The Critical Steps in the Transition from the Treatise to the General Theory : An Alternative Interpretation Motivated by the Work of Toshiaki Hirai

Abstract

Paper takes Toshiaki Hirai’s (2007) Keynes’s Theoretical Development: From the Tract to the General Theory as motivation for a re-evaluation of the transition between the Treatise and General Theory. Hirai’s work is important because he frees the transition from the ‘Keynesian’ interpretation, under which Keynes is thought to discover the rationale for fiscal policy and move to ‘output adjustment’ from ‘price adjustment’. I go further and argue that previous interpretations have greatly misunderstood the nature of the General Theory. Keynes was primarily concerned with the cause of economic malfunction, and monetary measures for its prevention. The processes central to both the Treatise and the General Theory concerned interest, investment and saving. The transition concerned the abandoning of the classical and long-run equilibrium relationship that underpinned the Treatise and the move to the «psychological propensities» – the marginal propensity to consume, the marginal efficiency of capital and the schedule of liquidity preference – that were foundation to the General Theory. The steps that led to this discovery are detailed and the importance of the contributions of Keynes’s colleagues are re-evaluated in the light of the reduced emphasis on fiscal considerations.