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This is an essay written by Samuelson with regard to Keynes’ General Theory. I’ll address it it sections.

The Impact Of The General Theory.
Econometrica, July 1946.
by Paul A. Samuelson

I have always considered it a priceless advantage to have been born as an economist prior to1936 and to have received a thorough grounding in classical economics. It is quite impossible for modern students to realize the full effect of what has been advisably called “The Keynesian Revolution” upon those of us brought up in the orthodox tradition. What beginners today often regard as trite and obvious was to us puzzling, novel, and heretical. To have been born as an economist before 1936 was a boon—yes. But not to have been born too long before!

Bliss was it in that dawn to be alive, But to be young was very heaven!

The General Theory caught most economists under the age of 35 with the unexpected virulence of a disease first attacking and decimating an isolated tribe of south sea islanders.

Economists beyond 50 turned out to be quite immune to the ailment. With time, most economists in between began to run the fever, often without knowing or admitting their condition.

I must confess that my own first reaction to the General Theory was not at all like that of Keats on first looking into Chapman’s Homer. No silent watcher, I, upon a peak in Darien. My rebellion against its pretensions would have been complete. Except for an uneasy realization that I did not at all understand what it was about. And I think I am giving away no secrets when I solemnly aver— upon the basis of vivid personal recollection—that no one else in Cambridge, Massachusetts, really knew what it was about for some twelve to eighteen months after its publication. Indeed. until the appearance of the mathematical models of Meade, Lange. Hicks, and Harrod, there is reason to believe that Keynes himself did not truly understand his own analysis.

Fashion always plays an important role in economic science: new concepts become the ‘mode and then are passe. A cynic might even be tempted to speculate as to whether academic discussion is itself equilibrating: whether assertion, reply, and rejoinder do not represent an oscillating divergent series, in which—to quote Frank Knight’s characterization of sociology—”bad talk drives out good.”

In this case, gradually and against heavy resistance, the realization grew that the new analysis of effective demand associated with the General Theory was not to prove such a passing fad, that here indeed was part of “the wave of the future.” This impression was confirmed by the rapidity with which English economists, other than those at Cambridge, took up the new Gospel: e.g., Harrod, Meade, and others, at Oxford: and, still more surprisingly, the young blades at the London School, like Kaldor. Lerner. and Hicks, who threw off their Hayekian garments and joined in the swim.

In this country it was pretty much the same story. Obviously, exactly the same words cannot be used to describe the analysis of income determination of, say, Lange, Hart, Harris, Ellis, Hansen, Bissell, Haberler, Slichter, J.M. Clark, or myself. And yet the Keynesian taint is unmistakably there upon every one of us.

Instead of burning out like a fad the General Theory is still gaining adherents and appears to be in business to stay. Many economists who are most vehement in criticism of the specific Keynesian policies—which must always be carefully distinguished from the scientific analysis associated with his name—will never again be the same after passing through his hands. It has been wisely said that only in terms of a modern theory of effective demand can one understand and defend the so called “classical” theory of unemployment. It is perhaps not without additional significance. in appraising the long-run prospects of the Keynesian theories, that no individual, having once embraced the modern analysis, has—as far as I am aware—later returned to the older theories. And in universities where graduate students are exposed to the old and new income analyses. I am told that it is often only too clear which way the wind blows.

Finally, and perhaps most important from the long-run standpoint, the Keynesian analysis has begun to filter down into the elementary textbooks; and, as everybody knows, once an idea gets into these, however bad it may be, it becomes practically immortal.

Thus far, I have been discussing the new doctrines without regard to their content or merits, as if they were a religion and nothing else. True, we find a Gospel, a Scriptures, a Prophet, Disciples, Apostles. Epigoni, and even a Duality: and if there is no Apostolic Succession, there is at least an Apostolic Benediction. But by now the joke has worn thin, and it is in any case irrelevant.

The modern saving-investment theory of income determination did not directly displace the old latent belief in Say’s Law of Markets (according to which only “frictions” could give rise to unemployment and over-production). Events of the years following 1929 destroyed the previous economic synthesis. The economists’ belief in the orthodox synthesis was not overthrown, but had simply atrophied: it was not as though one’s soul had faced a showdown as to the existence of the Deity and that faith was unthroned, or even that one had awakened in the morning to find that belief had flown away in the night: rather it was realized with a sense of belated recognition that one no longer had faith, that one had been living without faith for a long time, and that what, after all, was the difference? The nature of the world did not suddenly change on a black October day in 1929 so that a new theory became mandatory. Even in their day, the older theories were incomplete and inadequate: in 1815, in 1844, 1893, and 1920. I venture to believe that the eighteenth and nineteenth centuries take on a new aspect when looked back upon from the modern perspective, that a new dimension has been added to the rereading of the Mercantilists, Thornton, Malthus, Ricardo, Tooke, David Wels, Marshall, and Wicksell.

Of course, the great depression of the thirties was not the first to reveal the untenability of the classical synthesis. The classical philosophy always had its ups and downs along with the great swings of business activity. Each time it had come back. But now for the first time, it was confronted by a competing system—a well-reasoned body of thought containing among other things as many equations as unknowns; in short, like itself, a synthesis: and one which could swallow the classical system as a special case.

A new system, that is what requires emphasis. Classical economics could withstand isolated criticism. Theorists can always resist facts: for facts are hard to establish and are always changing anyway, and ceteris paribus can be made to absorb a good deal of punishment. Inevitably, at the earliest opportunity, the mind slips back into the old grooves of thought, since analysis Is utterly impossible without a frame of reference, a way of thinking about things, or, in short, a theory.

Herein lies the secret of the General Theory. It is a badly written book, poorly organized; any layman who, beguiled by the author’s previous reputation. bought the book was cheated of his five shillings. It is not well suited for classroom use. It is arrogant, bad-tempered. polemical, and not overly generous in its acknowledgments. It abounds in mares’ nests or confusions. In it the Keynesian system stands out indistinctly, as if the author were hardly aware of its existence or cognizant of its properties; and certainly he is at his worst when expounding its relations to its predecessors. Flashes of insight and intuition intersperse tedious algebra. An awkward definition suddenly gives way to an unforgettable cadenza. When finally mastered, its analysis is found to be obvious and at the same time new. In short, it is a work of genius.

It is not unlikely that future historians of economic thought will conclude that the very obscurity and polemical character of the General Theory ultimately served to maximize its long-run influence. Possibly such an analyst will place it in the first rank of theoretical classics, along with the work of Smith. Cournot, and Walras. Certainly. these four books together encompass most of what is vital in the field of economic theory: and only the first is by any standards easy reading or even accessible to the intelligent layman.
In any case, it bears repeating that the General Theory is an obscure book, so that would be anti-Keynesians must assume their position largely on credit unless they are willing to put in a great deal of work and run the risk of seduction in the process. The General Theory seems the random notes over a period of years of a gifted man who in his youth gained the whip hand over his publishers by virtue of the acclaim and fortune resulting from the success of his Economic Consequences of the Peace.

Like Joyce’s Finnegan’s Wake, the General Theory is much in need of a companion volume providing a “skeleton key” and guide to its contents: warning the young and innocent away from Book I (especially the difficult Chapter 3) and on to Books II, IV and VI. Certainly in its present state, the book does; not get itself read from one year to another even by the sympathetic teacher and scholar.

Too much regret should not be attached to the fact that all hope must now be abandoned of an improved second edition, since it is the first edition which would in any case have assumed the stature of a classic. We may still paste into our copies of the General Theory certain subsequent Keynesian additions, most particularly the famous chapter in How to Pay for the War which first outlined the modern theory of the inflationary process.

This last item helps to dispose of the fallacious belief that Keynesian economics is good “depression economics” and only that. Actually, the Keynesian system is indispensable to an understanding of conditions of over-effective demand and secular exhilaration; so much so that one anti-Keynesian has argued in print that only in times of a great war boom do such concepts as the marginal propensity to consume have validity. Perhaps, therefore, it would be more nearly correct to aver the reverse: that certain economists are Keynesian fellow-travelers only in boom times, falling off the band wagon in depression. If time permitted. it would be instructive to contrast the analysis of inflation during the Napoleonic and first World War periods with that of the recent War and correlate this with Keynes’ influence. Thus, the “inflationary gap” concept, recently so popular. seems to have been first used around the Spring of 1941 in a speech by the British Chancellor of the Exchequer, a speech thought to have been the product of Keynes himself.

No author can complete a survey of Keynesian economics without indulging in that favorite in-door guessing game: wherein lies the essential contribution of the General Theory and its distinguishing characteristic from the classical writings? Some consider its novelty to lie in the treatment of the demand for money, in its liquidity preference emphasis. Others single out the treatment of expectations.

I cannot agree. According to recent trends of thought. the interest rate is less important than Keynes himself believed…As for expectations, the General Theory is brilliant in calling attention to their importance and in suggesting many of the central features of uncertainty and speculation. It paves the way for a theory of expectations, but it hardly provides one. I myself believe the broad significance of the General Theory to be in the fact that it provides a relatively realistic, complete system for analyzing the level of effective demand and its fluctuations. More narrowly. I conceive the heart of its contribution to be in that subset of its equations which relate to the propensity to consume and to saving in relation to offsets-to-saving. In addition to linking saving explicitly to income, there is an equally important denial of the implicit “classical” axiom that motivated investment is indefinitely expansible or contractible, so that whatever people try to save will always be fully invested. It is not important whether we deny this by reason of expectations, interest rate rigidity, investment inelasticity with respect to overall price changes and the interest rate, capital or investment satiation, secular factors of a technological and political nature of what have you. But it is vital for business-cycle analysis that we do assume definite amounts of investment which are highly variable over time in response to a myriad of exogenous and endogenous factors, and which are not automatically equilibrated to full. Discussion employment saving levels by any internal efficacious economic process.

With respect to the level of total purchasing power and employment, Keynes denies that there is an invisible hand channeling the self-centered action of each individual to the social optimum. This is the sum and substance of his heresy. Again and again through his writings there is to be found the figure of speech that what is needed are certain “rules of the road” and governmental actions, which will benefit everybody, but which nobody by himself is motivated to establish or follow. Left to themselves during depression, people will try to save and only end up lowering society’s level of capital formation and saving; during an inflation, apparent self-interest leads everyone to action which only aggravates the malignant upward spiral

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