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The myths concocted by Joan Robinson from the late 1940’s to the early 1980’s about J M Keynes live on today in the work of Post Keynesian, Institutionalist, and Heterodox economists. The most damaging of these myths is the one that claims that she worked closely with Keynes when he was writing the General Theory. Thus, according to Gram and Walsh, she was in a position to know exactly what he meant. This myth was presented in a 1983 Journal of Economic Literature paper by H. Gram and V.Walsh. Of course, Gram and Walsh never mention pp.134-148 of the CWJMK in Volume 14 because it completely destroys the foundation for the claim that she worked closely with Keynes when he was writing the General Theory. Keynes‘s final message of November 9th,1936 is that Joan Robinson did not know what she was talking about. Keynes’s two months of exchanges with Robinson, between September 8th and November 9th,1936, show an exasperated Keynes presenting an intellectually devastating and annihilating obliteration of Joan Robinson's understanding of Keynes’s liquidity preference theory of the rate of interest. The only conclusion that can be logically derived from this correspondence is that Joan Robinson had no idea about what Keynes was doing in the General Theory. Her understanding was what Richard Kahn and Austin Robinson taught her. Unfortunately, neither Kahn nor A. Robinson themselves understood Keynes’s theory, which requires a reader of the General Theory to have a complete understanding of what Keynes had done in chapters 6 and 26 of the A Treatise on Probability. How was it that Joan Robinson, who is obviously completely lost in these exchanges with Keynes, is portrayed as the greatest female economist who ever lived? Of course, the answer is that she wasn’t. Joan Robinson’s academic career entailed her being coached, instructed and taught by Richard Kahn, her lover of 50 plus years, as well as by her husband, Austin Robinson, who she later divorced. However, since she needed her ex-husband to keep checking, revising, redrafting and editing her works before they were publishable, she reached an agreement whereby he did not move out after the divorce. Her life parallels in many respects the intellectual maneuvers of Elizabeth Holmes, who succeeded from 2002 -2018 in misrepresenting her contributions in medical blood testing apparatus and the applications of such apparatus. Joan Robinson knew that it was impossible for her to understand Keynes’s General Theory unless it was first explained to her by either/or/and Richard Kahn and Austin Robinson. This intellectual charade continued all of her life. It started in 1930 with Kahn, aided by A. Robinson, allowing J.Robinson to rewrite his 1929 dissertation, The Economics of the Short Period, as her 1933 The Economics of Imperfect Competition. In 1936, however, she made a very severe miscalculation and submitted to Keynes a book that had not been thoroughly checked and vetted first by Richard Kahn and Austin Robinson. 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 additional errors as she attempted to argue that it was Keynes who was mistaken, not her. Keynes finally realized that J. Robinson simply did not know what she was talking about because she lacked a basic understanding of introductory level mathematics and economics. 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 ponders Keynes’s conclusion above and who reads this correspondence of 14 pages in Volume 14 of the CWJMK (1973), 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. Joan Robinson was never ”one of Keynes’s most brilliant students“ and Joan Robinson never “helped him draft the original of his General Theory”. 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 covering up of 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 in full 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 has covered up the exchanges between J M Keynes and Joan Robinson in the period between September and November, 1936 because Skidelsky decided to accept Joan Robinson‘s canard about being a close, working collaborator with Keynes in the writing of the General Theory, who was Keynes’s zealous disciple.

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 IS-LM model in the General Theory, defined in (r,Y) space and contained in chapter 21 in Part IV on pp. 298-299 of the General Theory, was derived from the underlying D-Z model of Chapter 20 that incorporated expectations and uncertainty into the P(expected economic profits-Z) and p(expected economic prices-D)terms. Keynes explicitly derived Y from his Aggregate Supply Curve (ASC) analysis, which presented a locus of all possible expected D-Z intersections. The derivation of the ASC occurs two times in the General Theory. The first derivation is contained in ft. 2 of pp. 55-56 of the General Theory. The second derivation occurs in chapter 20 on p.283 in fts. 1 and 2 of the General Theory. Keynes then integrates the liquidity preference function formally into the D-Z model of chapter 20 on pp. 304-306 of chapter 21. Y is not derived from the IS curve a la Hicks, but from the D-Z model that incorporated long run concerns about future expected profits and the uncertainty of such profit.. Keynes then combined r, the nominal rate of interest, with the actual value of a particular D value that is actually realized, which is Y, where Y is nominal, actual, effective aggregate demand. The Harrod-Hicks-Lange-Modigliani -Hansen versions of IS-LM had no foundation in expectations and uncertainty, as they were based on perfect competition and risk. Only Champernowne, using an equivalent exposition to Keynes’s as presented in chapters 20 and 21 of the General Theory, combined and integrated expectations and uncertainty variables into his RES paper model by defining Q and Q’ variables, which were contained only in the three diagram-three equation Keynes model, but not in the three diagram-three equation neoclassical model. Champernowne correctly showed that if the Q and Q’ variables are removed from Keynes’s model, then one obtains the classical (neoclassical) model. For example, in the labor market, if Q and Q’ are present in the functions, then the first order condition for optimality becomes the marginal product of labor equals the EXPECTED real wage. If, on the other hand, there is no uncertainty about the future, then the first order condition for optimality becomes the neoclassical marginal product of labor equals the ACTUAL real wage. Therefore, if there is no uncertainty about future prices and profits, then chapter 20 of the General Theory drops out of consideration, since chapter 20 is Keynes’s more advanced mathematical modelling that Champernowne’s model provides in graphical form, which was based on Keynes’s original 1933 model, where Keynes used W=the state of the news to designate the impact of uncertainty about future levels of prices and profits on employment levels. Champernowne’s Q and Q’ variables are equivalent to Keynes’s early W variable, which Keynes replaced with uncertainty in the General Theory, where uncertainty was defined by Keynes as an inverse function of the evidential weight of the argument, V, where V=V(a/h) =w, where w is the weight of the evidence, from chapters 6 and 26 of Keynes’s A Treatise on Probabilit. Thus, Keynes’s W represented the change in w over time. If w increases, so that W represents an increase in positive evidence, then nervousness and uncertainty decreases. If w decreases, so that W represents a decrease in positive evidence and increase in negative evidence, then nervousness and uncertainty increase. The only IS-LM model that is consistent with Keynes’s chapter 21 model is Champernowne’s. Meade, while dealing with expectations, did not explicitly introduce uncertainty as done by Champernowne with his Q and Q’ variables. Thus, involuntary unemployment for Keynes and monetary unemployment for Champernowne have nothing to do with rigid or fixed money wages, as claimed by Hicks, Harrod, Lange, and Modigliani, but are due to the presence of uncertainty. The Harrod, Hicks, Lange and Modigliani models are mis-specified because they do not incorporate any possibility for uncertainty to exist.

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.

Money is an institution that can only function when it perfectly manages the relationship between sovereignty and confidence. The foundation of this monetary relationship can focus on two directions: either a top-down process based on sovereignty so as to justify public confidence in the money; or a bottom-up process starting from building confidence through coordination and learning among individuals to explain the organization of a sovereign monetary authority. Starting from the three hierarchical levels of confidence (methodical, hierarchical and ethical) highlighted by Michel Aglietta and André Orléan (2002), the first process emphasizes the importance of a sovereign political power as the foundation of confidence and multiplies the rules and norms necessary for methodical confidence, while being a guarantor of the social values in the monetary compromise issuing from ethical confidence. The monetary order is based on the exercise of hierarchical political power from top to bottom. Money thus becomes a ‘total social fact’ (Simmel quoted in Aglietta, 2008, p. 4).

Philosophers, historians, economists, decision theorists, and psychologists have been repeating a very severe error of omission for nearly a hundred years that was originally made by the French mathematician Emile Borel in his 1924 review of the A Treatise on Probability, 1921. Borel decided to skip Parts II through V of the A treatise on Probability. He explicitly apologized to Keynes at the beginning of his review for his decision involved in skipping Part II, acknowledging to Keynes, correctly, that Part II was the most important part of the A Treatise on Probability. Borel’s acknowledgment and apology are, in fact, an understatement, because without an understanding of Part II,it is impossible to understand Keynes’s theory of decision making and the role played by that theory in the General Theory(1936). This all comes out in the Keynes-Townshend exchanges of 1937 and 1938, where Keynes makes it crystal clear to Townshend that his theory of liquidity preference is built on his non numerical probabilities, which a reading of Part II makes clear are interval valued probabilities, each with an upper bound and a lower bound. These probabilities are non additive. Keynes’s definition of uncertainty on page 148 of chapter 12 in footnote 1 defines uncertainty as an inverse function of Keynes’s evidential weight of the argument, defined on the unit interval between 0 and 1. Any probability with a w < 1 is an interval valued probability that is non additive. The only way to discuss Keynesian uncertainty is by non additive, interval valued probability or by decision weights like Keynes’s c coefficient. D. P. Rowbottom attempts a defense of Keynes’s position against J. Williamson’s intellectual attacks which I view as correct. However, Rowbottom badly handicaps himself by providing a defense of Keynes’s position that is limited to the use of Part I of the A Treatise on Probability. Rowbottom could have presented an overwhelming counter argument against Williamson if he had understood Keynes’s concepts of interval valued, non additive theory of imprecise probability from Part II of the A Treatise on Probability, Keynes’s finite probabilities from Part III, Keynes’s decision weight translation of imprecise probability in chapter 26 of Part IV and Keynes’s inexact, approximation approach to statistics in Part V that Keynes combined with his application of Chebyshev’s Inequality for establishing the lower bound of a probability estimate. Starting with the 1940 work of Koopman and continuing through the work of,for example H. Kyburg,Jr.,I. Levi, I. J. Good,and then on to the work of for example, B.Weatherson, D. Rowbottom, B. Hill, S. Bradley and practically all other academics who have written on Keynes and imprecise probability, the exact same error of omission has kept on repeating itself over and over again for a 100 years.

The prevalent belief among economists that Hicks invented and developed the IS-LM model in 1937 ,which Keynes then accepted provisionally when shown the paper by Hicks, is a myth, much like the myth that R. Kahn invented the multiplier. Hick’s IS-LM model paper on the General Theory, published in the April,1937 issue of Econometrica, is based on pp.199-205 of Keynes’s General Theory plus Hicks’s unattributed use of materials that were based on Reddaway’s and Champernowne’s June, 1936 reviews of the General Theory in the Economic Record and Review of Economic Studies, respectively, but which Hicks deliberately did not cite. It is easy to compare Hicks’s June,1936 review paper, published in the Economic Journal in June,1936, which had no IS-LM model in it, with both the Reddaway and Champernowne papers, also available in June,1936,which have explicit IS-LM models specified in them.There is no mention of any IS-LM model in Hicks’s June 1936 paper in the Economic Journal at all. That Reddaway and Champernowne should have IS-LM models in their reviews should not be surprising because Keynes created,developed ,improved and taught his original IS-LM model to his students at Cambridge in the 1933- 1935 time period. Reddaway and Champernowne were in attendance at those 1933-35 lectures. The only conclusion possible is that Hicks plagiarized the work of both Reddaway and Champernowne. Keynes’s first IS-LM model appears in Keynes’s lectures of December 4th ,1933(See Dimand ,1989;2003;2007). However, before publishing the General Theory ,Keynes decided to split his IS-LM model of 1933-35, that he had taught to Reddaway and Champernowne, into two parts, the D-Z Aggregate Demand and Supply model of chapter 20 that dealt with uncertainty,expectations, the theory of the firm ,production functions, marginal optimality conditions and the labor market, and the published IS-LM model in chapter 21 in Part IV on pp.298-299 of the General Theory. Keynes followed these pages with a five page discussion (pp.300-304) of the possible deficiencies in the model that might arise because some variables were left out of the model that would complicate the application of the model. Keynes followed this with a mathematical version integrating the liquidity preference function (LM) into his chapter 20 analysis which is specified on pp.304-306 of the General Theory. Hicks’s 1937 version is inferior to both the Reddaway and Champernowne 1936 versions. Champernowne incorporated in his June,1936, analysis a role for uncertainty, expectations, the theory of the firm, production functions, marginal optimality conditions and the labor market. Reddaway did not explicitly incorporate uncertainty, expectations, the theory of the firm ,production functions,marginal optimality conditions and the labor market.Hicks realized that his own presentation, involving a comparison -contrast between Keynes and the neoclassical models, first done by Champernowne, could not deal with expectations and uncertainty because his neoclassical theory did not deal with these issues.Therefore, Hicks decided to remove the analysis from his paper of uncertainty, expectations, the theory of the firm, production functions, marginal optimality conditions and the labor market. Modigliani’s 1944 paper on IS-LM in Econometrica can be seen as an attempt to integrate what was already present in chapter 20 of the General Theory and Champernowne’s paper into Hicks’s deficient model. Unfortunately, Modigliani made four errors which vitiate the analysis in his paper. The four errors made by Modigliani are: 1) to substitute risk for uncertainty, 2)substitute perfect competition for pure competition, 3)substitute a single ,macroscopic equilibrium for Keynes’s macroscopic, multiple equilibria,and 4)to present the microeconomic optimality conditions as actual results instead of expected results,where the actual real wage equals the marginal productivity of labor instead of Keynes’s expected real wage equals the marginal productivity of labor. Keynes’s Aggregate Supply Curve(ASC ) was reduced by Modigliani to a single macro equilibrium position instead of being a set of macro multiple equilibria. Keynes’s General Theory can thus be studied using either Champernowne’s single model of IS-LM or by Keynes’s two model construction of D-Z plus IS-LM.Hick’s model can thus be seen to be equal to Keynes’s model of IS-LM plus D-Z minus the D-Z model. Hick’s IS-LM model is Champernowne’s model minus an analysis of uncertainty, expectations, the theory of the firm, production functions, marginal optimality conditions and the labor market. Keynes pointed out to both Harrod and Hicks in correspondence in 1937 that their IS -LM variations of his IS-LM model ignored his theory of effective demand construction, which is the D-Z model.However, this went over their heads because they were not able to follow the mathematical analysis in chapter 20, which is the foundation for the analysis in chapter 21 of the General Theory. We can now see that the fundamental problem for the last 84 years is that the economics profession is unable to deal with chapter 20 on the theory of effective demand. Instead, Keynes’s initial, introductory, simple beginning outline in chapter 3 of the General Theory, which has no model, is substituted for chapter 20, where the model is specified and developed mathematically. Chapter 21 makes no sense unless the reader has understood chapter 20, which is also required to understand the appendix to chapter 19. The reason this happened is that Keynes’s critique of Pigou’s mathematical modeling in his 1933 The theory of Unemployment on pp.275-276 and on pp.297-298 of the General Theory is interpreted wrongly as a critique of all formal economics mathematical modeling. This was the Joan Robinson gambit. She was an extraordinary mathematical illiterate economist. Robinson had absolutely no idea about what Keynes was doing mathematically. She succeeded in convincing the economics profession that it could skip chapters 20 and 21 because Keynes was a Marshallian who would burn the mathematics because he did not believe in published formal analysis. Robinson’s gambit worked extremely well, so well in fact that there is no economist in the 20th or 21st century who had any idea that Keynes’s IS-LM model was sitting right under their noses on pp. 298-299 of the General Theory.

J M Keynes stated the following on p.xii of his General Theory on December 13,1935: “I have also had much help from Mrs. Joan Robinson….who have read the whole of the proof-sheets.” (Keynes,1936, p.xii). In the course of an extensive correspondence with J. Robinson in the months of September, October, and November,1936, over one of her books that she had sent him for review and comment, Keynes discovered that Joan Robinson had (a) no knowledge of basic undergraduate, lower division level training in international trade and exchange rates between two countries and, much, much more seriously, (b) had a serious lack of knowledge about his Liquidity Preference theory of the rate of interest that occupied all or some of chapters 13, 14, 15, 16, 17, 18 and 21 of the General Theory. It was now quite clear to Keynes that Joan Robinson had not understood what was in the final draft copy of the General Theory that he had given to her to read and comment on in June, 1935 and to which she replied in four days time: “Given Keynes’s ambitions, limitations, and expectations, she could be useful, perhaps even valuable, in finishing the book. As in so many instances, events proved Keynes’s judgment sound even if not precisely in the way he anticipated. Within four days of receiving the second set of galleys, Robinson sent him an extensive and detailed set of comments as well as her general impressions of the book (Keynes 1973a, 638–45). How was this extraordinarily swift and thorough response possible? Keynes sent Harrod the galleys on June 5 but did not hear from him until July 31 (see Keynes 1973a, 526–27). Hawtrey’s set was sent on June 12, and he replied by the end of the month (1973a, 567). In four days, how could Robinson read a difficult and confusing book, digest it, and write elaborate and carefully crafted suggestions, many of which Keynes adopted?”(Aslanbeigui and Oakes, 2009, p.205; boldface added). The correct answer to the question posed by Aslanbeigui and Oakes in 2009, which was “In four days, how could Robinson read a difficult and confusing book, digest it, and write elaborate and carefully crafted suggestions, many of which Keynes adopted?” (Aslanbeigui and Oakes, 2009, p.205; boldface added), in light of her extremely poor performance in the Keynes-Robinson exchanges of September-November, 1936, is that she was not the author who wrote the “…elaborate and carefully crafted suggestions” on the General Theory in four days. The true authors were Richard Kahn and Austin Robinson, just as they were most probably the true authors of The Economics of Imperfect Competition,1933. Keynes now realized that Joan Robinson’s reply to him in 1935 was not her own. This conclusion follows directly from the first two sentences of Keynes’s letter of November 9th,1936 to Joan Robinson: “I beg you not to publish. For your argument, as it stands, is most certainly nonsense.” (Keynes, 1936, CWJMK, Vol. 14, p.147; boldface added).

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.

No macroeconomist in the 20th or 21st century has been able to deal effectively with Keynes’s original work done on his IS-LM model that he carried out between December ,1933 and February ,1936,where the final version appeared in the General Theory or in his deployment of that model in his reply to Jacob Viner in his February,1937 Quarterly Journal of Economics article. The major impediment to the grasping and understanding of Keynes’s IS-LM model for economists appears to be the claim, made by the astonishingly mathematically illiterate economist ,Joan Robinson, about having collaborated with Keynes on the writing of the General Theory. This belief is easily demonstrated to be false for any economist who reads pages 134-148 of Volume 14 of the Collected Writings of John Maynard Keynes, where Keynes, in letters to J. Robinson, categorizes Joan Robinson’s understanding of his liquidity preference theory of the rate of interest as being ”nonsense”. These important pages of correspondence , especially the letters from Keynes to J. Robinson of November 4th,November 8th ,and November 9th, 1936,completely demolish any claims made by J. Robinson about assisting Keynes or collaborating with Keynes or helping Keynes in the writing of the General Theory .Keynes’s mention of help received from J. Robinson in his Preface to the General Theory was clearly withdrawn in these exchanges between September,1936 and November ,1936. What Keynes discovered in this correspondence in 1936 was that J. Robinson was completely ignorant of the basic concepts used by him in the construction of his liquidity preference theory of the rate of interest in chapters 13,14,15,16,17 and 21 of the General Theory. J. Robinson’s comments on Keynes’s General Theory relied completely on her being coached, assisted and supported by her husband ,Austin Robinson, and her lover,Richard Kahn.There are a number of similarities between Joan Robinson and Elizabeth Holmes ,who was able to successfully escape being exposed as an intellectual fraud from 2003-2018.Joan Robinson continues to be accepted as a researcher who worked closely with Keynes,despite massive evidence to the contrary. Joan Robinson claimed in 1962 that the IS-LM model was the work of Bastard Keynesians ,who did not understand what Keynes was doing in his analysis in the General Theory. It is Joan Robinson, and not the Bastard Keynesians, who ,unfortunately, only got it half right, who did not understand what Keynes was doing in both the General Theory and the 1937 Quarterly Journal of Economics article. The continuing impact of Joan Robinson in misleading the entire economics profession for 84 years can be traced simply by examining the recent literature written about the General Theory and /or the IS-LM model. Keynes’s total contribution in the General Theory in 1936, which was the IS-LM model ,combined with the D-Z model that incorporated expectations and uncertainty, will never be recovered until the many myths made up about Keynes by J. Robinson are finally removed from the literature on Keynes.

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.

The chapter explores similarities between Keynes and Sraffa, suggesting a fruitful symbiosis of the two approaches. Both challenged neoclassical price theories. Keynes formulated a ‘monetary theory of production’ that led to a liquidity preference theory of financial asset prices; Sraffa a theory of prices of production. Keynes rejected the idea of a natural rate of interest determined by conditions of production, instead arguing that it is endogenously determined by asset preferences subject to policy decisions of the central bank, while Sraffa rejected the productivity determination of the rate of profits, hinting to a monetary determination of the rate of interest influencing income distribution. As for the analytical method, both isolated for analysis a specific objective and identified the most important elements relevant for the problem under consideration. The authors sketch the Classical ‘circular-flow’ vision, the ‘photograph’ interpretation of Sraffa’s analysis and the structure of Keynes’s theory, and then draw their conclusions.

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.

RESUMO A crítica radical que Keynes faz à teoria dos fundos de empréstimos (TFE) revela a ruptura epistemológica entre a economia keynesiana e a economia neoclássica. Neste trabalho, estudarei a natureza dessa ruptura, mais especificamente no que diz respeito aos diferentes componentes da preferência pela liquidez e aos mecanismos a partir dos quais a incerteza se propaga nas diferentes esferas da economia. A partir dos trabalhos de Kahn e de Cardim de Carvalho, demonstrarei porque à não neutralidade da moeda é preciso acrescentar a não neutralidade do sistema financeiro. Na medida em que a atuação dos agentes se explica por meio de uma teoria da escolha dos ativos, mostrarei como a finança especulativa constitui um ativo específico e como ela exerce seus efeitos de propagação sobre a determinação da taxa de juros e, consequentemente, sobre o setor “real”. Em uma primeira parte, analisarei os fundamentos da crítica que Keynes faz à teoria dos fundos de empréstimos. Numa segunda parte, estudarei, a partir dos trabalhos de Cardim de Carvalho, as relações entre a preferência pela liquidez, a taxa de juros e a finança especulativa. ABSTRACT Keynes’s radical critique of the Loan Funds Theory reveals the epistemological rupture between Keynesian and Neoclassical Economics. In this paper, I will study the nature of this rupture, specifically concerning the different components of the liquidity preference and the mechanisms through which uncertainty propagates into the different spheres of the economy. Based upon Kahn’s and Cardim de Carvalho´s works, I will explain why, as money, the financial system is also not neutral, as to how it affects the determination of the interest rate and the productive sector. In the first part of the text, I will analyze the fundamentals of Keynes’s critique of the Loan Funds Theory. In the second part, I will study, from the perspective of Cardim de Carvalho´s works, the relationship between liquidity preference, interest rate, and speculative finance.

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.

In this paper, the business cycle (BC) is described by a delayed time-fractional-order model (DTFOM) with a general liquidity preference function and an investment function. Firstly, the existence and uniqueness of the DTFOM solution are proven. Then, some conditions are presented to guarantee that the positive equilibrium point of DTFOM is locally stable. In addition, Hopf bifurcation is obtained by a new method, where the time delay is regarded as the bifurcation parameter. Finally, a numerical example of DTFOM is given to verify the effectiveness of the proposed model and methods.

CNPq - Conselho Nacional de Desenvolvimento Científico e Tecnológico CAPES - Coordenação de Aperfeiçoamento de Pessoal de Nível Superior This thesis comprises three chapters in which the fi rst two study the role of inequality on human development indexes and the last chapter analyses the effect of Knightian ambiguity on a New Keynesian model with fi scal policy shock. In the first chapter we axiomatize, in the multidimensional case, a social evaluation function that can accommodate a natural Pigou-Dalton principle and correlation increasing majorization. This is performed by building upon a simple subclass of inframodular functions proposed by Muller and Scarsini under risk. The second chapter axiomatizes a class of multidimensional social evaluation function in which Inequality-adjusted Human Development Index is a special case. We, furthermore, show that this class of social evaluation function accommodates Pigou-Dalton principle and agrees with the subclass of inframodular functions. Finally, we analyze the context where the social planner is unsure on how to weigh different attributes and their implications to the inequality aversion approach. The last chapter analyzes the effect of con fidence shocks on fiscal policy through a New Keynesian model with ambiguity averse agents and nominal rigidities. We also model the household's preference for holding risk-free assets and compare the effects of risk premium shocks on economic activity. We nd that con fidence shocks on fiscal policy may generate business cycles comovement among output, consumption, investment and hours worked. Risk premium shock has similar results without expansive fiscal policy. Esta tese consiste em três capítulos na qual os dois primeiros estudam o papel da desigualdade em índices de desenvolvimento humano e o último capítulo analisa o efeito da ambiguidade Knightiana em um modelo Novo Keynesiano com choque de política fiscal. No primeiro capítulo nós axiomatizamos, para o caso multidimensional, uma função de avaliação social que acomoda o princípio Pigou-Dalton e majoração da correlação crescente. Essa função de avaliação social é construída a partir da subclasse de funções inframodulares sobre risco propostas por Müller e Scarsini. O segundo capítulo axiomatiza uma classe função de avaliação social multidimensional da qual o Índice de Desenvolvimento Humano ajustado à Desigualdade é um caso especial. Ademais, nós mostramos que essa classe de função de avaliação social concorda com o princípio de Pigou-Dalton e com a subclasse de funções inframodulares. Por fim, nós analisamos o contexto onde o planejador social não tem convicção sobre como ponderar os atributos da função e suas aplicações em relação à abordagem de aversão à incerteza. O último capítulo analisa o efeito de um choque de confidência sobre a política fiscal através de um modelo Novo Keynesiano com agentes avessos à incerteza e rigidezes nominais. Nós também modelamos a preferência das famílias por ativos livres de riscos e comparamos os efeitos de um choque de prêmio de risco na atividade econômica. Nós encontramos que o choque de confidência na política fiscal pode gerar movimentos conjuntos entre produto, consumo, investimento e horas trabalhadas. O choque de prêmio de risco apresenta resultados similares sem que a política fiscal seja expansiva.

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.

This paper represents a contribution to the establishment of a framework for the analysis of international capital flows, with a specific focus on emerging markets. It is based on a “monetary” analysis of the economy, and the works of Hyman Minsky and Jan Toporowski in particular. The key aspects of such an approach are, firstly, that in a monetary economy capital flows need to be understood as “flows of funds” and pertaining to the realm of financial choices, as opposed to the traditional understanding of capital flows based on “real” variables, such as saving and investment. A consequence of this is the need to focus on gross rather than capital flows. Secondly, liquidity preference considerations also apply at the international level, particularly in relation to the liquidity of emerging markets’ currencies, which in turn depends on context-specific “Keynsian fundamentals”. Thirdly, the rise of institutional investors is the key historical development in the financial system, shaping the current reality of cross-border capital flows, including to emerging markets. It is argued that their liabilities, in light of the theories of Minsky and Toporowski, are one of the most important variables in determining their portfolio choice. This paper synthesises these elements by understanding capital flows to emerging markets as the demand for emerging markets’ assets by institutional investors. A framework categorising the various channels guiding such a demand is proposed.

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.

Purpose This study examined the attainment and the benefits of financial flexibility in the presence of concentrated ownership in the Caribbean. Design/methodology/approach This study used qualitative methodology via the use of case studies. Findings Results revealed that liquidity may be considered the most important form of financial flexibility for firms in transitioning economies, due to constrained capital markets. Blockholder firms also focus on liquidity out of a concern for recovering their substantial investment. This study suggested that in addition to an emphasis on liquidity, blockholder owners emphasise professionalism in managing the firm. This professionalism, accompanied by a genuine separation of ownership and control, may be critical in minimising the possibility of misappropriation of surplus liquidity. The study showed that blockholder owned firms may not recognise maximum capital investment benefits because of the use of sub-optimal capital budgeting techniques reflecting their liquidity preference, or pay maximum dividends, opting instead to use dividends as a governance tool. However, the ability to separate ownership from the management of the operations may counteract this, leading to an increased focus on net present value (NPV) maximising projects, and a dividend policy aimed at preserving future financial flexibility. Research limitations/implications This study highlights the value of qualitative studies in finance research, by providing a deeper insight into the management of firm financial flexibility, under blockholder ownership. It emphasises the importance of considering liquidity as a critical form of financial flexibility. Furthermore, the study shows that two significant factors in controlling principal–principal (PP) conflict may be the ability to separate ownership from control and the appointment of a professional management team. Originality/value This research introduces the variable of PP agency in the study of financial flexibility.

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 article examines the contribution of John Maynard Keynes to the study of the psychological motives of economic behavior. The origins of the analysis of the psychological motives in economics before Keynes are reviewed. The relative importance of rational and irrational motives of economic behavior in the Keynesian theory is analyzed. It is shown that Keynes's analysis of the behavior of the economic agents under uncertainty and the lack of information contributed to the elaboration of the bounded rationality theory by Simon. The article also describes the input of Keynes to the formation of a new «Keynesian» model of human behavior, which implies the importance of expectations, taking into account the psychological and social factors of economic behavior. The main psychological tendencies in the actions of the consumers and investors described by Keynes (the basic psychological law, liquidity preference, the influence of the «market psychology» on the investor's decisions) and their relevance nowadays are examined. The article shows further development of the ideas of Keynes in the Akerlof and Shiller's theory of animal spirits and in the financial instability hypothesis of Minsky. It also gives a description of a confidence multiplier, introduced by Akerlof and Shiller, and shows how the cosumers' confidence can be measured nowadays. Besides, the article stresses that the study of the psychological motives of economic behavior, undertaken by Keynes, contributed to the development of such new disciplines at the interface between the economy and psychology as the economic psychology and behavioral economics.

O presente estudo investiga se a moeda pode exercer um papel endógeno na dinâmica econômica da região estudada, segundo os preceitos pós-keynesiano de desenvolvimento regional, ou se a sua importância é derivada de ações exógenas. Metodologicamente, utiliza-se o conceito de preferência pela liquidez bancária para verificar o padrão de confiança da economia local e o método shift-share para gerar informação setorial na região. A síntese dos resultados mostra altos índices de preferência pela liquidez, indicando a não disposição do sistema bancário em fomentar o desenvolvimento regional. A fuga de recursos em direção às regiões centrais parece se confirmar na presente análise.

The paper offers theoretical discussion and modelling showing that -in accordance to the post Keynesian approach to endogenous money- the credit-worthy demand for loans determines the supply of loans at the prevailing interest rate, while -in accordance with Keynes's liquidity preference theory- the rate of interest is endogenously determined as to equalize the demand and supply of liquidity-money in terms of stocks. As a consequence, the markup reflected in the spread between the central bank refinancing interest rate and the market interest rate is endogenously determined by the total demand and supply of liquidity-money. The paper also argues that, while the central bank effectively controls the base interest rate, additional conditions are required to control the liquidity-money market interest rate, owing to the conventional nature of the rate of interest Keynes pointed out.

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.

The purpose of study was to analyze the effects of credit risk management on performance of banks in Kenya. The study was guided by the following specific objective; to determine the effects of on bank performance in Kenya. Lending is an investment and therefore as the bank constructs a portfolio it considers an “efficient frontier” of optimal portfolios, offering the maximum possible expected return for a given level of risk. The study was based on modern portfolio, capital asset pricing and liquidity preference theories. It considered the credit scoring model as statistical analysis used by banks to evaluate worthiness of a borrower. The target population of interest was 44 commercial banks categorized into 28 local and 16 foreign banks. They are also categorized into small, medium and large banks. The study used census survey because of the small population. The questionnaires were administered to all respondents of commercial banks in Kenya. Piloting was done to check reliability and validity of data collection and instruments. Data was coded, edited to bring meaning. Multiple regression was also used to test the significance of one variable to the others. Additional secondary data in form of annual reports and financial statements were obtained from Central Bank of Kenya for the period 2011 to 2016. Data collected was analyzed using SPSS version 21.The null hypothesis that liquidity do not have statistically significant influence on of banks performance in Kenya was rejected. Therefore, the independent variable had significant influence on banks performance in Kenya. The bank should take into consideration potential future changes in economic conditions when assessing individual credits and their credit portfolio. The study is significant especially to decision makers involved in the implementation of credit risk management for their banks. The credit managers are able to make strategic, tactical and operational decisions based on the results of a scientific study rather than relying on trial and error.

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.

Post Keynesians, starting with the work of Joan Robinson, G. L. S. Shackle, Sydney Weintraub, and Paul Davidson, have portrayed Keynes’s General Theory and Post General Theory work on the concepts of uncertainty and probability in strictly binary terms, like knowledge-unknowledge, certainty-uncertainty, open–closed, or ergodic-nonergodic. There is no room for Keynes’s fundamental concept of degrees in these Post Keynesian binary representations, which directly conflict with Keynes’s constant categorization throughout his lifetime that probability, liquidity, liquidity preference, disquitetude and uncertainty came in degrees, simply means that Post Keynesians are not Keynesians. There are no binary concepts that appear in Keynes’s decision theory anywhere in anything that he published in his lifetime, be it the A Treatise on Probability, A Treatise on Money, General Theory, or The General Theory of Employment.

The Townshend–Keynes exchanges over decision making, weight of the argument (evidence), non numerical probabilities (Keynes’s term for Boole’s constituent probabilities, used in The Laws of Thought in 1854, that appears on page 163 of the A Treatise on Probability in chapter 15 on inexact measurement and approximation), and the connection between the A Treatise on Probability, the General Theory,and the 1937 Quarterly Journal of Economics, reveal that Keynes’s discussions about uncertainty in the General Theory, and the 1937 Quarterly Journal of Economics article are simply small ,minor footnotes to the A Treatise on Probability. Nowhere in the exchanges between Keynes and Townshend in 1937 and 1938 does either Keynes or Townshend mention or make any reference to the 1937 Quarterly Journal of Economics article, which Joan Robinson, G L S Shackle, Paul Davidson, and Post Keynesian and heterodox economists claim marked a major change in Keynes’s approach to decision making. Keynes, in his replies to Townshend, simply reinforced the strong connections that existed between his concepts of non numerical probability, weight,and his liquidity preference theory of the rate of interest on pages 148 and 240 of the General Theory. There is nothing in the 1937 Quarterly Journal of Economics article that is innovative or original that is not already discussed in far greater depth in chapter 26 of A Treatise on Probability. At best, the 1937 Quarterly Journal of Economics article is a minor footnote to pages 309-312 of chapter 26 of the A Treatise on Probability, which applies to all decision making. The 1937 QJE article emphasizes specifically economic decision making, but does not differ in any way from Keynes’s discussion in 1921. Heterodox economists have simply read into the 1937 QJE article Shackle’s contradictory concept of complete and total uncertainty, which heterodox economists call radical, fundamental, irreducible, genuine, or their latest term, deep, uncertainty. Shackle’s chaotic – kaledic view of a world of complete and total uncertainty was completely rejected by Keynes in his lifetime. Nowhere is this viewpoint even mentioned in the 1937-1938 Keynes-Townshend exchanges. Shackle’s chaotic – kaledic view of a world of complete and total uncertainty appears to be related to the great emphasis he places on the imagination of the decision maker, where decision makers are supposed to make things up based on their constantly changing dreams of the future.

Hicks’s April,1937 Econometrica article purported to provide a unique and different “interpretation” of Keynes’s liquidity preference theory of the rate of interest that centered on the highly elastic range of the LL (LM or LP) curve as being the central, critical and distinct element in Keynes’s liquidity preference theory of the rate of interest that was really original. Supposedly, this was not clearly discussed by Keynes in chapter 15 or anywhere else in the General Theory according to Hicks and the economists who followed Hicks. However, a careful reading of pages 207-208 of the General Theory, combined with Keynes’s February, 1937 Quarterly Journal of Economics article reply to Viner’s claim that the LM curve had to be drawn as having a highly inelastic shape, published two months before Hicks’s Econometrica article, demonstrates that Hicks’s “interpretation” is identical to analysis presented by Keynes in the General Theory in 1936 on pages 207-208 and The General Theory of Employment in 1937. The only unique accomplishment that Hicks made in his April,1937 Econometrica article is to have been the first economist to have actually drawn a LL (LM or LP) function with both highly inelastic and highly elastic ranges in Aggregate Income-rate of interest space that is identical to Keynes’s technical description on pp. 207-208 of the General Theory. His Figures are identical to the explicit, technical descriptions written by Keynes in the General Theory and The General Theory of Employment, where Keynes discussed the elasticities and shapes of the LM (LP) curve. Hicks’s “interpretation” of IS-LM(LP) turns out to be identical to Keynes’s earlier analysis and conclusions, although Hicks failed to see the connection of Keynes’s work on IS-LM (LP) with the D-Z model of the Theory of Effective Demand that was the foundation for Keynes’s IS-LM (LP) model that was presented completely in chapter 21 in section four on pp.298-303 of the General Theory. The correct historical description of the IS-LM model is the Keynes-Hicks-Hansen model and not the Hicks-Hansen IS-LM model. All introductory and intermediate macroeconomics textbooks, as well as all current history of economic thought perspectives on IS-LM, needed to be completely rewritten. Current assessments of Keynes’s original role in the development and construction of the IS-LM model are due to a failure to read what Keynes clearly wrote in 1936 in the GT on pp.207-208 and on pp.218-219 in his GTE.Much of Hicks’s 1937 article is simply rewriting Keynes’s conclusions in different words. The only contribution Hicks made that had not been done by Keynes was to actually draw the curves.

Uncertainty, as unquantifiable risk, was central to Keynes’s philosophy and economics, and continues to be relevant under modern conditions. For Keynes, knowledge is in general uncertain because of the organic nature of the subject matter; quantifiable risk is the special case. He developed a theory of how in practice we can still establish grounds for belief under uncertainty, drawing on weight of argument and multiple strands of reasoning, such that uncertainty is a matter of degree. The degree of uncertainty influences fundamentally the key variable in Keynes’s theory of effective demand: planned investment. Further, money plays a crucial role as the refuge from uncertainty, such that the rate of interest is a monetary rate. Applied to modern institutions and conditions, this theory is shown to explain the recent crisis.

Keynes used his IS-LM(LP) model to reply to Viner’s claims that he had drastically overestimated the role that liquidity preference played in the macro economy in explaining the events of 1929-1933 in the world economy. Viner claimed that liquidity preference could only play a very minor role in impacting the economy as a whole. This amounts to the claim that financial manipulation and stock market speculation can play a role that is, at best, of very minor significance. Viner’s assessment is identical to his claim made in his Journal of Political Economy paper in 1927 that Adam Smith’s criticisms of projectors, imprudent risk takers and prodigals, as illustrated by the very negative impact of the British East India Company on Scotland’s economy in the 18th century, could, at best, play only a very minor role. Viner’s answer was identical to that of Jeremy Bentham, who claimed that Smith’s projectors, imprudent risk takers and prodigals were really just inventors and innovating entrepreneurs. The government authorities should never interfere in the markets for any reason, should “be quite”, and “stay out of the sunshine” of the private sector economy. Of course, this Benthamite Utilitarian creed, taught at the University of Chicago’s Economics department in the 1920’s, is why American government authorities did nothing in the years between 1929-1933 to stop the Great Depression. They had been taught Laissez Faire from University of Chicago economists. Everything was supposed to improve by itself on its own. The economy was guaranteed to recover only if government did nothing. Viner’s argument, then, is that it is impossible to have a liquidity trap (Keynes’s absolute liquidity preference).Keynes challenged Viner’s argument using IS-LM(LP)analysis in his reply in February, 1937. Keynes emphasized in his reply to Viner in February,1937, that he was very concerned about the highly elastic range of the LM(LP) curve. Keynes combined this with an emphasis on the highly inelastic range of the IS curve, as Keynes’s IS curve is the opposite of Viner’s ,since, given Viner’s highly inelastic LM(LP) curve, he needs an IS curve that is highly elastic in order to get “…a small decline in money-income would lead, as stated above, to a large fall in the rate of interest.” Keynes thus is very concerned with the parameters of the IS-LM(LP) curves, although he clearly views the major problem with the IS curve as being its instability and shift ability, due to the impacts of confidence on mec calculations involving expectations. Keynes not only provided the first IS-LM model, but also explicitly considered the elasticity of the curves as well both in the GT in 1936 and in the GTE in 1937. Paul Krugman’s twenty five years of emphasis on the necessity of basing macroeconomics on IS-LM(LP) is correct. A minor point is that it is primarily Keynes, and not Hicks, who was responsible for the explicit development and application of the IS-LM(LP) model. Keynes would, of course, also point out the necessity of grounding IS-LM(LP) on a foundation involving some type of D-Z model.

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.

J M Keynes, in a letter to Joan Robinson on November 9th,1936, responded to the utter mess that Joan Robinson had made of his liquidity preference theory of the rate of interest in the General Theory by stating: “Dear Joan, I beg you not to publish. For your argument, as it stands is most certainly nonsense.” Robinson eventually cut out all of the material, that Keynes had described as nonsense, that dealt with Keynes’s liquidity preference theory of the rate of interest before it was published in book form in 1937. In 1949, Shackle published a paper that is in the same category as Joan Robinson’s paper that was very severely criticized by Keynes in his letter to her of November 9th, 1936. Shackle’s “Probability and Uncertainty”, which he republished uncorrected in 1955 in his book Uncertainty in Economics, demonstrates that Shackle simply did not understand that his entire understanding of probability and decision making was based on the antinomian fallacy. The antinomian fallacy asserts that all moments of time are unique. Therefore, there can be no similarities or dissimilarities, or analogies, or pattern recognition between past event, present events, or future events. The antinomian fallacy, which stands at the center of Shackle’s entire theory of possibility (Shackle had no theory of probability) means that no concept of probability is even possible. Thus, only deduction is possible. Keynes’s conceptualization of an inductive logic, based on his logical theory of probability in the A Treatise on Probability (1921) and its application in the General Theory (1936), had to be completely rejected by Shackle. Shackle’s system directly contradicts and is inconsistent with Keynes logical theory of probability. Keynes himself confirmed Townshend’s 1938 statement in correspondence that the theory of liquidity preference rests on “my theory of probability”, which consisted of (a) the logical relation of probability, P(a/h)=α, where α is a rational degree of belief,(b) non-numerical probability and (c)weight of the evidence. Given this confirmation by Keynes to Townshend, Keynes would have had no choice but to have informed Shackle that his argument in 1949(1955) is “certainly nonsense” which must be revised immediately. Naturally, Shackle never published any paper putting forth his antinomian based theory of possibility while Keynes was still alive. Shackle knew that the result would be a swift and complete critique of his system by Keynes that he could not answer intellectually.

The claim that Keynes regarded himself as a “Chapter 12" Keynesian is inaccurate and misleading. Keynes’s chapter 12 discussion and definition of uncertainty in the General Theory is simply a footnote to his much more general theoretical discussion about uncertainty made in chapter 26 of the A Treatise on Probability in 1921 pages 309-312 which concentrated on economics specifically. This was demonstrated in the 1937-38 Keynes-Townshend correspondence, where there is no discussion of the 1937 QJE article or radical uncertainty. Keynes had two interrelated and interconnected models in the General Theory. They were the D-Z model, which dealt with expected aggregate demand, D, and the IS-LM(LP) model, which dealt with actual or realized aggregate demand, Y. Keynes incorporated uncertainty and expectations into his D-Z model of chapters 20 and 21 after having provided readers of the General Theory with a very brief introduction to the Theory of Effective Demand in Chapter 3 of the General Theory. Keynes’s use of his IS-LM(LP) model in chapter 15 (pp.199-209) provided a brief introduction to the final, complete presentation of his IS-LM(LP) model in Chapter 21 where Keynes brought all of the elements that made up the IS-LM(LP) model together in Section Four of Chapter 21. This analysis incorporated the LM(LP) equation missing from the classical and neoclassical model of the rate of interest (r) that Keynes had demonstrated to Harrod, in his letter of August 27th,1935, was only a single downward sloping curve in (r,Y) space that intersected nothing, so that the existence of a quantitative determinate equilibrium in classical and neoclassical theory was an impossibility in (r,Y) space. Harrod capitulated completely in his letter to Keynes of August 30th,1935 and acknowledged that Keynes had indeed come up with a very important missing equation and had made a major advance in economic theory. Keynes incorporated his August 27th analysis, using a version of Harrod’s original diagram, in chapter 14 of the General Theory on pages 179-182. Keynes showed diagrammatically that the classical and neoclassical theory of the rate of interest amounted to a single IS curve in (r,Y) space that intersected nothing. Data (in his February, 1937 QJE article, he reverts to a "missing equation” characterization) was missing that could only be provided by the LM(LP) curve in order to have a quantitative, determinate, unique equilibrium as stated explicitly by Keynes on page 299 of the General Theory. These interrelated and interconnected models work in harmony together with each other. It is quite impossible to use one without the other and expect to fully grasp Keynes’s mathematical, technical analysis. The D-Z model incorporated expectations and uncertainty in order to analyze the anticipated or expected amount of Effective Demand, D. Based on this analysis, a specific actual or realized amount of Effective Demand, Y, results. Keynes then combines Y with r to show why monetary policy can be completely neutralized if liquidity preference becomes absolute in the highly elastic range of the LM(LP) curve. Keynes decided to present this result on pp.207-208 of the General Theory, as well as in his reply to Viner in the February, 1937 QJE article. Hicks’s version of Keynes’s IS-LM analysis has no foundation in any type of D-Z model and hence is incomplete, as it provided no microfoundations in the theory of the firm, aggregate production function, labor market or necessary and sufficient first and second order conditions for optimality as provided by Keynes in chapter 20 explicitly.

We derive optimal hedging ratios for interest rate risk under different assumptions that underpin the relationship between the forward rate and the expected future spot rate. In some instances, full hedging is optimal, and the conditions for the optimality of a partial hedge are identified. Less hedging (more floating debt in our model) is more optimal under the liquidity preference model than under the unbiased expectations hypothesis. This indicates that in times of higher preference for liquidity less hedging is optimal. Higher preference for liquidity correlates with larger term spreads (a steeper yield curve) and periods of monetary easing. Comparison of the analytical results with historical data indicates that partial hedging for interest rate risk is generally preferable over full hedging strategies with some exceptions. Lastly, the paper shows the role of market timing on hedging decisions.

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.