ABSTRACT
The modelling in subsequent chapters of this book is based on a combination of process analysis and equilibrium analysis. At least since Debreu (1959; 1962) introduced general equilibrium models into economics, the former technique has all but disappeared from the literature and so may be unfamiliar to many readers. The main purposes of this chapter, therefore, are to describe the method of process analysis and to illustrate its strength by explaining its essential role in discovering what was arguably the fundamentally new result in Keynes's General Theorynamely, that an increase in investment expenditure gives rise to exactly the same increase in voluntary saving. l This important illustration from the history of economic thought also serves as a very good introduction to the modelling of this current book, which involves a very similar process analysis extended to include credit-money flows and the subsequent funding and liquidity preference decisions by firms and households. To provide a context for this chapter's presentation, the first section discusses a philosophical approach in economics known as 'critical realism'. This approach has been developed over many years in a research programme convened by Tony Lawson at Cambridge University (see the essays in Fleetwood, 1999) and lends itself particularly well to the methods adopted in this study.
