Uncertainty and Rationality: Keynes and Modern Economics

The traditional view of Keynes's theory as 'macroeconomics', rather than the theory of a 'monetary economy', has quite naturally overlooked what it did not expect to be there, but which Keynes considered to be the very heart of his approach, a theory of individual behaviour. This paper attempts to spell out Keynes's ideas on the subject in more detail, pointing to the crucial influence of his earlier Treatise on Probability on his views. Although economists who had written before Keynes had not ignored the analysis of the behaviour of economic agents, he felt that they had not adequately analysed the implications of a changing, unknown future. Yet, most economists who have written after Keynes have ignored his suggestions for a more general approach. Section 1 thus provides an analysis of the essential differences, drawing on the recent contributions of a number of post Keynesian economists. Section 2 builds on this discussion to show how these extensions of Keynes's approach provide the basis for a criticism of the traditional definition of economic 'rationality', as well as providing the basis for an alternative approach to economic rationality.