26 June 2011

But where are your banks, Mr Krugman?
Earlier this month Paul Krugman gave a speech titled Mr Keynes and the Moderns at a Cambridge University conference commemorating the 75th anniversary of the publication of The General Theory of Employment, Interest and Money.

I am glad to note that he has therein seen fit to address a most curious absence in Keynes (see John Maynard Keynes and the dog that did not bark. Although the Great Depression that began in 1929 was accompanied by the wholesale failure of hundreds of banks, the General Theory published in 1936 did not have a word to say about bank rescues. I suggested that this was not a casual oversight on the part of Keynes but proof not only that he never understood the significance of banks but also that most of his assertions assumed an economy where money consisted entirely of currency and would collapse when banks were introduced into the equation.

Krugman's explanation for the absence of banks in Keynes is half-hearted, as if he himself is not really convinced:

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Category: Economics

Philip George
Understanding Keynes to go beyond him

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