Keynes - 22. Keynes and the Cambridge School G. C. Harcourt...

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22. Keynes and the Cambridge School G. C. Harcourt and Prue Kerr Subject Economics » History of Thought Place Europe » United Kingdom of Great Britain and Northern Ireland People Keynes, John M. DOI: 10.1111/b.9780631225737.2003.00023.x 22.1 Introduction We start with Maynard Keynes's central ideas. We then discuss the strands that emerged in the work of others, some contemporaries, some followers, some agreeing and extending, others disagreeing and/or returning to ideas that Keynes sloughed off or played down. The General Theory is the natural starting point. We trace developments from and reactions to it, especially by people who were associated, at least for part of their working lives, with Cambridge, England. In the concluding paragraphs, we briefly discuss the contributions of those not geographically located in Cambridge who nevertheless worked within the tradition of Keynes and the Cambridge school. 22.2 Keynes and the Classics The General Theory emerged as a reaction to the system of thought, principally associated with Alfred Marshall and A. C. Pigou, on which Keynes was brought up and which he was to subsume, misleadingly, under the rubric of the classical school. Keynes rationally reconstructed the classical system by setting out what, though it could not be found in the writings of any one “classical” economist, must have been assumed and developed if sense were to be made of their attitudes and claims. (Keynes's procedure could be equally well described as opportunistic.) In its most stark form, the classical system assumes a clear dichotomy between the real and the monetary, with the real the dominant partner, at least in the long period. In a competitive environment there is a tendency to market-clearing in all markets (including the labor market), again, at least in the long period. This determines the values of equilibrium normal long-period prices and quantities, including those for the services of the factors of production. It also provides the theoretical value of T in Irving Fisher's version of the quantity theory of money (QTM) ( Y in Marshall's version) and, together with the assumption of an exogenous value of M and a given value of V(k) , makes the general price level ( P ) proportional to M . The natural rate of interest – a real concept – equilibrates real saving and investment, determining the composition of full-employment Y , itself determined by the full-employment equilibrium value of employment in the labor market. The money rate of interest has to adjust to the real rate, which rules the roost.
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This is more a Marshallian than a Ricardian view of the world; it assumes Say's Law in a form in which the original classical political economists would never have stated it, as far as full employment of labor (as opposed to capital) is concerned. This system underlay Keynes's
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This note was uploaded on 03/31/2010 for the course ECONOMICS 321 taught by Professor H during the Spring '10 term at Kadir Has Üniversitesi.

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Keynes - 22. Keynes and the Cambridge School G. C. Harcourt...

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