Keynes and ‘Psychology’

Keynes’ views on expectations, rationality and business decision making have often been misunderstood, most recently by George Akerlof and Robert Shiller in their book, Animal Spirits. In this paper I discuss the role of “psychology” in Keynes’ economic writings, with particular reference to the General Theory. I outline the nature and significance of their misinterpretation in Section 1. Then, in Section 2, I summarise the literature on Keynes, Bloomsbury and Freudian psychology. I argue that it makes far too much of a very tenuous connection between the Cambridge economist and the Viennese psychologist, and cite the (very limited) evidence concerning Freud’s influence on Keynes. In Section 3, I conduct a detailed textual analysis of the use of “psychological”, and related terms, in the General Theory. In Section 4, I extend the discussion to Keynes’ entire Collected Works, before and after 1936. I conclude, in Section 5, that Keynes’ use of “psychology” is unsystematic and confusing, and should have been avoided.