General Theory Ch. 22

how to use keynes' system to explain How Recessions Work and figure out if one's coming or going

In this last book Keynes is already done laying out the system. We’re in the part of the book where he sets up his logic and models like little toy train sets to show how you can use them to explain things in and around the economy. The idea is that, since Keynes’ model is meant to capture things more clearly than either Marshall or Ricardo – especially around cyclical movements – the pictures should be a lot clearer. Those earlier approaches just sort of assume that Things Change When Things Happen, or, if you want to publish in a fancy journal, they change due to shocks. Those models then can then purportedly explain to you why things had to settle in just the way they did. Kindleberger’s Economic Laws And Economic History examines what can be done with these models, but thanks to Keynes we can do even more. Keynes’ goal is to be able to explain what is happening as it is happening, using the tools developed throughout the General Theory.

There are three chapters in this last book. This first post-theoretical chapter is on the “business cycle”, which is the tendency of markets as a whole to boom and bust, over and above the fates of the particular firms and families within it. The next chapter is on mercantilism and the strategy and consequences of international trade, while the last is on social philosophy downstream from the Economic Base. 

It’s nice to be doing the Business Cycle chapter now. The broader Pandemic Business Cycle is proving incredibly confusing to be for folks approaching it as a mere shock. For the last eight or nine months, nearly everyone has been saying that a recession was merely six months away. What I want to use Keynes to say is that, simply because nothing has happened to bring a recession about, no recession is imminent. For a recession to become imminent something deep has to happen to the state of the economy.

Hopefully, as a result of this chapter and thinking through how the mechanics Keynes describes works, the business cycle might be a little easier to get a handle on. Ideally, we’ll have some time to sneak in a contrast with Marxian Crisis Theories and talk about some of the goofier cycles as well. At the end of the day though, cycles rule. They are so fun that there is a whole industry of guys who liked Fight Club who all read newsletters and pretend to one another that there is some absolutely critical cycle going on that everyone else is missing. You can just watch cycles go up and down all day long, or listen, if you’re more musically inclined.