Keynes’s Theories of the Business Cycle

BORTZ PABLO GABRIEL

CAMBRIDGE JOURNAL OF ECONOMICS

Oxford University Press

Año: 2023

0309-166X

This paper traces the evolution of John Maynard Keynes’s theory of the businesscycle from his early writings in 1913 to his policy prescriptions for the controlof fluctuations in the early 1940s. The paper identifies six different ‘theories’ ofbusiness fluctuations. With different theoretical frameworks in a 30-year span, thedriver of fluctuations, namely cyclical changes in expectations about future returns,remained substantially the same. The banking system also played a pivotalrole throughout the different versions, by financing and influencing the behaviourof return expectations. There are four major changes in the evolution of Keynes’sbusiness cycle theories: (i) the saving–investment framework to understand changesin economic fluctuations; (ii) the capabilities of the banking system to moderate thebusiness cycle; (iii) the effectiveness of monetary policy to fine tune the businesscycle through the control of the short-term interest rate or credit conditions; and(iv) the role of a comprehensive fiscal policy and investment policy to attenuatefluctuations. Finally, we draw some conclusions about the present relevance of thepolicy mix Keynes promoted for ensuring macroeconomic stability.