Volume 44, Number 174,
July-September 2013

Return to Keynes: Fundamentals of the General Theory of Employment, Interest and Money, Axel Kicillof, Spain, Editorial Universitaria of Buenos Aires, 2012

Many economists trained in heterodox schools have cast doubt upon the principle theories of neoclassical economics, after observing that real economic circumstances do not tend towards balance. In addition, their theories define and identify crisis as an exceptional and temporary state that the market will correct on its own if allowed to act with absolute freedom. Axel Kicillof's work has therefore come at a timely and significant moment in discussing future of economics, as the dominant theory has proven ineffective in providing socially viable solutions to the international crisis.

In his introduction, Kicillof writes the following: "The general theory is therefore the manifestation of a crisis in orthodox economic theory, in the framework of one of the largest crises that the capitalist system has faced." This declaration invites readers to reflect upon the numerous and currently relevant contributions of John Maynard Keynes, which have been severely questioned by his critics and even his followers.

According to Kicillof, there are two major contributions of Keynes included in the general theory. The first is his sharp criticism of so-called classical economics. The second is the search for a theoretical base different from that offered by orthodox schools of thought. Kicillof's work is focused on describing, analyzing and demonstrating the pertinence and currency of these contributions. Kicillof shows his sharp intellectual mind in consolidating and introducing the major proposals of Keynesian theory as given in his numerous writings, beyond just the general theory. This is no simple task. The reader is able to understand the objectives of Keynesian fundamentals with an educational tone alongside rigorous analysis. This feat is well achieved by the author, thanks to his skillful didactic method.

The author writes that one of the multiple intellectual objectives of Keynes was to contribute to a capitalism that would use numerous and powerful forms of state intervention to overcome inflation and the high levels of unemployment seen during the Great Depression, as this would strengthen and perhaps reform the capitalist system. In light of the orthodox schools of thought advocating for a system whereby a market left to its own devices is infallible, Keynes responded that state intervention is only one of the products resulting from the irreversible process of ongoing economic transformation. For Keynes, reaching this conclusion represented a deep understanding of capitalism in the early years of the twenty-first century. Axel Kicillof goes a step further, and uses the first chapter of the book to narrate how the intellectual aspect was a basic pillar of building the general theory.

The chapter begins by describing the three stages of Keynesian capitalism, whose hypothesis in 1914 definitively closed one of the most significant historical epochs of the system. This demanded a thorough review of the dominant economic schools of thought in each period, as they no longer met the changing needs of society. This chapter has a broad scope, as it takes readers from the changes in company ownership and management in light of the concentration of capital, to the appearance of large monopolies. It also encompasses the revising of another fundamental work of Keynes, known as the Tract on Monetary Reform, which laid the groundwork for later Keynesian criticism of financial markets and central banks.

The premise of the second chapter is to analyze what Keynes called classical theory, the target of criticism in the general theory. The chapter aims to unravel the theoretical postulations of marginalists, such as Marshall, and classicists, such as Ricardo, two people with heterogeneous and opposing ideas that were unified by Keynes as classical theorists given their opposition to modern and contemporary ways of thinking. Keynes chose this denomination for his antagonists, as the idea of including David Ricardo and Alfred Marshall in the same tradition really shows that he tried to unify British economic thought of all ages. The essential proposal of this chapter is to disentangle Say's law, by questioning each and every mechanism to which it is applied: the classic employment, goods and capital market. Keynes proposed abandoning the classical concept of money and capital that sustains these laws.

The third chapter delves further into Keynesian criticism of the classical theory by describing its limitations. This is one of Kicillof's best chapters, as it summarizes the conditions and nature of the Keynesian system, highlighting the most important rupture with classical theory: the volume of using resources. Classical theory is built under the supposed full occupation of resources, but in Keynes, the dimension of the level of occupation and balance is below full employment, unless the system generates incentives to recover this. It is of note that Kicillof analyzes how Keynes reconciles the theory of value with the theory of money. This provided the pattern for Keynes to define a monetary economy, achieving the equilibrium level of production in the short term with variable occupation.

The description of the monetary economy fills the fourth chapter, beginning with an explanation of the Keynesian general theory of employment, and moving to the concept of aggregate supply, effective and aggregate demand. This chapter presents a rigorous review of the general theory of wages and earnings, highlighting the formation of earnings as the use cost of equipment, a variable about which classical economics has little to say, but for which the Keynesian model says that the level of equilibrium employment is reached when businessmen as a whole expect to obtain maximum earnings (the difference between income per sale and total costs). This chapter includes a review of the Keynesian general theory of prices, which depend on the return on factors and the volume of occupation. This same chapter details one of the more valuable contributions of Keynesian theory: the separation between micro and macroeconomics and the review of the concept of the marginal efficiency of capital, which is undoubtedly one of the most important innovations of the Keynesian system.

The fifth chapter seeks to provide a summary of the information presented in the previous chapters, by describing the fundamental concepts that sustain the Keynesian system. Kicillof does say that he feels that analyzing these concepts is no longer so relevant, because economic analysis is tending towards recovering the movement of macroeconomic variables with the mathematical relations that establish causal links between them. This reflection merely highlights the significance of this work, because it shows the currency of the Keynesian school of thought in the context of a chaotic period in contemporary capitalism that requires solutions unlike those proposed by classical theory.

Alejandro López
Institute of Economic Research—unam

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Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 193, April-June 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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