The Before and After of Keynes’s General Theory

Abstract

On New Year’s Day, 1935, Keynes wrote a letter to George Bernard Shaw. In this letter he stated:

To understand my new state of mind, however, you have to know that I believe myself to be writing a book on economic theory which will largely revolutionize not I suppose at once but in the course of the next ten years the way the world thinks about economic problems. When my new theory has been duly assimilated and mixed with politics and feelings and passions, I cannot predict what the final upshot will be in its effect on actions and affairs, but there will be a great change and in particular the Ricardian Foundations of Marxism will be knocked away.

I can’t expect you or anyone else to believe this at the present stage, but for myself I don’t merely hope what I say. In my own mind I am quite sure.

It seems to me that economics is a branch of logic: a way of thinking. … One can make some quite worthwhile progress merely by using axioms and maxims. But one cannot get very far except by devising new and improved models. This requires … vigilant observation of the actual working of our system. Progress in economics consists almost entirely in a progressive movement in the choice of models.

—J. M. Keynes (1938)