chapter  29
16 Pages

A KEYNESIAN THEORY OF FINANCE AND ITS MACROECONOMIC*

Capitalists, who here include proprietors, portfolio investors and corporations, may be looked on as members of a species, a socio-economic species if not one in nature. Like any other species, the primary concern of capitalists is long-run growth and survival. That means avoiding bankruptcy; and growth, it will be seen, is a necessary condition for avoiding bankruptcy. This chapter presents a theory of finance, that is of saving and investment, which recognizes the concern for survival.1 The saving behaviour that recognizes this concern is captured by Keynes’s consumption function. Investment is where we break new ground. Keynes was highly critical of the neoclassical theory (he called it classical theory) of investment because it failed to recognize and deal with the fact that the future is uncertain. However, Keynes did not go beyond pointing out the unfortunate consequences of that failure, probably because he could not make use of the important developments in capital theory under uncertainty and risk aversion since the end of the Second World War. I believe that Keynes would have considered the theory of investment presented here a satisfactory solution to a problem that he left unsolved.