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Keynes’s theories of the business cycle: evolution and contemporary relevance

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  • Pablo G Bortz

Abstract

This paper traces the evolution of John Maynard Keynes’s theory of the business cycle from his early writings in 1913 to his policy prescriptions for the control of fluctuations in the early 1940s. The paper identifies six different ‘theories’ of business fluctuations. With different theoretical frameworks in a 30-year span, the driver of fluctuations, namely cyclical changes in expectations about future returns, remained substantially the same. The banking system also played a pivotal role throughout the different versions, by financing and influencing the behaviour of return expectations. There are four major changes in the evolution of Keynes’s business cycle theories: (i) the saving–investment framework to understand changes in economic fluctuations; (ii) the capabilities of the banking system to moderate the business cycle; (iii) the effectiveness of monetary policy to fine tune the business cycle through the control of the short-term interest rate or credit conditions; and (iv) the role of a comprehensive fiscal policy and investment policy to attenuate fluctuations. Finally, we draw some conclusions about the present relevance of the policy mix Keynes promoted for ensuring macroeconomic stability.

Suggested Citation

  • Pablo G Bortz, 2023. "Keynes’s theories of the business cycle: evolution and contemporary relevance," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 47(4), pages 835-852.
    • Handle: RePEc:oup:cambje:v:47:y:2023:i:4:p:835-852.
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    File URL: http://hdl.handle.net/10.1093/cje/bead020
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    Cited by:

    1. Mark Setterfield & George Wheaton, 2024. "Animal spirits and the Goodwin pattern," Working Papers 2407, New School for Social Research, Department of Economics.
    2. Gabriel Croitoru & Nicoleta Valentina Florea & Daria Florea & Mihai Bogdan Croitoru & Brândușa Adriana Dragomir, 2025. "Measuring the Impact of Social, Economic and Environmental Challenges on Sustainable Development," Journal of Financial Studies, Institute of Financial Studies, vol. 10(18), pages 102-133, May.

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    Keywords

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    JEL classification:

    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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