A Monetary Theory of Production: Keynes and the Institutionalists

Abstract

During the past century, perhaps the two most powerful minds devoted to economics have been those of Thorstein Veblen and John Maynard Keynes. One can hardly imagine two men with greater differences in family background, personality, life-style, methodological orientation, and worldly success. Yet, I find their fundamental economic ideas basically similar. This surprising similarity may be explained on grounds that both men were acute and realistic assessors of modern economic institutions, and their respective theories reflect a common, underlying insight into the role of money in those institutions. Both had what may be called a Monetary Theory of Production. By this I mean that each viewed money as the strategic institution of modern capitalism and the chief impediment to full production and full employment in advanced industrial societies, which would be capable of inordinate production if freed from the fetters of monetary and financial institutions. This finding should prove useful as a step toward integrating their ideas into a realistic theory of modern capitalism. A possible outcome might be a macroeconomic theory of institutional economics. A great fault of mainstream economics, beginning with Adam Smith, has been exorcising money from the theory of production; indeed, from

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