The General Theory After 80 Years Fernando Ferrari Filho Professor of Economics at UFRGS and Researcher at CNPq and IX International Conference of the Brazilian Keynesian Association São Paulo, September 3, 2016

The General Theory (GT) revolutionizes economics at least in two ways: (i)Policy → It introduces a new framework in economics, that is, fiscal policy*; (ii)Theory → It presents a theory in which the capitalist system is inherently unstable and the economic “equilibrium” depends on the level of effective demand. (*) The Means to Prosperity, The Keynesian revolution

From Treatise on Money (TM) to GT: (i) TM → “Asset choice theory” (industrial and financial circulation of capital and bull and bear agents) and endogenous money. “in equilibrium (...) when the factors of production are fully employed, when the public is neither bullish nor bearish of securities and is maintaining in the form of savings-deposits neither more nor less than the ‘normal’ proportion of its total wealth, and when the volume of saving is equal both to the cost and to the value of new investments – there is a unique relationship between the quantity of money and the price-levels (...) if the quantity of money were double the price-levels would be double also. But (...) if the volume of How this revolution is developed?

saving becomes unequal to the cost of new investment, or if the public disposition towards securities takes a turn, even for good reasons, in the bullish or in the bearish direction, then the fundamental price-levels can depart from their equilibrium values without any change having occurred in the quantity of money or in the velocities of circulation.” (Keynes, 1976: 147) “By Industry we mean the business of maintaining the normal process of current output, distribution and exchange and paying the factors of production their incomes (...) By Finance, on the other hand, we mean the business of holding and exchanging existing titles to wealth (...) including Stock Exchange and Money Market transactions, speculation and the process of conveying current savings and profits into the hands of entrepreneurs.” (Ibid.: 243)

“a ‘bear’ (...) is one who prefers at the moment to avoid securities and lend cash, and correspondingly a ‘bull’ is one who prefers to hold securities and borrow cash – the former anticipating that securities will fall in cash-value and the latter that they will rise.” (Ibid.: 250) (ii) The Distinction Between a Co-operative Economy and an Entrepreneur Economy → The modus operandi of a “monetary theory of production” (uncertainty-money-unemployment). “[e]ffective demand may be defined by reference to the expected excess of sale proceeds over variable cost.” (Keynes, 1979: 80) “Money is par excellence the means of remuneration in an entrepreneur economy (…) the use of money is a necessary condition for fluctuations in effective demand.” (Ibid.: 86)

(iii) GT → “Asset pricing theory” and government intervention to stabilize the economic system. Quotations: “unemployment develops (…) – men cannot be employed when the object of desire (i.e. money) is something which cannot be produced and the demand for which cannot be readily choked off.” (Keynes, 2007: 235) “I see (...) the rentier aspect of capitalism as a transitional phase which will disappear (...) I am advocating (...) the euthanasia of the rentier (...) I conceive (…) that a (…) socialisation of investment will prove the only means of securing an approximation to full employment.” (Ibid.: 376 and 378)

The relevance of Keynes today The financial crisis is a failure of the market system (globalization and financial innovation) that was built according to the idea of “the love of money as a possession*” (Keynes, 1972: 329). Since , fiscal and monetary policies have been implemented to mitigate the “great recession” and assure “full employment”. The world economic reform “require[s] restricting the role of finance [financial globalization]” (Skidelsky, 2009: 173). A new Bretton Woods/Clearing Union Plan? Inflation Targeting Regime vis-à-vis Nominal GDP Growth Target. (*) Economic Possibilities for Our Grandchildren (1930).

References KEYNES, J.M. (1972). Essays in Persuasion. London: Macmillan. _____ (1976). Treatise on Money: The pure theory of money: volumes I and II. New York: AMS Press. _____ (1979). The General Theory and After: A supplement. London: Macmillan. _____ (2007). The General Theory of employment, Interest and Money. New York: Palgrave Macmillan SKIDELSKY, R. (2009). Keynes: the return of the master. New York: Public Affairs.