Acknowledgments
The earlier version was read at the Annual Conference of the European Society for the History of Economic Thought, University of Stirling, Scotland, in June 2005, when I had the benefit of some invaluable observations by Professor Victoria Chick, University College London, and Dr. Geoff Tily, University College London. My gratitude is also due to the anonymous referees for their helpful comments.
Notes
The paper has its origins in Hirai Citation(1997–99, chapter 8).
1One of the major obstacles to studies of Keynes's developmental process is the established understanding formed prior to serious studies based on the primary material. According to this “common knowledge,” the Treatise deals with the determination of price levels only, assuming given quantities of income, while the General Theory treats the determination of income assuming given price levels. This understanding permeates not only the Income-Expenditure Approach but also the Disequilibrium Approach. Thus, in light of this widely shared perception, the Keynesian Revolution is seen to lie in the fact that Keynes established the theory of income in the General Theory, abandoning the theory of prices in the Treatise. If we view Keynes's developmental process with this conviction in mind, there is a risk of serious misunderstanding. Indeed, the material between the two major works seems to have received arbitrary treatment. Our understanding is that both the Treatise and the General Theory treat both prices and quantities, albeit in a different way.
2See Hirai Citation(2004).
3See Hirai Citation(1997–99, chapter 10).
4See Hirai Citation(2007b).
5See Keynes Papers, Reel 27, Tm/1/3.
6Interestingly, Pigou Citation(1931) rates the Treatise highly. For example, he remarks: “[Keynes] claims for his new equation … that it enables the causal sequence, in many sorts of industrial disturbances, to be followed with a surer eye. This is, I think, a valid claim” (p. 544). The only point of criticism is concerned with the Treatise on Money supply function: “as it seems to me, the relation of falling prices to industrial activity can be studied more effectively on the lines made familiar by Professor Irving Fisher than on those that … are followed by Mr. Keynes” (p. 544). The correspondence between Pigou and Keynes survives only very fragmentarily (see JMK.13, pp. 214–18). Keynes stresses the advantages of his fundamental equations over the Cambridge equation in his letter dated May 11. We have the impression that Pigou's understanding of the Treatise as revealed in the letter dated May 1931, is on the right track. See Bridel and Ingrao (Marcuzzo and Rosselli, Citation2005, pp. 157–58).
7This is not Keynes's paper in the Festschrift for Spiethoff (JMK.13, pp. 408–11).
9See, for example, Wicksell (Citation1936, p. 23).
8See Hirai Citation(2005).
10See Hirai Citation(1997–99, chapter 7).
11See Hawtrey (Citation1913, pp. 42–44, 107–10, 124–26).
12See Hawtrey (Citation1928, pp. 84, 94).
13“Tm/a/b/c” (where a, b, c stand for numbers) is a paging system adopted in Keynes Papers.
14It should be noted that “ADDENDUM” (JMK.13, pp. 150–64) is an excerpt produced from these by the editor. We shall, therefore, make use of the original notes.
16We quote this passage as attesting to Keynes's acceptance of Hawtrey's criticism.
17This seems to be Keynes's response to Hawtrey's above-mentioned comment, “The sequence here … prices.” JMK.13, p. 152's reference to “8” might not be appropriate.
15See Tm/1/4/54.
18See Davis Citation(1980), Cain Citation(1982), and Deutscher (Citation1990, p. 105).
19See two sets of lecture notes prepared for the New School of Social Research in New York (June 11, 1931. Keynes Papers, AV/1/40–53. “AV/1/b-c” (where a, b, c stand for numbers) is a paging system actually adopted there). He advocates to raise prices by increasing investment through a fall of the long-term rate of interest. The first fundamental equation and a kind of multiplier theory underlie his argument.
20This is cited by Samuelson Citation(1946) as adumbrating the General Theory.
21See JMK.13, p. 366.
22Keynes did not advocate deficit financing here, nor, let it be noted, did he in any other context throughout his entire career. See Clarke Citation(1997) and Bateman Citation(2005) in criticism of Buchanan and Wagner Citation(1977).
23The quotations above show that he does not accept marginal analysis, for they are responses to H. Schultz's argument based on the short-period marginal cost curve. See JMK.13, p. 372.
24Although Patinkin (Citation1976, p. 84) erroneously regards the letter as showing an equilibrating mechanism, it is still within the Treatise framework.
25Keynes Papers, Reel 33, GTE/1/23–41 “GTE/a/b-c” (where a, b, c stand for numbers) is a paging system actually adopted there). Pen-written, and not contained in JMK.
26Keynes Papers, Reel 35, GTE/5/468–499. Pencil-written, and not contained in JMK.
27 C denotes the quantity of investment goods, A 3 the release of consumption goods by the banks, B 3 the release of investment goods by the banks.
28 A 1 = O 1 + ΔB 1 and A 2 = O 2 + ΔB 2. O i and ΔB i respectively denote output, and the change in the stock of goods i [i = 1, 2] held by the public, where goods 1 are consumption goods and goods 2 capital goods.
29We can learn from Keynes Papers that chapter 8 of the Monetary Theory of Production manuscript was initially entitled “Notes on the Effect of Changes in Output.” Another manuscript with the same title survives (Keynes Papers, Reel 35, GTE/5/424–437). Crossed out in the former is the passage: “So far we have assumed that the quantity of output is constant. And, indeed if we did not distinguish between S and S′, we should have no clue to the effect on output of changes in the Investment and Economy Factors. But the problem can be attacked starting from the equation ΔQ = ΔI + ΔF − ΔE. Let us take the case where ΔQ becomes negative as a result of I decreasing more than F is increasing.” The former manuscript seems to have been written earlier than the latter.
30Keynes expresses this with the term “involuntary unemployment” in a note, “Historical Retrospect” (1932. JMK.13, pp. 406–408), which is still argued in terms of the I-S difference. Here Keynes refers to Mercantilist and protectionist policies, anti-usury laws, etc. It may quite possibly precede the final lecture of the Michaelmas term of 1932. The title of the note is the same as that of chapter 7 in the table of contents of “The Monetary Theory of Production” (JMK.29, p. 49). On the evidence of the titles of chapters 1–4, the table of contents is indubitably related to the The Monetary Theory of Production manuscript, although this note is thought to have been written after the table of contents.
31See JMK.29, p. 50.
32The Monetary Theory of Production manuscript maintains an idea that the price level of investment goods is determined by discounting the prospective yields at the rate of interest.
34See Treatise 1, pp. 259–61.
35See JMK.13, pp. 355–58 and 364.
33There exist two sets of material related to the Monetary Theory of Production manuscript: (i) “Notes on the Definition of Saving,” where the Treatise on Money supply function (JMK.13, p. 279) and the possibility of a cumulative deterioration of the economy (pp. 288–89) are argued. Keynes wrote this note immediately before the Monetary Theory of Production manuscript, and, by using the fundamental equation ΔQ = ΔI + ΔF (where Q denotes profit, I the value of investment, F spending, Δ an increment in X), developed a critique of the theory of forced saving which was advocated by Robertson and others; (ii) the 1932 spring lectures (JMK.29, pp. 35–48). The draft for the lecture of May 2 is in line with the MTP manuscript.
36On this paper in relation to the aggregate supply function, see Marcuzzo (Citation2002, Section 3). Kahn's fellowship dissertation (Kahn, Citation1989) was submitted to King's College in 1929. The “short period” was evidently based on Marshall's idea, which J. Robinson (1962) admired. The dissertation was to influence greatly Keynes's path to the General Theory. See Kahn (Citation1989, p. xi). It is also to be borne in mind that Kahn had delivered his first lectures on the short period in the Lent term of 1931: on the position adopted in his lectures, see, for example, Kahn's Michaelmas lectures for 1932 (in Kahn Papers).
37Aslanbeigui and Oakes (Citation2002, p. 20) argue that “[Keynes] had no theoretical analysis to support his proof.” In fact, however, he had theory (a) from the Treatise on. This is why he hesitated to adopt theory (b).
38There were heated discussions on the supply curve between J. Robinson-Kahn and Sraffa around this period, on which see Marcuzzo (Citation2003, pp. 3–4). Note also Robinson's remark made in the summer of 1931; “Actually the supply of goods in the short period is likely to be fairly inelastic …, but not completely so” (1933a, p. 82).
39Sraffa (Citation1926, p. 543) says that “a very large number of undertakings … work under … diminishing costs.”
40Keynes first discussed it critically in “The First Manuscript” (1933. JMK.29, p. 66). He accepted it in “The Second Manuscript” (1933. JMK.29, p. 72) as well as in the 1933 Michaelmas lectures (JMK.13, p. 420). See Hirai Citation(1997–99, chapter 10).
41For “Keynes's Treatise Influence on Harrod, 1930–39”, see Young (Citation1989, pp. 48–50). Also see Harrod (Citation1969, chapter 7, especially pp. 163–65) which emphasizes the importance of the Treatise in terms of (i) the distinction between cost inflation and demand inflation, (ii) the treatment of investment and saving.
42By contrast, however, Keynes did not accept Roberson's and Hayek's criticisms.
43See Hirai Citation(2004). The manuscript, “The Parameters of a Monetary Economy” has been almost entirely neglected—a significant point distinguishing our interpretation of what marked the end of the Treatise period from the others.
44see Hirai Citation(1997–99, Chapter 10).