The General Theory Ch. 21
draft of a magnum opus on price theory
“I wanna see the thing in itself
I don’t wanna see nothin else
I wanna see the thing in itself
I don’t wanna think no more”
“The object of our analysis is, not to provide a machine, or a method of blind manipulation, which will furnish an infallible answer, but to provide ourselves with an organized and orderly method of thinking out particular problems; and, after we have reached a provisional conclusion by isolating the complicating factors one by one, we then have to go back on ourselves and allow, as well as we can, for the probable interactions of the factors amongst themselves. This is the nature of economic thinking. Any other way of applying our formal principles of thought (without which, however, we shall be lost in the wood) will lead us into error.”
JM Keynes, Chapter 21, General Theory
Alright! This is the last chapter of the book that is any “work” at all. The last three chapters are all meditations on the broader social, philosophical, and political issues that come up as a consequence of following this description of the economy out to its end. The quote up top is pretty much the best summary of the approach to studying the economy that I try to take. Hopefully the math gets weirder and the description gets thicker over time as people look closer at it, but the basic idea should still, essentially, be the above. There’s just too much going on otherwise.
Keynes opens this chapter by pointing out that most previous economics (and, a hundred years on, plenty of economics today) would start by trying to work out a theory of value, and then figure out how to map that theory onto price. The goal of this chapter — and the reason it comes all the way at the end — is that Keynes sees how prices are much more often determined by the economic system, rather than determining the economic system. And as measures determined by the system, they constitute a way for it and its constituent parts to essentially check in with themselves.
In my opinion, “price” isn’t actually a natural category, which causes problems for the idea that a globally-valid bundle of “relative prices” would actually be globally meaningful. Instead, relative prices tend to describe something like “local curvature”: markets, production and labor all have internal structures that become external structures by being projected onto price. However, this is like applying the same transformation to a bunch of different things in different spaces. For our purposes here, it doesn’t matter if that transformation is thought of in a formal mathematical way, or in a simpler intuitive way, like how you can “yassify” any image by feeding it through a function that alters certain aspects of it in common ways regardless of the appropriateness of the input material. Different market structures weight different prices (and thus different information bundles about different relative prices) differently, and have different structures of response to changes in price.
What is so cool about “money” and “moneyness” is that it is simultaneously the means by which one can access any market regardless of internal structure and the means by which every market structures the relationship between its past, its present, and its future.
Since this is the last “serious” chapter, I am going to give what I think of as a potted history of the intertwined conceptual genealogies of Price Theory. Price Theory has always bugged me, because it seemed like exactly the wrong place to start asking questions about the economy. Yet, because buying and selling are the places every individual person is most likely to first see the economy in their daily life, it’s usually folks’ assumption that it must be where things are the most economic. I don’t think this is right.
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