Economic Events and Keynesian Ideas: The 1930s and the 1970s
Michael R. Darby, James R. Lothian
Keynes' General Th&ry was a brilliant attanpt to plain the paradox
of 1CM interest rates, ineffectual easy rn,netaxy policy, and lowinvestrtnt
during the Great Depression. We argue that Keynes' failure to distinguish
between low naninal and high real interest rates led hint to misinterpret a
tight and ail too effective nonetary policy and unnecessarily hypothesize
a downward shift in investhent dnand. Keynesian ideas in tux profoundly
influenced econanic policy in the 1960s and 1970s. The resulting postwar
inflation -- rather than scholarship on what actually happened in the
1930s -- appears to be the primary reason for the waning influence of the
ideas derived frcin the General Theory.
Published: Darby and Lothian, "Keynes's General Theory: Fifty Years On; Its Relevance and Irrelevance to Modern Times," ed. by John Burton, et.al., Hobart Paperback 24, London: The Institute of Economic Affairs, 1986.