Economic Events and Keynesian Ideas: The 1930s and the 1970s

Michael R. Darby, James R. Lothian

NBER Working Paper No. 1987
Issued in July 1986
NBER Program(s):   ITI   IFM

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.

(256 K)

(154 K)

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.

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