Introduction

Abstract

In the first half of the twentieth century, John Maynard Keynes provided a theoretical explanation for the operation of a free-market economy. This theory and the associated practical conclusions are lost to society. The ‘Keynesian’ economics that is most closely associated with John Hicks, Alvin Hansen and Paul Samuelson has betrayed not only Keynes’s economic theory but also his policy conclusions. Throughout his life, Keynes was primarily concerned with monetary policy. Ultimately, Keynes set out debt-management, monetary and international financial policies that would facilitate the setting of appropriate rates of interest across the spectrum of liquidity.

We might play with the idea that the inability of the interest rate to fall has brought down empires. … Thus, it is of overwhelming importance that the optimum interest rate be determined by institutions and banking practice. And the bad effect of saving must be recognised. All past teaching has (if my view here given is correct) been either irrelevant, or else positively injurious. We have not only failed to understand the economic order under which we live, but we have misunderstood it to the extent of adopting practices which operate most harshly to our detriment, so that we are tempted to cure ills arising out of our misunderstanding by resort to further destruction in the form of revolution.

(Martin Fallgatters notes of Keynes’s 1933 lectures, quoted in Skidelsky, 1992, p. 502)