Keynes’s General, General Equilibrium (GGE) Theory

Abstract

The misinterpretation of the General Theory as a form of Walrasian GE theory has been disastrous for macroeconomics. The quagmire that results from the misuse of the Walrasian GE concept has led opponents to reject all GE concepts. What has been overlooked is Keynes’s alternative GGE concept. Keynes argued that monetary economies are sufficiently stable to allow the application of his GGE theory that, based on Marshall’s methodology, generalises the classical concept of long-period equilibrium by integrating money, expectations, statics, dynamics, and growth. It is shown that Keynes’s GGE theory represents a general diagnostic tool, superior to old and new classical GE theory and applicable to any monetary system.