uncertainty. This type of defective logical argument can be found in the work of Patinkin, Clower, Leijonhufvud, and all Post Keynesians. Both orthodox and heterodox schools of macro economics studying Keynes unanimously accepted the argument made by Robinson that the existence of complete and total uncertainty of the future made it impossible for Keynes to have created any type of formal mathematical analysis. All that was possible was to talk about macro in a common discourse language like English, using prose and literary exposition. This misbelief among both orthodox and heterodox schools of macroeconomics became self reinforcing as both orthodox and heterodox schools of macroeconomics accepted that any starting point for studying Keynes’s macro contribution had to be based on the fact that there was no IS-LM model in the General Theory, although they conceded that there was a purely literary, English prose discussion, in completely non mathematical terms, presented by Keynes on pp. 246-248 of chapter 18 in the General Theory that would support being put into a mathematical form that would lead to some type of IS-LM model. However, such a model was actually a perversion of what Keynes meant because it allowed neoclassical economists to subvert the true meaning of the Keynesian revolution that Keynes had personally taught to Joan Robinson, along with R. Kahn and A. Robinson, over a period of years. This led to a group think-cognitive dissonance result on the part of the economics profession. All evidence to the contrary that showed that J. Robinson had no idea about the technical details of Keynes’s Liquidity Preference theory of the rate of interest ,that was determined by Keynes’s IS and LM equations, was ignored. This excluded evidence included Keynes’s own step by step ,explicit instruction of Harrod in July-September, 1935 of the mechanics of his IS-LM equations,his complete rejection of J. Robinson’s interpretation of his theory of liquidity preference in November, 1936, and Keynes’s own, explicit IS-LM model on pages 298-299 of the General Theory. This overwhelming evidence gravely challenges economists acceptance of J. Robinson’s claim that Keynes’s mention of her name in the preface of the General Theory meant that J. Robinson was in an excellent position to know exactly what Keynes had to have really meant even if Keynes himself had described her understanding as “nonsense" on November 9th,1936. The fact that J. Robinson could not have possibly understood Keynes’s General Theory models ,due to her own extreme, mathematical illiteracy, was also ignored.

Keynes’s very negative reaction to J. Robinson’s misuse of Keynes’s initial, beginning, introductory, preliminary exposition of liquidity preference in chapter 13 of the General Theory is explained by the fact that J. Robinson was repeating the same identical error made by R. Hawtrey, D. Robertson, and H. Henderson, which was to simply ignore Keynes’s M=L(r,Y) analyzed by Keynes on p.199-209 of the General Theory and incorporated on page 298 as part of his formal IS-LM(LP) model presented on pp. 298-299 in chapter 21 in Part IV of the General Theory. Instead, she used M=L( r) and/or M=L2(r). It is impossible to present an analysis of Keynes’s theory of liquidity preference unless (Y,r) space is used. Nowhere in Robinson’s 1935 comments on the final draft of the General Theory, sent to her by Keynes for review and comment, is there the slightest criticism/mention/discussion/query of a conflict between the two functions M=L( r ) and M=L( r,Y). Keynes had made it clear in his exposition in chapter 15 of the General Theory that the exposition in chapter 13 was the alpha, while the exposition in chapter 15 was the omega, with Keynes’s analysis on pp. 179-182 being the equivalent material he used in his tutoring of R. Harrod in the July -September, 1935 time period, after which Harrod acknowledged to Keynes in his letter of August 30th,1935, that the I=S equilibrium was simply a single, downwardly sloping line in (r,Y) space that intersected NOTHING, so that Keynes’s LM curve, M=L(r,Y), was absolutely required for an equilibrium to exist in (r,Y) space. Harrod was very clear. In this letter Harrod credited Keynes with making a fundamental, 'radical reconstitution’ of the theory of the rate of interest. Keynes now realized that Robinson had NEVER EVER understood what he had done in the General Theory, since the M=L(r ) curve could, at best, only be “interpreted “as a single, upward sloping line in (r,Y) space. Robinson’s misinterpretation is repeated in all heterodox, Post Keynesian and Institutionalist discussions such as Tily, who is a good example of the faithful continuing to put forth Robinson’s erroneous claims about Keynes’s theory of the rate of interest being a purely monetary one and as being what Keynes meant in the General Theory.

Keynes discovered in correspondence with Joan Robinson in the September-October-November, 1936 time period that she did not have the technical knowledge of economics or mathematics that was needed in order to be able to grasp and understand his General Theory, which revolved around his Liquidity Preference theory of the rate of interest. Joan Robinson could understand simple constructs like q = f(p), M=L(r) , I=f(r) or if Y=C +I and Y= C+S, then I=S. However, she could not follow Keynes’s liquidity preference equation on page 199, that M=M1+M2=L1 (r)+L2 (Y)=L, the logical theory of the multiplier on pages 122-123 or the preliminary mathematical presentations on pages 114-115, 137, the definition of uncertainty as an inverse function of the weight of the argument from chapter 6 of the A Treatise on Probability, or the Appendix to chapter 19, chapter 20, or chapter 21 of the General Theory. Joan Robinson repeatedly claimed that because she knew no mathematics, she had to think for herself. However, this claim simply ignores the fact that mathematics or logic is an aid that helps one to think for oneself. In order to avoid questions about Keynes’s D-Z or IS-LM models, she created an “interpretation“ of Keynes that involved a complete misinterpretation of Keynes’s views on uncertainty, so that uncertainty became a state of complete and total uncertainty of the future that meant that no mathematical or statistical modeling was possible. Since it was impossible to mathematically define equations, equilibrium was impossible so that no quantitative, determinate, numerical, equilibrium answer was possible for any system of simultaneous equations concerning the macro economy.The best one could do was to do a ceteris paribus, partial equilibrium, Marshallian approach. G L S Shackle used these ideas from Joan Robinson to create his own approach to decision making based on a Knowledge, Unknowledge-Certainty, Uncertainty dual ,binary concept that was an all or nothing approach. Either there was a situation of complete certainty, which was knowledge or there was a situation of no knowledge or complete uncertainty. This completely rejects Keynes’s logical construct of the weight of the argument and the existence of probable knowledge, so that both Robinson and Shackle, as well as all heterodox schools of thought, completely rejected Keynes’s own definition of uncertainty that he provided on page 148 in footnote 1 in chapter 12 of the General Theory. Contrary to Keynes ,probability was not the guide to life for Robinson simply because no probabilities existed because there was no probable knowledge of the future.

Keynes ‘s first paragraph in his letter of the 9th of November, 1936, to Joan Robinson is the following two lines: “I beg you not to publish. For your argument as it stands is most certainly nonsense.” Anyone who reads this correspondence will soon realize that it was simply impossible for Joan Robinson to have aided or contributed in any way to the development of the General Theory between 1930 and February, 1936, given the nature of these exchanges. Keynes is very specific as regards his Liquidity preference theory of the rate of interest: “You do not seem to realize that if you are right the whole theory of liquidity preference has to be thrown overboard…Such a conclusion cannot be brought in as a tacit inference from an unargued obiter dictum.” Given this clear and unambiguous statement by Keynes, how is it possible for joan Robinson to claim that she knows what Keynes was doing in the General Theory In 1936, in a reply to an article by H. Neisser, criticizing certain aspects of the Investment multiplier, R. Kahn stated quite frankly that ‘My own ideas were largely derived from Mr. Keynes’. It should come as no surprise that the three article exchange between Neisser and Kahn in 1936 was never mentioned by J. Robinson in any of her published work in her lifetime. The reason that it was never mentioned is because Kahn’s statement directly conflicts with and undermines the claims made about the history of the development of the multiplier by Robinson. It is interesting that, in her discussions of uncertainty in this paper, there is no mention made of Keynes’s clear-cut definition of Uncertainty as a Function of the Weight of the Argument on pages 148 and 240 of the General Theory. Robinson never supplied any definition of uncertainty in her article. Even more interesting is J. Robinson’s comments in 1972 that demonstrate a complete and total failure on her part to recognize Keynes’s concept of multiple equilibria in a macro model that has absolutely nothing to do with Marshallian partial equilibrium approach, as well as her complete and total failure to absorb Keynes’s IS-LM model in chapter 21 in Part IV on pp. 298-299 of the General Theory that was built on the foundation of chapter 20’s mathematical representation of the theory of effective demand using the D-Z model. Keynes’s General Theory is not about a single D function and a single Z function, but an entire set of such functions, only one of which will specify an actual amount of aggregate effective demand, Y, which ,when combined with r, the actual long run nominal rate of interest, specifies the (r, Y)space for the use of the IS and LM model.

This paper relates Keynes’s discussions of money, the state theory of money, financial markets, investors’ expectations, uncertainty, and liquidity preference to the dynamics of government bond yields for countries with monetary sovereignty. Keynes argued that the central bank can influence the long-term interest rate on government bonds and the shape of the yield curve mainly through the short-term interest rate. Investors’ psychology, herding behavior in financial markets, and uncertainty about the future reinforce the effects of the short-term interest rate and the central bank’s monetary policy actions on the long-term interest rate. Several recent empirical studies that examine the dynamics of government bond yields substantiate the Keynesian perspective that the long-term interest rate responds markedly to the short-term interest rate. These empirical studies not only vindicate the Keynesian perspective but also have relevance for macroeconomic theory and policy.

In the first volume of his biography of Keynes(1983),R. Skidelsky showed that R.Harrod,in 1951 in his biography on Keynes, had deliberately omitted relevant evidence about the life of J M Keynes,such as his gay sexual life up until 1921 and his conscientious objector status during WW I.Skidelsky(1983,pp.xv-xxviii) showed how Harrod had sought to give a misleading account of Keynes’s life by the deliberate omission of materials and selective quotations taken from Keynes’s letters of correspondence (1983,p.xxiii) that Harrod believed would bias readers against Keynes’s 1936 General Theory. Unfortunately, R.Skidelsky has done exactly the same thing in the second volume of his three volume biography of Keynes as Harrod had done in 1951.Skidelsky has deliberately omitted relevant evidence regarding the roles played by Joan Robinson and Richard Kahn during the years Keynes was writing the General Theory and defending it against the mainstream neoclassical school of economics in the years from 1930 to 1937. Skidelsky accepted Joan Robinson’s claims that (a) there were all kinds of gaping holes, gaps, and serious flaws in Keynes’s General Theory and that (b) Richard Kahn invented, developed and explained the multiplier concept to Keynes. This allowed Keynes to write the General Theory. Therefore, without Kahn’s personal instruction of Keynes , whereby Kahn was able to help Keynes with mathematical analysis which Keynes supposedly did not really understand, there would have been no General Theory written by Keynes. Skidelsky deliberately omitted the September through November,1936, correspondence contained in Volume 14 of the Collected Writings of John Maynard Keynes on pp.134-148 between Keynes and Robinson that showed a reader that Joan Robinson not only had no idea about what Keynes’s liquidity preference theory of the rate of interest involved ,but that the comments in her proposed book on liquidity preference, published in 1937, were nothing more than “nonsense". All of her comments on liquidity preference were withdrawn before her book was published. Skidelsky deliberately omitted the 1936 exchanges between Hans Niesser and Richard Kahn over the theory of the multiplier because it contains an incredible, startling admission on Kahn’s part,which was that Kahn’s ideas about the multiplier came directly from Keynes. Kahn had never explained the multiplier concept to Keynes and Keynes’s mathematics was not rusty. Keynes had developed and applied the multiplier some 10 and 2 years, respectively, before Kahn’s June, 1931 paper was published in the Economic Journal. Skidelsky deliberately omitted any mention of F. Y. Edgeworth’s two reviews of Keynes’s A Treatise on Probability because Edgeworth’s two reviews directly challenge and contradict the claims made by Frank Ramsey in his 1922 and 1926 reviews .Edgeworth clearly identifies Keynes’s theory of probability as an interval valued theory that is not mysterious at all, identifies the importance of Keynes’s finite probabilities in Part III of the A Treatise on Probability on analogy ,identifies the possible importance of Keynes’s conventional coefficient of weight and risk, c , in Part IV, and acknowledges Keynes’s development of a method, based on Chebyshev’s Inequality, of establishing a lower bound on risk for decision makers in Part V. Any reader, who is familiar with Edgeworth’s two reviews of Keynes’s A Treatise on Probability,which contain no mention of any of Ramsey’s claims, would have grave and serious doubts about Skidelsky’s claim that the boy genius had demolished Keynes’s theory in a 1 hour presentation made in 1925. Skidelsky’s deliberate omission of this relevant evidence is due to his attempt to support Joan Robinson’s claims about gap and holes in Keynes’s General Theory that needed to be filled so as to complete the Keynesian revolution,where Joan Robinson’s claims would represent the “true” legacy of the so called ”unfinished “ Keynesian Revolution.How a mathematically illiterate like Joan Robinson was able to detect gaping holes is unclear.What is very clear is Robinson’s complete and total failure to grasp the D-Z model of chapter 20, which underlies the IS-LM model of chapter 21, as well as Keynes’s multiple equilibria as specified by Keynes’s Aggregate Supply Curve.

This paper discusses the role of austerity policies in the long-run path of the economy, from a Post Keynesian perspective. Our starting points are the role of aggregate demand to determine output in the short and long run and the importance of fiscal policy as a tool for demand stabilization. As main theoretical elements, the paper uses the concept of corridor of stability, adapted by Cardim de Carvalho (2016), and Keynes’s model of shifting equilibrium, as presented by Kregel (1976). We argue that adverse output shocks, followed by contractionary policies that prolong the recession, have an impact on the propensity to consume, liquidity preference, and the marginal efficiency of capital, and thus define a new growth trend for the economy. Not only the depth but also the length of the recession matters if the system is to absorb shocks and return to its previous growth trend. As a result of long recessions, a new trend may arise and be acknowledged as “normal”, thus defining a new corridor of stability. RESUMO Este artigo procura discutir os efeitos de políticas de austeridade fiscal sobre a trajetória da economia no longo prazo a partir de uma perspectiva pós-keynesiana. Toma como pontos de partida o papel da demanda agregada na determinação do produto no curto e longo prazo e a importância da política fiscal como instrumento de estabilização do produto. O artigo utiliza como elementos teóricos o conceito de corredor de estabilidade adaptado por Cardim de Carvalho (2016) e o modelo de equilíbrio móvel de Keynes, tal como apresentado por Kregel (1976). Argumenta-se que choques adversos sobre o produto, seguidos de políticas restritivas que prolongam a recessão, impactam a propensão a consumir, a preferência pela liquidez e a eficiência marginal do capital, gerando uma nova trajetória de longo prazo para a economia. Não apenas a profundidade da crise, mas também sua duração importa para a possibilidade de o sistema absorver os choques e retornar à sua trajetória anterior de crescimento. Recessões longas levam a uma nova trajetória reconhecida como “normal”, em torno da qual um novo corredor de estabilidade se estabelece.

This study analytically specifies the residual cash flow stream that real capital embodies. The specification separates debt cash flows from equity and obtains an equilibrium condition equating marginal physical product and real user cost of capital. Analysis of the user cost specification reveals that the equilibrium interest rate is an increasing function of the debt contract's loan-to-value ratio and average period of debt. The basic reason why the interest rate increases with average period is this: the equity financing rate exceeds the interest rate, a lengthening debt average period reduces to equity the discounted cost of debt, the financing rate increases to re-establish equilibrium. The “embodied equity” hypothesis advanced herein joins the expectations hypothesis, the liquidity preference hypothesis, and the market segmentation hypothesis as a fundamental explanation for the upward slope on the yield curve.

Joan Robinson was the first Bastard Keynesian. There is no “…perhaps…”(Aslanbeigui & Oakes, 2009, p.219) at all involved in that conclusion. The conflict between J M Keynes and J. Robinson was fundamental and basic. Keynes did not believe that his models and theories were true, since no theory or model can be true, given that models and theories are, at best, approximations of reality. Any scientist, either physical, life, behavioral or social, who believes that his theories and models are true, is a pseudo scientist at best and probably holds anti scientific views. This characterization is especially apropos when considering orthodox and heterodox economists, who believe that their models and theories are true. Keynes believed that his models (multiplier, D-Z, IS-LM (LP), interval valued probability, inexact measurement, weight of the argument) were better, more reliable, more general and more useful than the Classical (excluding Adam Smith, who was never a classical economist) and Neoclassical models and theories because they allowed one to explain far more about what was actually happening in the real world (reality). Robinson, on the other hand, did not understand what models and theories are, since she thought that equilibrium models that conflicted with history had to be false. For Keynes, models and theories are not true and false. Some are better than others. For Robinson, models are either true or false, in much the same way that rational expectationists believe that their hypothesis is true: This was not Robinson’s conception of The General Theory. Unlike other work in economics, it should be read sub species aeternitatis. Keynes had discovered a body of economic truths that could be applied to resolve economic problems and provide the basis for a new pedagogy. Robinson had no doubts about what these truths were and how they should be understood. Doubts were inconsistent with her agenda. They would forestall her plan to indoctrinate beginning students, “uncontaminated” by training in economics. They would also compromise her own Keynesian research program.... These uncertainties dictated a commitment to the solidity of The General Theory. As regards fundamentals, Robinson wrote confidently that “we know near enough where we are” (in Keynes 1973b, 149). Confirmation of basic Keynesian truths did not depend on the controversy produced by a general conflagration in economics. These truths were revealed hermetically through personal contact with the master and his intimates. The qualification for understanding The General Theory was not participation in a disciplinary dialogue but membership in a charismatic (sic) set of the chosen, the privileged experience of being one of the Cambridge illuminati—“we happy few in Cambridge . . . we and Maynard,” as Robert Solow characterized the gnostic ethos of Keynes disciples…” (Aslanbeigui & Oakes, 2009, pp.224-225). Of course, Keynes NEVER believed at any time in his life that he had discovered “… a body of economic truths”. Robinson was not a follower of Keynes. Joan Robinson was committed to setting up an approach to economics that Keynes totally rejected during his lifetime. Due to her extreme mathematical illiteracy, major portions of the General Theory had to be jettisoned and replaced with other substitutes which she could defend. Robinson decided to make the claim that she had worked carefully with Keynes in the writing of the General Theory and that only she knew exactly what he meant-which was her concept of fundamental uncertainty. Both Orthodox and Heterodox economists fell for this rationale. This allowed them to skip Keynes’s direct link between uncertainty and the evidential weight of the argument as contained in chapters 6 and 26 in the A Treatise on Probability, and the connection between uncertainty, confidence and the liquidity preference theory of the rate of interest that are clearly displayed in the Keynes-Townshend correspondence of 1937-1938. Keynes’s heavy emphasis on pp.148 and 240 to Townshend represents a complete and total rejection of Robinson’s talk about “fundamental uncertainty”. Robinson jettisoned the investment multiplier, the D-Z model, the IS-LM model, the page 148 definition of uncertainty as an inverse function of the evidential weight of the argument, the concept of equilibrium, and liquidity preference theory of the rate of interest, about which she was completely ignorant. In its place, she created her own definition of uncertainty that she claimed had come from Keynes’s 1937 QJE article. This definition is called fundamental uncertainty. It was developed by G L S Shackle. According to Shackle and Robinson, there was a complete lack of any knowledge of any part of the future, be it either the immediate, near, far or distant future. Therefore, Keynes’s weight of the argument definition of uncertainty on p.148(p.240) is eliminated. With no relevant partial knowledge or evidence, equilibrium could not exist in such a future. There was no way that any use of formal mathematics or probability or statistics could specify any equations. She claimed that Keynes had made actual history the main topic of discussion in the General Theory, so that no equilibrium analysis was possible. J. Robinson confused the use of equilibrium analysis, which is a useful model, with actual reality. This error was how many unsophisticated neoclassical economists viewed their work. However, this was not how Keynes viewed the concept od equilibrium. It was simply a useful model. She replaced Keynes’s IS-LM theory of interest rate determination with Keynes’s preliminary, beginning, introductory, initial equation from chapter 13 on page 168 of the General Theory. Keynes’s theory of the rate of interest became a purely monetary one. Most importantly, she eliminated the appendix to chapter 19 of the General Theory, since it showed that Pigou‘s model was missing a multiplier, D-Z model, and IS-LM model. I am unaware of any orthodox or heterodox economist who does not accept the Joan Robinson version of the General Theory. This intellectual failure is usually defended with the comment that “Well, didn’t Keynes himself thank J. Robinson for her help in writing the General Theory in the preface?” Keynes’s own annihilating and obliterating rejection of the intellectual mess that J. Robinson had made of his theory of liquidity preference on pp.134-148 in Volume 14 of Keynes’s CWJMK should have alerted economists that Robinson did not know what she was talking about. Unfortunately, these exchanges have been deliberately covered up by heterodox economists and have never been cited by any orthodox economists.

Joan Robinson, first with the aid of GLS Shackle, and then with the help of R. Skidelsky, attempted to convince academics, after Keynes had died in 1946, that Keynes had made major changes in his ideas on uncertainty and expectations in his 1937 QJE article that directly conflicted with what he had stated in the General Theory. The major change that was claimed to have occurred was that Keynes had supposedly changed his definition of uncertainty from being a range of possible different degrees of uncertainty, between the extremes of Complete Knowledge and Complete Uncertainty, to becoming a situation of “fundamental uncertainty” (fundamental uncertainty is also called radical uncertainty, irreducible uncertainty, deep uncertainty, genuine uncertainty, and real uncertainty by heterodox economists), which Skidelsky defines as “When a person cannot …compare the probabilities of two arguments, he may, using a terminology drawn from recent discussion, be said to be in a state of radical, or complete, uncertainty.” (Skidelsky, 1992, p.81). Skidelsky’s conclusion makes no sense because comparable probabilities must be exact, precise numerical probabilities a la Frank Ramsey. Of course, what Keynes had actually done, in Part II of the A Treatise on Probability, was to show how interval valued probability, using upper and lower bounds, could be used to deal with incomparable, non measurable, and incommensurable situations, where exact, precise, numerical probabilities could not be specified, by means of what Keynes called approximation and inexact measurement. Keynes NEVER, EVER discussed any such things as fundamental uncertainty anywhere in any publication in his lifetime. What he did discuss on pp.309-315 of chapter 26 of the A Treatise on Probability, was the case of IGNORANCE, which can only occur in the distant or far future (long run), and NOT in the near or immediate future (short run). His discussion in the A Treatise on Probability of ignorance is by far the most detailed and specific discussion of the impact of ignorance on decision making ever made by Keynes. Keynes’s discussions in chapter 12 of the General Theory or in the 1937 QJE article provide nothing new or novel and are, at best, small footnotes made to the discussions in the A Treatise on Probability. This, of course, is what Keynes told Townshend in late 1938 in response to Townshend’s five page letter that is contained on pp.289-293 of the CWJMK in Vol. 29 (1979). The goal of Robinson, as well as of Shackle and Skidelsky, was to eliminate any and all connections between the A Treatise on Probability and the General Theory, due to her severe mathematical ineptitude and innumeracy. This is why the exchange between Keynes and Townshend on pp.289-293 in Volume 29 of the CWJMK have been covered up by Robinson, Shackle, and Skidelsky, who cites only the last page of Keynes’s reply on page 294, but not page 293, where Keynes accepts Townshend’s assessment that there was a major and direct connection between Keynes’s liquidity preference theory of the rate of interest in the General Theory and Keynes’s nonnumerical probabilities and weight of the evidence from the General Theory, a connection that Skidelsky had desperately tried to undermine and destroy in his Shacklesque attack on the A Treatise on Probability on pp.60-100 of his 1992 second volume of his biography on Keynes.

The failure of all economists and philosophers in the 20th and 21st centuries to grasp the formal, technical analysis of the 'weight of the arguments' analysis in chapters 6 and 26 of Keynes’s A Treatise on Probability explains why the footnotes on pages 148 and 240 of the General Theory, the importance of which Keynes emphasized to Townshend in 1938, at the exact same time that Keynes was also engaged in a severe critique of Tinbergen’s misapplication of the limiting frequency interpretation of probability to business cycles using a multivariate normal probability distribution, have never been incorporated into Keynes’s theory of effective demand, the D-Z model, which served as the foundation for Keynes’s IS-LM(LP) model on pp .298-299 in Part IV of chapter 21 of the General Theory. Keynes’s certainty equivalence for the expectations embodied in Z=wN +P and D=pO incorporated expectations as a function of uncertainty, where uncertainty is a function of the evidential weight of the argument, w, which ranges from complete knowledge, w=1 to complete ignorance, w=0. This is very similar to A. Greenspan’s 2004 paper in the AER that specified a Continuum that ranged from complete ignorance to complete knowledge. The certainty equivalences for the P variable, expected profits, and the p variable, expected prices, were formalized directly from Keynes’s conventional coefficient,c. Y, realized aggregate income, is a function of the expectational D-Z locus, called by Keynes the aggregate supply curve (ASC). Once a particular Y value is specified, Keynes combined it with the long run nominal rate of interest, r, to specify the IS-LM(LP) model in (Y,r) space. Keynes showed that a severe problem of absolute liquidity preference would show up once the long run nominal rate reached 2% due to lack of confidence and fear of the future. Monetary policy would fail, leaving some type of fiscal policy as the only possible policy alternative in a severe recession or depression. In response to Townshend’s 1937-1938 pleas for guidance concerning the connection between Keynes’s theory of liquidity preference and the A Treatise on Probability’s logical theory of probability Keynes simply reiterated that Townshend needed to reread pages 148 and 240 of the General Theory, given Townshend’s own statement that he had read the A Treatise on Probability. The answer that Townshend never found appears on page 315 of the A Treatise on Probability in chapter 26, which is the mathematical complement and supplement to the initial logical treatment of the V relation provided by Keynes in chapter 6. Only in chapter 26 does Keynes make it clear that V(a/h)=w,0≤w≤1.

On pages 214-220 of their 2009 book, “The Provocative Joan Robinson: The Making of a Cambridge Economist”, Nahid Aslanbeigui and Guy Oakes, in a section titled”, Promoting The General Theory: Essays in the Theory of Employment”, attempt to cover up the nature of the exchanges between Keynes and Joan Robinson over Keynes’s Liquidity Preference Theory of the rate of interest in the time period between September and November,1936. Keynes had demonstrated to Harrod on pp. 526-564 of Volume 14 of the Collected Writings of John Maynard Keynes, in the July – September ,1935 time period, that his liquidity preference theory of the rate of interest had to be analyzed in (Y,r) space using his IS equation and his LM equation on page 199 of chapter 15 of the General Theory.Harrod completely capitulated on this crucial point in his letter of August 30th,1935, admitting that Keynes has succeeded in making a "radical reconstruction” of the classical and neoclassical theories of the rate of interest. In his letter of September 13th, 1935, Keynes told Harrod that he had finally come to understand Keynes’s theory. Unfortunately, from this point on, Harrod sought to sabotage Keynes’s theory of the rate of interest by allying himself with the pseudo -Keynesians, Joan Robinson, Austin Robinson, and Richard Kahn. This was first brought out in 1977 by Terrence Hutchison, who, unfortunately, completely overlooked and underestimated the great depth and breadth of the Pseudo Keynesian attempt to sabotage the General Theory. Pages 214-220 of the Aslanbeigui-Oakes 2009 book is an attempt by the authors to support the Pseudo Keynesian canards, that started to appear as early as 1948, about the IS-LM model being the work of the “Bastard Keynesians” (Hicks,Hansen,Samuelson),who really knew nothing about the General Theory at all.Pace the Pseudo Keynesians, the IS-LM model was originated and worked out by Keynes, as is obvious to anyone reading the nearly forty pages of correspondence between Keynes and Harrod in the July-September period of 1935. However,Keynes’s IS-LM model of chapter 21 is built on the D-Z model of chapter 20. Hicks’s 1937 version of IS-LM is simply Keynes’s IS-LM model in the GT, but without any D-Z model to support it.Keynes’s critique of Pigou’s 1933 The Theory of Unemployment in the appendix to chapter 19 of the GT simply points out that Pigou has no IS-LM model, no D-Z model, and no multiplier. It is truly bizarre that macro-economists unanimously conclude that Keynes used Pigou as strawman. It wasn’t until 1941 that Pigou even understood what the IS-LM model even was. Aslanbeigui -Oakes present a patchwork of very tiny bits and pieces of partial quotes taken from the correspondence in CWJMK, Volume 14, pp. 134-148, which is then cobbled together in a framework which portrays Joan Robinson as having held her own in a theoretical dispute with Keynes. Nowhere will a reader understand that the dispute is over the nature of the construction of the liquidity preference equation itself. Keynes’s liquidity preference function is the LM function from p. 199 of the GT, M=L(Y,r). Joan Robinson’s liquidity preference function comes from the preliminary introduction in chapter 13, where M=L(r).Keynes’s LM function ,M=L(Y,r), has two extreme ranges, which approximates a nearly completely elastic, horizontal range of nearly absolute liquidity preference and a nearly completely inelastic vertical range as discussed by Keynes on pp. 207-208 of the GT. Keynes’s M=L(r), or M=L(r2) according to Robertson and Hawtrey, is a rectangular hyperbola that has NO such ranges as discussed by Keynes on page 201 of the GT. At no time did Robinson express any concerns to Keynes when reading the final draft copy of the General Theory in 1935 about any difficulties/conflicts/ambiguities concerning the initial, introductory presentation of Keynes’s beginning analysis of liquidity preference, as specified by Keynes on pages 165- 168, and Keynes’s final, advanced presentation of liquidity preference on pp. 199-209, where Keynes makes it very clear in the beginning discussion of Part IV of chapter 15 on p. 208 and in footnote two on p. 209 that it is in chapter 21 that Keynes is going to put everything together. Keynes finally realized at the end of his correspondence with Robinson that she was completely confused and was using the M=L(r) function, where it is impossible to formulate an IS-LM model, while he was using M=L(Y,r). It is at this point where Keynes tells Robinson that her work is "nonsense” and that it represents a complete rejection of his liquidity preference theory of the rate of interest. Nowhere on pp. 214-220 of Aslanbeigui & Oakes (2009) is there any hint of Keynes’s complete rejection of Robinson’s interpretation of the theory of liquidity preference. The reader is lead to believe that However, Robinson’s abstract formalism seemed to transgress even these permissive limits. Because it detached economics from economic reality, making any attempt to develop policy a theoretically arbitrary undertaking, the Robinsonian analytical economics of her Essays was opposed to Keynes’s conception of economic theory and its aims. Nevertheless, Keynes’s objections remained marginal, and Robinson was able to “become a Keynesian,” believing in her fidelity to his intentions and promoting The General Theory to the economics profession with remarkable success.

The appointment of a Committee on the Working of the Monetary System in 1957 (Radcliffe Committee) in the UK gave the occasion to debate innovative ideas in the field of monetary policy. Many prominent economists participated in the Committee’s works, which ended with the publication of the Radcliffe Report in 1959. Making an exception to the rule of not mentioning individual contributions, the Radcliffe Report claims to ‘follow Professor Kahn … in insisting upon the structure of interest rates rather than some notion of the “supply of money” as the centrepiece of monetary action’. As we reconstruct in the paper, Kahn based his proposals on a conceptual framework, emphasising the link between inflation, wages and aggregate demand and the importance of combining incomes policy and term-structure control in view of achieving external equilibrium, full employment and price stability. One finding of our research is that Kahn’s recommendations regarding term-structure control—with their relevance to the present day—are best understood in connection with his theory of liquidity preference as presented in Kahn (1954). We also find that the Radcliffe Committee, while espousing Kahn’s policy recommendations, surrounded them with so many caveats as to render them de facto inoperative. As we suggest in our reconstruction, this depends partly on institutional considerations and partly on differences of opinion between Kahn and the Radcliffe Committee regarding monetary policy transmission and the causes of inflation.

It is argued that the debate between “structuralist” and “horizontalist” has long been obscured because of inadequate treatment, in both approaches, of the credit-money supply and of the total mone...

Money is at the center of macroeconomics, which makes understanding the money supply central for macroeconomic theory. This paper presents the Post Keynesian theory of endogenous money supply and shows how it is fundamentally different from the conventional money supply theory. The conventional approach relies on the money multiplier and bank lending is invisible. Post Keynesian theory discards the money multiplier and focuses on bank lending which drives money creation. The paper emphasizes the structuralist version of Post Keynesian theory which retains Keynes’ liquidity preference theory of long term interest rates and also recognizes banks are subject to financial constraints that limit their lending activities. The paper then shows how to derive the LM schedule in an endogenous money economy, which is a necessary prelude to reconstructing the ISLM model. RESUMO A moeda está no centro da macroeconomia e a oferta de moeda é portanto central para a teoria macroeconômica. Este trabalho apresenta a teoria pós-keynesiana da oferta de moeda endógena e mostra como ela é fundamentalmente diferente da teoria da oferta de moeda convencional. A abordagem convencional se baseia no multiplicador da moeda, e o crédito bancário permanece invisível. O artigo enfatiza a versão estruturalista da teoria pós-keynesiana que mantém a teoria de Keynes da preferência pela liquidez das taxas de juro de longo prazo e também reconhece que os bancos estão sujeitos a restrições financeiras que limitam suas atividades de empréstimo. O documento, em seguida, mostra como derivar o cronograma LM em uma economia monetária endógena, que é um prelúdio necessário para reconstruir o modelo ISLM.

We present a simple stock-flow consistent (SFC) model to discuss some recent claims made by Angel Asensio in a paper published in this journal regarding the relationship between endogenous money theory and the liquidity preference theory of the rate of interest. We incorporate Asensio’s assumptions as far as possible and use simulation experiments to investigate his arguments regarding the presence of a crowding-out effect, the relationship between interest rates and credit demand, and the ability of the central bank to steer interest rates through varying the stock of money. We show that in a fully-specified SFC model, some of Asensio’s conclusions are not generally valid (most importantly, the presence of a crowding-out effect is ambiguous), and that in any case, his use of a non-SFC framework leads him to leave aside important mechanisms which can contribute to a better understanding of the behavior of interest rates. More generally, this paper once more demonstrates the utility of the SFC approach in research on monetary economics.

The tremendous attraction and allure of Bentham’s original rational, utility maximizing, calculator model, which Bentham wrote out in plain English so as to capture as large an audience as possible, to economists has been greatly underestimated by the opponents of the ‘Homo Economicus’ model, which was the creation of Jeremy Bentham in 1787, the same year that he launched his attacks on both Adam Smith’s The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776). Benthamite Utilitarian ethics allows a practitioner to appear to be a hard scientist because he/she will be using a lot of equations and numbers, what can be called mathematical benefit – cost analysis, in his/her argument, as opposed to the user of duty ethics or virtue ethics, who will not be using any such mathematical approach. Bentham‘s shrewd, in depth understanding and grasp of the desire for approbation, recognition, and applause on the part of economists, who wanted to be held in the same regard as physicists, leads directly to the neoclassical economics of Max U, which is simply a mathematical translation of Bentham’s already completely worked out concept of a rational calculator, adding marginal utility and diminishing marginal utility to utility maximization. New neoclassical economists then added the rational expectations-real business cycle-Dynamic stochastic General Equilibrium approach, based on the Normal and Log Normal probability distributions, which extends Bentham’s basic static pendulum-oscillation, external, exogenous shock model to intertemporal analysis. Bentham recognized that Smith’s emphasis on an inexact, interval valued, imprecise approach to probability, due to the fact of uncertain evidence (1776,pp.105-113,228-245,419-423,714), had to be undermined if his utilitarian ethics approach, based on precise and exact utility maximization, was to succeed in replacing Smith’s Virtue ethics approach. Bentham similarly recognized that he had to attack and neutralize Smith’s emphasis on the internal, endogenous threat to the macro economy that came from a certain segment of the upper income class that Smith labelled as prodigals, imprudent risk takers and projectors, in order to replace Smith’s virtue ethics emphasis on the virtues of prudence and temperance, which directly conflicted with Bentham’s emphasis on utility maximization and claim that the love of money was an insatiable desire of all men. The virtues of prudence and temperance require the complete total rejection of any insatiability assumption. J. M Keynes, following Smith’s approach, put forth a nearly identical version of Smith’s original inexact approach to measurement that was based on Boole’s upper – lower probabilities approach. Keynes’s inexact approach to probability in Part II of the A Treatise on Probability, and statistics in part V, which he used in the General Theory as the foundation for his liquidity preference theory of the rate of Interest, which he called approximation in chapter 4 of the General Theory, directly challenged the neoclassical followers of Bentham (Jevons, Marshall, Pareto, Cournot, Walras, Frisch, Tinbergen), who relied on an exact, precise approach to probability and statistics. Killing ‘Homo Economicus’ (Jeremy Bentham) can only be accomplished by adopting the Smith- Keynes inexact approach to measurement in order to challenge the Classical-Neo Classical-New Neo Classical exact approach to measurement. Max U collapses if the probabilities are not precise and exact, so that they sum to one, where the whole is the linear, additive sum of all of the individual parts. Currently, there is no credible, intellectual threat from any heterodox school of economics to Bentham, a genius with an IQ estimated to be in the 180-200 range, who could be compared to Lord Sauron of Mordor in the Lord of the Rings Trilogy.

Economists who have been writing on Keynes’s General Theory since 1936 have been unable to understand, grasp or comprehend Keynes’s clear statements in chapter 21 of the General Theory that ”… if we have all the facts before us, we shall have enough simultaneous equations to give us a determinate result” on p.299 of the General Theory and/or Keynes’s statement that “the quantitative effect could be derived from the three elements” on page 298 of the General Theory. This failure to grasp that Keynes is analyzing his IS-LM(LP) model in chapter 21,as he said he would do in greater detail than he did in section 4 of Chapter 15 in a footnote on page 209, has led to the false conclusion for the last 81 years that there was no IS-LM(LP) analysis provided by Keynes in the General Theory, when, in fact, this analysis, which is central to the entire General Theory, is provided in explicit fashion. The question of why no economist in the 20th or 21st century ,who has written on Keynes’s General Theory, has demonstrated any inkling about what Keynes was doing in chapter 21 of the General Theory, requires an analysis involving cognitive dissonance, group think, and the Benthamite Utilitarian orientation of the economics profession. Harrod’s clear admission, in his letter to Keynes of August 30th, 1935, that Keynes had incorporated his LM equation, missing from classical and neoclassical theories of the rate of interest, as specified on page 199 of the General Theory, to create a complete theory of the rate of interest, requires a complete revision of the history of economic thought regarding Keynes and the General Theory. Keynes’s discovery was a major theoretical achievement because Keynes had demonstrated to Harrod in his letter of August 27th that the classical and Neoclassical theory was simply a single downward sloping IS curve in (Y,R) space that intersected nothing. Keynes, exhibiting great patience and care with Harrod in their correspondence of 1935, gradually walked Harrod through the construction of Keynes’s IS-LM(LP) model .It is in Keynes’s letter of August 27th, 1935, where Keynes demonstrated to Harrod in a post script that the classical and neoclassical theory of the rate of interest was indeterminate because there was only a single , downward sloping IS curve in Keynes’s (r,Y) space. Harrod showed that he had finally understood the IS-LM model in his letter to Keynes of August 30th,1935, when he acknowledged that Keynes had made a major contribution and had reconstituted the theory of the rate of interest by having discovered the missing LM equation that made the previous theory determinate: “…has to be determined by some new equation not provided for in the classical system. Thus the way is clear for a radical reconstruction. Your new equation is the liquidity preference schedule…”. (Harrod, 1973, CWJMK, Vol. 13,p.550). The point made by Keynes to Harrod in his letter of August 27th, 1935 was carefully incorporated by Keynes in chapter 14 of the General Theory on pages 179-182 concerning the” missing data” provided by the LM equation, in Keynes‘s 1937 QJE article in his reply to Viner about the need to emphasize the completely elastic range of the LM curve, and in his two point summary on pp.222-223 of his conclusion of the 1937 QJE article, in which he identified what was missing from the neoclassical theory of the rate of interest that dealt only with the IS(mec) curve –the LM curve. It is quite impossible for Hicks to have first developed the IS-LM model in his April,1937 Econometrica article, as asserted by Krugman. This erroneous claim also represents the major error in Colin Champion’s recent 2019 work on the General Theory, which is partially based on a mistaken assessment by B. DeLong of the 1937 QJE article that overlooks the first point made in Keynes’s summary on pp.222-223, which was that the fundamental error of classical and neoclassical economics was a mistaken theory of the rate of interest, which was caused by their having overlooked the existence of uncertainty, as opposed to risk, in decision making.

J. M. Keynes made the concept of uncertainty a fundamental part of his rate of the interest theory of liquidity preference. Uncertainty was defined by Keynes on page 148 of the General Theory as an inverse function of the weight of the argument (evidence), where “argument” refers to logical considerations based on propositional logic and evidence refers to an analysis of a mathematical function and the variables that define the function. Thus, Uncertainty, U, is defined as a function of w, so that U =h(w). The weight of the argument was discussed in chapter 6 of the A Treatise on Probability, 1921. The weight of the evidence was discussed in chapter 26 using the term w to measure the completeness of the relevant evidence. Formally, the evidential weight of the evidence, V(a/h), =w, where w is defined on the interval 0 ≤ w ≤ 1. It is only in chapter 26 that Keynes formally defines V(a/h) =w. Keynes’s logical and mathematical constructions are, however, very difficult for economists to grasp, since an economist must first grasp that chapter 6 of the A Treatise on Probability, 1921 provides only a purely, formal, symbolic, logical treatment that only a single handful of economists has been able to grasp correctly since 1921. Keynes does not integrate the concept of weight into a decision theory combined with probability that deals with expectations. Keynes does integrate probability and weight into a decision theory, however, in chapter 26 of the A Treatise on Probability, 1921 Keynes called this specific, simplified version of his overall interval valued approach a “conventional” coefficient of risk and weight. Only F Y Edgeworth and Bertrand Russell recognized the fundamental of chapter 26 of the A Treatise on Probability, 1921. Keynes uses this chapter for the theoretical foundation for his discussions of investment expectations about the mec and D2 in chapters 3, 12, 20 and 21 of the General Theory (1936). Greenspan’s concept of a Continuum allows an economist to bypass Keynes’s correct, but very difficult and involved logical and mathematical discussions of the concept of weight, and simply define a Continuum that exists that spans continuously situations involving a complete lack of knowledge (ignorance) to a situation where the decision maker has complete knowledge and can assign precise, exact numerical probabilities. The decision maker must then decide for himself whether he is facing a situation of uncertainty, a situation of risk, or some mixture of the two. One could assume that in this intermediate situation that risk and uncertainty could be regarded as some linear combination of the two different types of situations. It was Greenspan’s unique ability to be able to apply his intuition and correctly judge what type of uncertainty he was facing at particular time. If one is facing uncertainty, then a proactive approach is required. Greenspan’s understanding of uncertainty was why Greenspan was proactive while Bernanke, who believed that there was no such thing as uncertainty, only risk assessments, was reactive in the face of the mounting uncertainty generated by the Northern Rock failure in Britain in August of 2007.

J M Keynes’s brief and detailed summaries of his original IS-LM(LP) models in Chapters 15 and 21, respectively, of the General Theory were overlooked by the economics profession in the 20th and 21st centuries due to three main reasons. The first reason was the claims made by the Keynesian fundamentalists,Joan Robinson and GL S Shackle, that Keynes’s supposed definition of uncertainty as complete and total ignorance of the future precluded the use of formal mathematical and statistical models of the macro economy. Therefore, any IS-LM model in the General Theory was an impossibility. The second reason was based on the supposed claim ,made by Backhouse,Young, Dimand, and Rubin, that Keynes was an adherent of the Marshallian view of formal mathematical exposition, which supposedly emphasized presenting only verbal chains of exposition that were based on mathematical analysis, which was then removed from the published work. Therefore, although Keynes created earlier versions of IS-LM to work with in 1933,1934, and 1935, Keynes decided to remove his formal IS-LM model by scattering the three components of his IS-LM model throughout the General Theory in 1936. Keynes substituted a strictly verbal, literary, prose analysis in its place. The third reason was based on the claim, made by Hawtrey, Robertson, Robinson, Viner, Hansen and Ahiakpor, that Keynes’s liquidity preference analysis was restricted only to chapter 13 of the General Theory alone ,where the crucial analysis was based on the equation specified on page 168 of the General Theory, M=L(r),so that the demand and supply for money is identical to the demand and supply for liquidity. Keynes’s chapter 15 definition of liquidity preference on p.199 is ignored. Adherents of this view likewise overlooked Keynes’s analysis on pages 207-209 of chapter 15 and pages 298-306 of chapter 21 of the General Theory. All three of these reasons are badly flawed because they all ignore Keynes’s analysis on pages 199, 207-209 of Chapter 15 and pages 298-306 of chapter 21 of the General Theory. Once these pages are studied carefully, it becomes clear that Keynes incorporated an improved IS-LM(LP) model in the General Theory that was superior to the earlier 1933,1934,and 1935 versions he had presented in his student lectures and the mid 1934 draft copy of the General Theory. Keynes makes it crystal clear in his discussion on pages 298-299 that he was presenting a mathematical model that had the following characteristics : • One can calculate a quantitative answer using it • The model is composed of three elements a), b), and c). a) is the consumption function, C, with both the mpc and investment multiplier specified. b) is the Investment function, I, which is a downward sloping function of the rate of interest, r. c) is the Liquidity Preference equation from page 199 of chapter 15, which is a function of both of Y and r, where Y=C+I. • The three elements provide an analysis that is valuable in introducing order and method to the enquiry • The three elements define a set of simultaneous equations • The equations provide a determinate answer or result. • This result is an equilibrium position • There is no uncertainty /expectations in Keynes’s chapter 21 model of IS-LM(LP) Keynes perfectly described his IS-LM(LP) model in the General Theory on pp.298-299. It is a major improvement over his earlier 1933, 1934, and 1935 versions. The Hicksian IS-LM version, like Harrod’s version, of Keynes’s General Theory, which was published in Econometrica,1937, is an inferior version of Keynes’s IS-LM model in chapter 21 of the General Theory because the Hicksian version has no supporting, micro, D-Z analysis that incorporates expectations and uncertainty, as presented by Keynes in chapters 20 and 21 of the General Theory.

The world financial crisis triggered a rediscovery of the active role fiscal policy can play as a remedy in such situations. During the euro crisis, escalating funding costs in a number of southern eurozone member states and Ireland have called this strategy into question. One interpretation of the euro crisis concentrated on the public debt trends in those countries. Opposing this view, the main point of this contribution is to elaborate the link between rising interest rates on sovereign bonds in the euro crisis and a major feature of the financial crisis – a subdued degree of investor confidence after the Lehman collapse. Theoretically, this link is developed with reference to Keynes’ liquidity preference theory. The high explanatory power of measures for the degree of confidence in financial markets as well as detrimental effects of fiscal austerity on the evolution of sovereign yield spreads are demonstrated empirically by means of panel regressions and supplementary correlation analyses.

One of the most widespread implications of the Great Financial Crisis has been the increase in bankruptcies across advanced economies. The traditional approach to the problem of insolvencies is constrained by deeply ingrained concepts of money and credit and by the institutions in which those concepts are embodied, according to which the only way to discharge a debt is a payment in money. This paper deals with a peculiar project elaborated within the Italian Ministry of Justice to address the problem of the growing amount of uncollectibles involved in bankruptcy procedures. The project entails a new form of articulation between money and credit, which overturns the traditional logic of liquidation by transforming creditors of bankruptcy procedures, passively waiting to be paid, into active operators, capable of sustaining demand. This goal is pursued by converting part of their credits into purchasing power that can be immediately spent in the auctions for the assets of bankrupt companies, thereby increasing the efficiency of bankruptcy procedures, accelerating the reallocation of assets and maximising the satisfaction of creditors. The projects may be seen as a complementary currency characterised by a functional, and not by a territorial, delimitation. It incorporates some of the features that have been recently experimented with, with varying degree of success, within both the official and alternative monetary systems: endogenous money creation, targeted loans and demurrage. The present paper aims at illustrating the theoretical underpinnings of the project and its implication for the question of devising an alternative to current financial institutions.

In his debate with Bertil Ohlin, Keynes observed that entrepreneurs, when deciding to invest, have to be sure they will access the amount of finance necessary to initiate the investment process and that they will be able, when the time comes, to fund their debts in ways that are adequate to the profile of assets they are purchasing. In this statement, Keynes outlines the functions of financial systems in Entrepreneurial Economies, the type of economies he hypothesizes we live in. In entrepreneurial economies, investing firms have to be able to get hold of the necessary amount of means of payment required to purchase or order investment goods and to build balance sheets where in- and outflows of cash are broadly matched within reasonable margins of safety. This means that financial systems’ primary role in Keynesian economics is not to allocate savings or capital but to allocate liquidity and to allow investors to build liquid balance sheets. The article develops this proposition, presenting Keynes...

The reason why some mathematical approaches fail to achieve ideal results in social and economic statistics, especially in financial statistics, is that outliers and exceptions in the sample data lead to the fact that the calculation results cannot reflect the internal relationship of variables correctly and thus deviate from the practical economic significance. The resistance algorithm introduced in this paper can be used to solve these problems in many economic fields and achieve an excellent effect, especially in the financial, statistical analysis field. In this paper, the resistance algorithm is used to analyze the relationship of the liquidity preference with the income and interest rate. Based on the analysis of the annual network data in recent years, the effect of interest rate and liquidity preference is analyzed in this paper. The economic theory is combined with the actual situation in China for analysis. It is believed that a proper economic explanation can be obtained based on the application of the resistance algorithm proposed in this paper.

From its very first publication in the General Theory, Keynes' liquidity-preference theory of interest has been the subject of debate between those economic scholars who view the determination of the interest rate as depending on the demand and supply of "finance" and those who think of the rate of interest as depending on the demand and supply of money. This dissertation, besides reviewing some of the highlights of this interest rate controversy, attempts to address and settle some of the issues that were raised in the course of this historical disagreement.

China has had an investment-led growth pattern that is unsustainable. It is struggling to shift to a consumption-driven economy, and capital adjustment is crucial to the transition. In response, the principal objective of this study is to analyze the internal market mechanism of China’s capital adjustment. Due to the imperfections of the market, we use the flexible acceleration model, which we put in an IS (Investment – Saving equation)–LM (Liquidity preference – Money supply equation) framework in order to reflect the guiding role of demand. The results show that the flexible acceleration model fits China’s investment well, and the demand-oriented market mechanism of capital adjustment has been formed; however, China’s market adjustment ability is not strong. The adjustment coefficient is only 0.22, and shows a decreasing trend. So, in the capital optimization process, relying on the market alone is not realistic. Furthermore, the calculated replacement rate is up to 0.429, which indicates that China’s capital is less efficient, and there are duplicated assets, idle assets, and wasted investments. The error correction model’s results show that the impact of the interest rate on the investments is not significant in the short term, so the existence of invalid capital is more likely to stem from the soft budget constraints, which require attention.

Practically all of R. Skidelsky’s views on Keynes’s General Theory are a reflection of the many myths about Keynes that Joan Robinson spread. Basically, these myths are figments of her imagination. For instance, one such myth about Keynes was that uncertainty for Keynes meant that all decision making over time takes place under conditions of complete and total uncertainty and ignorance. Therefore, there are no stable economic functions so that there can never be any equilibriums or equilibrium analysis. This means that the use of mathematics and statistics in economics is worthless. Of course, nowhere in anything written by Keynes in his life time did he state that uncertainty meant what Joan Robinson said it meant. Once this Robinsonian myth is accepted, then it results in the acceptance of the dozens of other myths spread by the mathematically and economically illiterate Joan Robinson about Keynes, based on the mistaken belief that she worked with Keynes on the writing of the General Theory. Joan Robinson never worked with Keynes on the writing of the General Theory because she did not have the necessary training in basic mathematics and economics to understand what he was talking about. Her understanding of Keynes comes directly from what she was told Keynes meant by Austin Robinson and Richard Kahn, both of whom completely failed to recognize Keynes’s IS-LP(LM) model of chapters 15 and 21 and Keynes’s D-Z model of chapter 20. The result is a completely fictitious claim by Skidelsky that Keynes’s theory of the rate of interest was a purely monetary theory in which the marginal efficiency of capital and the investment multiplier played no role in the determination of the rate of interest. Keynes’s summary of his model and critique on pp.298-306 is a complete and straightforward rejection of Skidelsky’s ‘Robinsonian’ Keynes. Robinson’s inability to do even sixth grade level, Introduction to Algebra, math is displayed in the September-November, 1936 exchanges between Keynes and Robinson over his liquidity preference function and his IS-LP(LM) model in CWJMK, volume 14, pp.134-148. Keynes’s conclusion is that her writings on liquidity preference were “nonsense”. Robert Skidelsky has incorrectly based his work on Keynes on Joan Robinson.

A.Hansen essentially went wrong in his evaluation of Keynes’s work in the General Theory (GT;1936) that dealt with the Liquidity Preference function in chapters 13,14,15,and 21.His basic error occurs when he evaluates Keynes’s chapter 14 analysis on pp.179-183 that dealt with the fact that the neoclassical analysis was missing the liquidity preference function by using the wrong liquidity preference function on page 168 from chapter 13 instead of using the correct Liquidity Preference function from page 199 in chapter 15.The Liquidity Preference function from chapter 15 is defined for Y and r. It can only be analyzed in (r,Y) space. It is impossible to analyze in (r;Qm,Qs) space. Keynes’s December, 1933 model of IS-LP(LM),presented to Keynes’s students, demonstrates that Hansen’s belief that the rate of interest for Keynes was determined only by the demand and supply of money was always false.

Keynes brought all three of the universally recognized elements that are needed to comprise the IS-LM model, the liquidity preference function, the investment function, and investment multiplier, together in Section Four of Chapter 21 of the General Theory. However, this took place only after Section Three, where Keynes had heavily criticized what he termed “…pseudo-mathematical methods of formalizing a system of economic analysis.” Economists most likely stopped reading at the end of Section Three at the top of page 298 because they assumed that Keynes did not believe in formally analyzing a system of equations that supplied an economic analysis. Apparently, the word “pseudo” was overlooked by economists. Keynes excluded his work from such criticisms. As of 2018, the present problem is that it is now considered a “fact” that Hicks, or Hicks and Hansen, developed the IS-LM model. This can be seen below when considering the following test question: 8. Who developed the concept of IS-LM model? a. Hicks and Hansen b. J. M. Keynes c. Adam Smith d. None of the above. Ans. 8 (a) Hicks and Hansen (It was developed by John Hicks in 1937 and later extended by Alvin Hansen). Get this answer online with the Chegg Study. This answer is the wrong answer. The correct answer is b. J. M. Keynes. Unfortunately, like the myth exposed by G. Kennedy that Adam Smith’s analysis in the Wealth of Nations was based on an “Invisible Hand of the Market”, the myth that Hicks developed IS-LM is universally accepted by both the orthodox schools and the heterodox schools of thought. They are both wrong.

Keynes was very clear in the General Theory that he was no longer a Marshallian economist. He was rejecting the Marshallian approach to economics, except at the microeconomic level as regards the theory of the firm, because it is based on utilitarianism. Keynes, like Adam Smith, completely rejected the consumer theory of utility maximization because it directly conflicted with the virtues of Prudence and Temperance. The basic assumption of utility maximization, that consumer wants are insatiable, is Jeremy Bentham’s position that Adam Smith and Keynes rejected because Bentham’s utilitarian position directly conflicted with the Smith-Keynes Virtue Ethics position. In its place, both Smith and Keynes argued that the upward sloping supply curve and downward sloping demand curve are simply the result of judicious, careful, circumspect, prudent and temperate behavior on the part of consumers and producers operating under conditions of partial uncertainty, whom Smith called the “sober” people. His famous discussion of the brewer, bread maker and butcher incorporates prudence as the first virtue that must be satisfied. However, there is another group of upper income class individuals who are not prudent and not temperate. Smith called these individuals imprudent risk takers, projectors, and prodigals. The directors of the British East India Company is Smith’s main example of this class of citizen. Keynes described these types of upper income class citizens as rentiers and speculators, who were supported by the forces of banking and finance, in chapter 12 of the General Theory. Keynes makes it very clear in the preface that he can no longer accept Marshall’s Ricardian approach to economics. Of course, Ricardo, like J. B. Say, J. Mill, J.S.Mill, N. Senior, and L. von Walras, were all Jeremy Bentham’s students: “I myself held with conviction for many years the theories which I now attack, and I am not, I think, ignorant of their strong points… When I began to write my Treatise on Money I was still moving along the traditional lines of regarding the influence of money as something so to speak separate from the general theory of supply and demand… We are thus led to a more general theory, which includes the classical theory with which we are familiar, as a special case.” (Keynes,1936,pp.ix-xi). Keynes completely rejected Marshall’s theory of the rate of interest, which was that M=L(Y), where Y =C+I, so that Aggregate Income=aggregate consumption + aggregate Investment. In its place, Keynes developed his Liquidity Preference Function on page 199 of the General Theory, L=(Y,r). Both constituents, the propensity to consume (Y) and liquidity preference (r), determine the equilibrium rate o interest, and not just Y or r separately. Keynes’s discussions in chapter 13 of the General Theory dealt only with a strict discussion of liquidity preference that Keynes isolated from chapter’s 8-12 ,which dealt strictly only with the propensity to consume. The misbelief, that Keynes’s theory of liquidity preference was specified as L=M(r), as presented on page 168 of the General Theory, has led to the mistaken belief that Keynes’s only break with Marshall was over the theory of the rate of interest, so that Keynes’s only major change was that L=M(r) was replacing Marshall’s L=M(Y). Keynes also rejected Marshall’s labor market analysis ,which considered that unemployment of resources had to be analyzed in this market. Given the correct theory of the rate of interest, Involuntary Unemployment was due to a deficiency in I in the aggregate(macro) output market and had nothing to do with a partial equilibrium analysis of the labor market under conditions of ceteris paribus. This deficient aggregate investment then led to a fall in the price of investment goods, so that the real wage, (w/p), would rise. This rise in the real wage was then mistakenly attributed, not to low investment good prices, but to high money wages, w, by classical, neoclassical, and modern economists. Keynes’s position was that his General Theory was given by M=L(Y,r). There are then two, separate, special theories-M=L(Y) and M=L(r). The Pseudo Keynesian or New Marshallian school (Joan Robinson, Austin Robinson, Richard Kahn, Cambridge University, England), which continued to base their analysis on Marshall’s overall approach, erroneously latched on to M=L(r), while the old Marshallian school, represented by Pigou, Henderson, Hawtrey, Harrod and Robertson, continued to argue that Marshall’s M=L(Y) was superior to Keynes’s M=L(r).

There is no mention in Hicks’s June, 1936 review of Keynes’s General Theory for the Economic Journal, which was then by far the highest ranked economics journal in the world, of any kind of an IS-LM model in the General Theory at all. In fact, there is no mention of any kind of model at all. Hicks’s major point in his June, 1936 review for the Economic Journal was to emphasize the great importance of Keynes’s analysis of expectations and anticipations of the future vis-a-vis his contemporaries and past economist’s writings. Hicks mistakenly claimed that Keynes’s Liquidity Preference theory of the rate of interest was a purely monetary one, where the demand and supply of money alone determined the rate of interest. Less than 10 months later, Hicks introduced major changes in his evaluation of the General Theory. Hicks’s entire 1937, Econometrica paper now puts great emphasis on Keynes’s IS-LP(LM) model. In direct contradiction to the 1936, Economic Journal review paper, Hicks removes expectations from his “suggested interpretation” of Keynes’s IS-LP(LM) model in his 1937 paper. Hicks’s 1937 Econometrica article is, in fact, directly based on the two June, 1936 review articles of the General Theory made by Champernowne and Reddaway, respectively, that appeared in the Review of Economic Studies and the Economic Record. Hicks did not cite or mention either paper in his 1937 Econometrica paper. It is obvious that Hicks read both papers and got his ideas from them on Keynes’s IS-LP(LM) model. Hicks removed his emphasis on Keynes’s analysis of expectations, the focus of his 1936 review of the General Theory, from his 1937 paper because of the heavy emphasis given to them by Champernowne and, to a lesser extent, Reddaway. Hick’s so called LL diagrams, presented on pages 153 and 154 of his 1937 article, are based directly from Keynes’s mathematical description and listing of specific historical empirical results supporting his description that was provided by Keynes on page 207 of the General Theory. The only evidence preventing one from concluding that Hicks was negligent in his scholarly duties regarding Keynes’s, Champernowne’s, and Reddaway’s work, is Hicks’s concluding statement that his “skeleton” model might only be a minor improvement on Keynes’s “skeleton” model in the General Theory. Hicks’s 1937 Econometrica article is completely different in content and focus from his June,1936 Economic Journal article on the GT. In the interregnum of time that elapsed between the writing of the two articles, Hicks read both Champernowne’s and Reddaway’s. He then chose to not cite them in his 1937 article. This is very poor scholarship, to say the least. Hicks failed to properly cite the General Theory. The crucial pages of the GT that Hicks needed to cite were pages 115, 179-182, 199-209, and 298-306. His footnote nine citation on page 158 of his article is completely irrelevant to the issue of the creation of a IS-LP(LM) model a la Keynes or a IS-LL model a la Hicks. Hicks’s footnote 5 citation to “Keynes, General Theory, pp. 201-202.” on page 154 can only mislead a reader of the GT from the far more important pages 207-209 as far as the slopes and ranges of the Keynesian LP function (Hicks’s LL function). Finally, the catastrophic decision made by Hicks to remove expectations from his version of Keynes’s model in Econometrica in 1937 represents a complete repudiation of Hick’s 1936 EJ paper in June that proclaimed that “From the standpoint of pure theory, the use of the method of expectations is perhaps the most revolutionary thing about this book; but Mr. Keynes has other innovations to make, innovations directed towards making the method of anticipations more usable.” Note that Hicks never explained his decision even in his reassessment of IS-LM made in a 1981 issue of the JPKE.

Early in September 1936, Keynes discovered that Joan Robinson was completely illiterate about very basic mathematical concepts and basic economic theory. Robinson had sent Keynes materials that would later form her Essays in the Theory of Employment (1937). Joan Robinson had, however, made a serious tactical and strategic mistake. She had not submitted her work to either A. Robinson or R. Kahn before sending it on to Keynes to review. This is a mistake that she would repeat only at one other time in her lifetime, in 1953, in a short book, called On Re-reading Marx, which showed that she did not know how to do academic research for publication. The quality of the book is so poor that it proves beyond any doubt that her capability to publish academic research depended completely on the constant help, supervision, and aid of Richard Kahn and Austin Robinson. The materials she sent to Keynes had not been carefully scrutinized and checked for errors by either/or her husband, Austin Robinson, who was co-editor with Keynes of the most prestigious journal in the world, The Economic Journal, or Richard Kahn, a close associate of Keynes, who had already become her constant lover and companion in 1930 with the consent of Austin Robinson, her husband. Keynes, over a period of three months’ correspondence during which J. Robinson refused to make corrections to her work, realized that Joan Robinson’s errors were egregious. She demonstrated to Keynes that she had absolutely no idea about what she had supposedly been reading in the General Theory concerning Keynes’s Liquidity Preference theory of the rate of interest and Keynes’s ISLP(LM) model. It is extremely probable that Keynes now realized that it was impossible for Joan Robinson to have written the book, The Economics of Imperfect Competition (1933) and that Austin Robinson and Richard Kahn were the real authors of this book. Keynes also now realized that all of his comments and evaluations of her work, that he was sending to Joan Robinson, were also being read and analyzed by Austin Robinson and Richard Kahn. Keynes decided to send the following message to the Pseudo Keynesians (Joan Robinson, Austin Robinson, Richard Kahn) on November 9th, 1936: “Dear Joan, I beg you not to publish. For your argument, as it now stands is most certainly nonsense.” T. W. Hutchison in 1977 was the first economist after Keynes to realize that what was being said by Joan Robinson, Austin Robinson, and Richard Kahn about Keynes’s 1937 published newspaper letters in England about unemployment and rearmament had severe inconsistencies in them that directly conflicted with what Keynes had actually written. Unfortunately, Hutchison barely scratched the surface. Hutchison failed to grasp that Joan Robinson dominated the intellectual, social and private lives of both Austin Robinson and Richard Kahn to such an extent that they basically were sounding boards for her cynical, opportunistic, careerist, academic goals. The result has been that the economics profession has been completely misled by all assessments of the General Theory published by the Pseudo Keynesians since Keynes’s letter of November 9th, 1936, cited above. Starting from this date, the Pseudo Keynesians realized that Keynes had caught on to the nature of the relationships between the Pseudo Keynesians. Unfortunately, no other economist(s) seem to have realized that the claim made by Robinson, emphasized by Gram and Walsh that “It must never be forgotten that, as a member of the little group (known as the Circus) who worked with Keynes on manuscripts of The General Theory at Cambridge, she is in an excellent position to know what his ideas really were.” (Gram and Walsh, 1983, p. 522, ft. 6; boldface added), is false. J. Robinson states that “You might almost say that I am the archetypal left-wing Keynesian. I was drawing pinkish rather than bluish conclusions from the General Theory long before it was published. (I was in the privileged position of being one of a group of friends who worked with Keynes while it was being written.”) (Gram and Walsh, p. 548; boldface added). Of course, Joan Robinson never “…worked with Keynes while it was being written.” This fact will require that all macroeconomic history needs to be completely rewritten.