On Keynes

Hansen had been interested in consumption as much as investment. Whilst investment ruled the roost for the business cycle, a consumption index had been a goal for a meaningful measure of real income since the mid-1920s. Hansen’s review of Keynes’s General Theory was at best lukewarm. He quarrelled with Keynes’s definitions of income, saving and investment suggesting that Robertson’s schema would have made the exposition clearer especially in regard to hoarding and credit creation. He felt that Keynes was too polemical and not generous enough to Classical theory, but acknowledged the practical import of argument. Hansen’s apparent conversion from sceptic to critical supporter seemed to come around the period of his AEA presidential address in 1938–1939. In the 1940s, Hansen adopted Keynesian tools, the marginal efficiency of capital and the multiplier, in his business cycle analysis. He still favoured the contribution of technological progress, population, and resource growth to an upwards shift in the marginal efficiency of capital schedule rather than the effect of interest rates moving along it. His textbooks popularised both the Keynesian Cross and ISLM graphical representations of Keynesian Economics, whilst his A Guide to Keynes became an undergraduate staple.