Keynes’s Methods and the ‘Two Routes to Effective Demand’
The paper considers the different methods of analysis to be found in Keynes’s writing and the differences in interpretation of his theory. Specifically, it looks at the differences in interpretation of effective demand between the Classical-Keynesians and the Fundamentalist-Keynesians, summarized as ‘Two Routes to Effective Demand’, and argues that these differences are a result of the different methods to be found in Keynes’s writing. In the General Theory, we find a multiplicity of methods and Keynes is not explicit about which method is being assumed in his exposition of effective demand. There is a core formal model with logically necessary relations as well as a dynamic, historical method. By closely examining Keynes's Collected Works, the paper provides a taxonomy of the different methods to be found in Keynes. In doing this, the two dimensions of method and theory are used to distinguish the object of analysis and its explanation. Despite sharing a common vision of capitalism with persistent unemployment not caused by price rigidities, the differences are most pronounced over issues of uncertainty and equilibrium in economic theory. Both these interpretations, it is argued, have a specific methodological frame of reference in Keynes’s writing and follow from them. Moreover, the above account is consistent with the literature in post-Keynesian economics on Keynes’s method as well as Keynes’s own restatement in the Quarterly Journal of Economics on the main grounds of departure from marginalist theory. The emphasis on uncertainty has led to the development of a monetary production economy by the Fundamentalist-Keynesians whereas the ‘theory of output as whole’ had led to development of effective demand within the long-period by Classical-Keynesians. It is argued that by using a taxonomy based on method and theory, the advantage to be had is that not only does it explain a wide variety of interpretations, but it also sheds light on their relevance.
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Keywords: Economic Methodology, Post-Keynesian Economics, Classical-Keynesians, Effective Demand
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