The General Theory II: Behaviour and Rationality

Abstract

This chapter focusses on the GT’s treatment of behaviour under uncertainty and its relationship to rationality. It thus bears on several crucial issues in the interpretation of the GT. Did Keynes base his major economic work on a theory of rational behaviour, or did he assume agent irrationality? What are the differences between Keynes’s treatment of uncertainty and expectations and that of Neoclassicism? What role do probabilities play in his analysis? Did he implicitly accept some version of orthodox rational economic ‘man’, or did he repudiate this concept? In seeking clarity on these issues, particular attention will be paid to both the distinctive characteristics of his approach and the manner in which these are underpinned by his philosophical framework. The relations between the TP and the GT are thus of primary concern. The existence of connections between the two works has been noted by a number of economists, Townshend appearing to be the first, in 1938. The idea has since resurfaced, implicitly and explicitly, in Shackle (1949), Harrod (1951), Leijon-hufvud (1968), Hishiyama (1969), Cochrane (1971), Minsky (1975) and Patinkin (1976a) to name but a few.² The matter has never been pursued with much vigour, however, existing comments being restricted either to obiter dicta, or to brief treatments occasionally based on misunderstandings of Keynes’s philosophy.

Possibly the reader feels that this general, philosophical disquisition on the behaviour of mankind is somewhat remote from the economic theory under discussion. But I think not.

J.M. Keynes 1937

I think … you have put your finger on the spot in saying that they are trying to describe a world in which risk exists without uncertainty.

J.M. Keynes 1937

All this is just as true of the non-economic as of the economic man. But it may well be … that when we remember all this, we have to abate somewhat from the traditional picture of the latter.

J.M. Keynes 1938¹