Equilibrium in Keynes: A Note

This paper investigates the elusive notion of equilibrium in Keynes’s General Theory and its implications for subsequent interpretations of his work. Through a formal setup of the core relationships in the first eighteen chapters of the book, I show that Keynes’s model allows for multiple equilibria that critically depend on fixed nominal wages, expectations and confidence. While this structure resembles the IS-LM model, it diverges in its treatment of price flexibility, speculative motives in money demand, and the central role of expectations and confidence. The paper evaluates four possible interpretations of the General Theory, each arising from a different understanding of the notion of equilibrium in Keynes: (1) the neoclassical synthesis view, which relies on nominal wage rigidity; (2) a Tobinian view, in which macroeconomic equilibrium is unique but potentially unstable; (3) a social-norms view, where real rigidities à la Akerlof prevent wage adjustments and therefore multiple equilibria are possible; and (4) a Minskian interpretation that denies the existence of equilibrium altogether. The first interpretation is incompatible with the view expressed by Keynes in the General Theory. The other three, while clearly distinct from each other, are all compatible with Keynes’s argument—although they appear with varying degrees of clarity in the book.