This paper aims to compare French mathematician Émile Borel and British economist John Maynard Keynes with special reference to probability theory. Borel and Keynes were contemporaries who greatly influenced each other across the English channel each other in the twentieth century. In his influential book, Borel (1938) harshly criticized Keynes’s position on probability theory. Borel regarded probability as a measurable object, thus constituting an important branch of mathematics. In contrast, Keynes thought of probability as a non-measurable phenomenon, thereby belonging rather to a branch of logic. Their controversies attracted attention in some parts of academia, generating a considerable output of papers even after their deaths and to the present day. With hindsight, however, it seems that the differences in their views are very deep-rooted and originated in the critical gulf between the abstract-minded French spirit and the empirical-oriented British tradition. In this paper, we wish to offer a series of fresh angles, thus shedding new light on the French-British controversy over probability. The first angle is offered by the rediscovery of Keynes’s romantic poem on probability, which can be found at the very end of Keynes’s 1921 book but had long been neglected until today. The second angle comes from reinvestigation of Keynes’s original yet almost forgotten concept of “interval-valued probability,” the third angle from the new interpretation of Keynes’s strange diagram on non-comparable probabilities. The fourth is prompted by the question of how and to what extent probability is related to non-measurability and ambiguity. Brief reference to Bruno de Finetti will be made in the final section.
The current debate as to whether zero interest rates are caused by a saving glut or a liquidity glut is resolved with the distinction between the market rate and the “natural”, or better, equilibrium rate, where saving affects only the latter variable, and monetary policy mainly the former. The equilibrium rate represents a particular numerical value of the market rate, an estimated number which is expected to allow for macro equilibrium. This topic is linked to a second one: the monetary determination of the rate of profit in Keynesian capital theory. Explaining the existence of positive equilibrium returns on capital, real and financial, has been a key theme in the history of economic thought, particularly after the seminal work by Böhm-Bawerk. Keynes’s contribution to this debate remained underrated, possibly because he presented his message using the money demand rather than credit supply framework. But if we incorporate liquidity preference into the portfolio choice of a representative investor, a bridge opens to Marx’s M-C-M' formula, which is then based on a different foundation. Finally, zero interest rates evoke Keynes’s vision of the “euthanasia of the rentier”. The data show, however, that we have not reached a state of capital satiation. The rising gap between the rate of profit and the rate of interest poses a challenge for capital theory.
This paper provides a new formulation for the principle of effective demand. this new formulation, the principle boils down to a specific behavior of producer firms (and sellers). After giving new definitions in Section 2, the main part of this paper (Section 3), based on the study by Shiozawa, Morioka, and Taniguchi (2019) Microfoundations of Evolutionary Economics, Springer, Tokyo, proves that the behavior of individual firms generates the macroeconomic result that is typically interpreted as the principle of effective demand. Sections 4 and 5 provide the price theory that explains the irrelevance of price rigidity arguments. While the paper provides a new scheme of microfoundations, Section 6 presents a new framework for methodology arguments between micro and macro. Many Post Keynesians claim that microfoundations are impossible and unnecessary. The paper demonstrates why they are wrong. Finally, Section 7 shows that many fields of economics may find unexplored paths of development in the new scheme which sees micro and macro coherently linked.
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.
Keynes observed that the periodical crises of the early 19th century and the crisis that broke out in 1929 were both due to lack of demand, which in turn resulted from technological unemployment. He went on to argue that the misinterpretation of the crisis by the neoclassical economists of his time derived from the analysis made by Ricardo and the classical school a century before. Both Ricardo and the other classical economists denied that there was any persisting lack of demand, in contrast with the position taken by Malthus and subsequently by Keynes. From this point Keynes developed his critique of the “classical economists” and his project to get over the crisis with a policy of full employment to boost demand. Keynes’s approach proved highly effective in the context of welfare state policies. However, to implement full employment policies under the welfare state it was necessary to launch long-period structural transformations, unforeseen by Keynes. When the long welfare state boom came to an end, the transformations were left only halfway. Thus, technological unemployment and lack of demand returned, and have remained since. To leave them behind, the need would be to adapt the Keynesian policies to completing the structural transformations that were left suspended, and to set about some new ones.
Keynes advocates his own social philosophy, “New Liberalism”, which is based on “social justice”, “economic efficiency”, and “individual liberty”. From the early 1920s to the mid-30s, he persisted in his critical stance on the “Versailles System”, which had plunged Europe into a devastating situation, first putting forward his reconstruction plan for Europe, and then engaging in activities of persuasion and criticism against many confusing pronouncements on reparations and war debt. It should be noted that these activities were based on this social philosophy and “Keynes as an economist” proceeded in tandem with them.
The true value of Keynes’s “New Liberalism” lies in aiming at constructing a social organization that could achieve the best “economic efficiency” subject to “[social] justice”. Although Hobson and Hobhouse’s “New Liberalism”, which had had great influence on British society in the period 1880s-1910s, took the same side in its critical stance on Classical Liberalism, it is rather different from Keynes’s version.