Abstract

A model of Keynes’ integration of monetary and value theory that incorporates the price of non-debt assets as well as the prices of consumption and investment goods is specified below. This model is used to explain how Keynes’ short-run and long-run equilibriums are obtained and the way in which long-run equilibrium leads to economic stagnation in Keynes’ general theory is examined. It is demonstrated that the Keynesian IS/LM model is a special (static) case of this model and that the Marshallian roots of Keynes’ model makes a logically consistent, causal analysis of dynamic behaviour possible while the Walrasian roots of the neoclassical Keynesian model only allow for a description of dynamic behaviour without explanation other than through the invocation of a mythical auctioneer.

Keywords: Keynes, Causality, Methodology, Macroeconomics, Neoclassical, Economic Stagnation, History of Economic Thought, Monetary Theory.