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Uncertainty and Rationality: Keynes and Modern Economics

In: Fundamental Uncertainty

Author

Listed:
  • John Allen Kregel
  • Eric Nasica

Abstract

The intellectual revolution triggered by Keynes’s General Theory of Employment, Interest and Money (1973c [1936]; hereafter GT) is often described as a shift in emphasis from microeconomics to macroeconomics, and as a shift from study of optimal behaviour of the individual consumer or the individual firm to study of broad statistical aggregates, such as income and employment, or consumption and investment. For a long time macroeconomists thought it unnecessary to provide a special explanation of individual behaviour, but eventually traditional microeconomics was introduced into the Keynesian model to provide ‘micro foundations’ to explain individual decision making. However, Keynes never used the term ‘macroeconomics’, and it soon became obvious that there was an inherent tension between the traditional approach to optimal individual behaviour and the Keynesian explanation of the movements of income and employment.

Suggested Citation

  • John Allen Kregel & Eric Nasica, 2011. "Uncertainty and Rationality: Keynes and Modern Economics," Palgrave Macmillan Books, in: Silva Marzetti Dall’Aste Brandolini & Roberto Scazzieri (ed.), Fundamental Uncertainty, chapter 11, pages 272-293, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-30568-7_11
    DOI: 10.1057/9780230305687_11
    as

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