Back to the future: a heterodox economist rewrites Keynes’s General Theory of Employment, Interest, and Money to serve as the basis for a macroeconomics for the twenty-first century.
John Maynard Keynes’s General Theory of Employment, Interest, and Money was the most influential work in economics of the twentieth century. But, argues Stephen Marglin, its radical implications were obscured by Keynes’s lack of the mathematical tools necessary to argue convincingly that the problem was the market itself, as distinct from myriad sources of friction around its margins.
Marglin fills in the theoretical gaps, revealing the deeper meaning of the General Theory. Drawing on eight decades of discussion and debate since the General Theory was published, as well as on his own research, Marglin substantiates Keynes’s intuition that there is no mechanism within a capitalist economy that ensures full employment. Even if deregulating the economy could make it more like the textbook ideal of perfect competition, this would not address the problem that Keynes identified: the potential inadequacy of aggregate demand.
Ordinary citizens have paid a steep price for the distortion of Keynes’s message. Fiscal policy has been relegated to emergencies like the Great Recession. Monetary policy has focused unduly on inflation. In both cases the underlying rationale is the false premise that in the long run at least the economy is self-regulating so that fiscal policy is unnecessary and inflation beyond a modest two percent serves no useful purpose.
Fleshing out Keynes’s intuition that the problem is not the warts on the body of capitalism but capitalism itself, Raising Keynes provides the foundation for a twenty-first-century macroeconomics that can both respond to crises and guide long-run policy.
“Stephen Marglin’s magnum opus makes a powerful case that we cannot expect the economy to solve its own problems, and that instead economists and policymakers need to put persistent unemployment at the center of their thinking in order to both better understand the economy and to make a stronger case for using fiscal and monetary policy to change it for the better.”—Jason Furman, Harvard University, former Chairman of the U.S. Council of Economic Advisers
“This is a thought-stimulating reconstruction of John Maynard Keynes’s insight that market economies do not automatically gravitate to full-employment equilibrium even if prices are flexible. Stephen Marglin shows, with modern analytical tools and (yet) in an often entertaining style, how normal signal processing leads to real-time adjustments to shocks that can move a competitive economy out of equilibrium in the short run and into a different equilibrium in the long. He succeeds in demonstrating this without invoking all those frictions and imperfections so indispensable to New Keynesians. The book opens a wide array of unorthodox, but well-founded perspectives on past and current issues of economic policy. It is the fruit of life-long research, and it deserves a wide readership.”—Hans-Michael Trautwein, University of Oldenburg, Germany
“Raising Keynes is a work of great significance that anyone seriously interested in how capitalism functions and malfunctions should read carefully. Stephen Marglin succeeds in clarifying the central ideas in John Maynard Keynes’s revolutionary macroeconomic framework, while also extending and deepening those ideas in important ways, applying the ideas to our contemporary conditions, and also delivering devastating critiques of orthodox macroeconomic theory and practice. The book is also highly accessible for a work of this nature, without skimping at all on technical details—an almost impossible combination to pull off.”—Robert Pollin, University of Massachusetts Amherst
"Marglin has taken 80 years of neoclassical distortions of Keynes, presented them with great clarity in their own language, and then pounded them into dust, pushing the detritus back into the faces of the high priests of the neoclassical synthesis, the New Keynesians, and the New Classical Economists. Raising Keynes issues a challenge that they would be cowardly to refuse – which is not to suggest that they won’t do their best to ignore it."--James Galbraith, University of Texas at Austin
"Stephen Marglin’s Raising Keynes: A Twenty-First Century General Theory is a landmark achievement. Marglin offers a restatement and reformulation of the central message of Keynes’ General Theory… defending it not only from decades of criticism by Keynes’ detractors, but also from what he regards as decades of mischaracterization by the exponents of Keynesian macroeconomics.
This might seem well-traveled ground, and perhaps of purely antiquarian interest at this stage in the development of macroeconomic thought. But… public and professional debates have shown that there is far from a settled consensus about even the most fundamental questions about the economics of severe depressions. Marglin’s review of the issues could therefore not be more timely. And he goes well beyond a simple rehearsal of familiar arguments, carefully developing a more technically sophisticated and internally coherent analysis than the one that Keynes managed to present in the 1930s." --Michael Woodford, Columbia University
Despite all, Keynes has NOT been totally vanquished. Two major crises in little more than a decade have resurrected him. Steve Marglin’s masterful book will certainly help in this revival, especially among graduate students and other economists willing to open their minds and sit down and dig around in the equations. I, for one, will be using Marglin’s book in my graduate macro class. And I very much hope that many others will do the same. Gerald Epstein, University of Massachusetts Amherst
Link to a roundtable about the theory of money in Keynes’s General Theory and Raising Keynes
Galbraith's review on the Project Syndicate website.
Woodford's review on his Columbia University webpage
Epstein's contribution to the Just Money blog