The interpretation of the manner in which Keynes chose to close this issue depends on our position in the long period-long run debate. On one side, we can argue that Keynes was trying to obtain an entirely non-imperfectionist system, by which, of course, we should eliminate all inklings of rigidities, uncertainty and other intangibles from the arguments which may give us a view of sustained unemployment as an "imperfectionist" model. In this view, unemployment is an equilibrium situation that arises in the long period from a perfectly working system. In this context, Keynes' closure on the issue of confidence seems to be a woefully inadequate escape hatch. Clearly, by resting this part of his thesis on ill-defined "psychological propensities", Keynes had been unable to set his system firmly on a set of economically primitive propositions as might have been originally intended. On the other hand, we must not forget that Keynes also wrote a series of other books and articles, from his 1921 Treatise on Probability to the QJE article (1937), all of which, almost without exception, invoke the important role of historical time and expectations and attempt to work in the short-period. Whether the Keynes of these other writings is the same as the Keynes of 1936 is, of course, an issue which cannot be resolved easily - but we would be hard-pressed to believe otherwise. As such, then, some theorists, such as Tobin (1975, 1980, 1989, 1993), Davidson (1972, 1992), Minsky (1975) and Palley (1992, 1993, 1994), indeed are inclined to rest the Keynesian system on precisely "real world" effects such as these. This need not necessarily be with an eye for a Shackle-style collective losses of confidence as such, but for more precise, reasonable justifications for a permanent failure of traditional adjustment processes. Of course, this interpretation requires that we substitute the idea of (presumably long period) underemployment equilibrium for one of (possibly long time or even permanent) disequilibrium. Tobin stresses this unambiguously:
and:
Which of the two interpretations might be correct? Intuitively, the idea of a long period underemployment equilibrium would be more akin to the the grandiose purpose Keynes alluded to. From this vantage point then, the General Theory remains somewhat unconvincing in its conclusion. However, the parallels between the "protracted disequilibrium" version of the General Theory and his other work, before and after 1936, is striking. To hinge the closure of his thesis on these conceptions is not without earlier and indeed concurrent foundation. Furthermore, it supports the idea of the Marshall-Keynes "behavioral" connection we proposed earlier. We shall then conclude our interpretation with a compromise. We propose that the General Theory was indeed a stab at constructing a "new" theory of demand-determined general equilibrium. It is, as a consequence, also a theory (as opposed to an untheory) of economic fluctuations. However, it has a language of its own: it is not expressed in terms of stale, deterministic relationships in logical time (as of the Walrasian veriety), but, rather, it is imbedded in a matrix built by the type of rich, historical Marshallian behaviorism which infused all of Keynes' other work. Keynes might have garnered illusions of grandeur in assuming he could play Einstein (i.e. that the Neoclassical version would emerge as a special case) and thus led many to assume that his system could be expressed in the static and deterministic language of Walras and still give us an underemployment equilibrium. This is virtually impossible for the construction of the Walrasian system is precisely about market-clearing. As Lucas notes:
In other words, placing Walrasian theory and unemployment together into the same pot results precisely in the type of "untheory" Keynes fought against. The problem, of course, is that Keynes was not really combating Walras but rather Pigou, Robertson, Hawtrey, Lavington and the rest of the Cambridge crowd, the "original" macroeconomists. All of these, at the time, were really Marshallians and not Walrasians but nevertheless committed the fatal error (in Keynes' view) of employing "general" essentially Walrasian resolutions to allocation problems to determine the general levels of output and employment. What Keynes really sought to show was that these theorists were incorrect. The Walrasian question, the question of allocation, is wholly unrelated to the issue of the determination of output and employment. Thus, what might have been Keynes impulse in 1936, as we argued earlier, was to show Pigou that if one carries Marshall's behavior-laden partial analysis to the general context and then on to its logical conclusion, one does not obtain Walrasian results. As Hicks explains in his review:
However, in the middle of correcting the Pigovian generalization of Marshall, Keynes must have felt he was on the verge of a theory which would revolutionize all economics - including the original marginalist thesis. In a way it did, but Keynes's system of protracted disequilibria had to be expressed in Marshallian language. He might not have thought twice about it until after publication, his repeated closures of difficult issues with "expectations" and "conventions" might have seemed natural to him, but the economic world of Cambridge is not that of Lausanne. Just as Pigou might have made a mistake in transposing Walrasian conclusions to Cambridge economics, Keynes did the complementary mistake in alluding to the idea that Cambridge economics could be brought into the marginalist, Walrasian system. But the Walrasian virus he retained inside the system would soon explode into a rash and bring the entire General Theory down. Thus, both interpretations have room for maneouvre here. The underemployment equilibrium interpretation believes that the effort of translating Keynes to Walras should be completed: either by expressing Keynes in Walrasian terms (as the Clower-Leijonhufvud- Post-Walrasian tradition would have it), or by destroying Walrasian theory on its own and letting Keynes's supplant it (as Garegnani, Pasinetti, Eatwell and the Neo-Ricardians have attempted). In the protracted disequilibrium interpretation, efforts to translate Keynes into the language of Walras should be kept to a minimum. The importance of the General Theory is held to be its explanatory power on the real world - defined in the real-time, behavioral sense, with fluctuations in theory rather than untheory. It is through this, rather than internal theoretical logic, that Keynes' system will replace the Walrasian goggles. This type of interpretation unites "fundamentalist" Post Keynesians such as Weintraub, Davidson, Minsky etc., with some of the latter-day Old Keynesians (notably, Tobin and other reformed synthesists). The research program in this interpretation - especially that of the Post Keynesians in particular - is to take Keynes at face-value and attempt to give his work its own distinct foundations which Keynes originally neglected or only hinted at. Both the interpretations of the Keynesian system, then, can be derived. The main difference lies in the stress placed on different parts of Keynes' system: either on his claim to replace all other theory, or in his claim to explain fluctuations with theory. Both, of course, are not incompatible, but one must make clear, in any work involving the General Theory, if the stress lies on "translation" or on "explanation". Nevertheless, the contributions Keynes made to economic analysis as a whole were more profound than merely attempting to find a "market failure" in itself. High among its long list of achievements was the provision of a novel conception of equilibrium and adjustment. Primarily, instead of assuming a "gravitation" towards some unique equilibrium position, the mechanics in Keynes' system allowed for a continuum of gravitation points to be determined by the level of demand. In addition, for each of these points, output (treated here as determined by monetary-cum-demand phenomenon) is the adjustment mechanism rather than the interest rate (a price). These crucial points break away from the Neoclassicals' use of a supply-constrained equilibrium. Furthermore, in spite of all the shortcomings, Keynes never did away with any fundamental economic concepts except Say's Law. On the other hand, he kept vital Marshallian "real-world" components which had been abandoned in the generalization of the classical system. Nevertheless, while Keynes might not have successfully carried out his own mandate in an entirely cohesive manner, he dropped in his path sufficient (perhaps too many) clues and insights on how to close his system. In the establishment of any research program, we should not expect all answers to all questions to be met within the covers of one book - especially when only one, unrevised edition of it is available. True, there are many questions left hanging in the air but they are no more nor loss than the ones placed before any other pathfinder - such as Walras (1874) himself. The difference, however, is that Walras made no deference to previous authorities: he built up his system from scratch. Keynes, on the other hand, selectively altered particular sections of the Classical system to forge his own without changing the underlying classical relationships. Perhaps this was precisely his most crucial error. As Hahn notes:
Keeping one foot in the old Neoclassical paradigm and the other foot in his own system was an invitation to incoherence and contradiction. The disaster became obvious as the Neoclassical-Keynesian Synthesis was launched, believing it could indeed explain Keynes with Neoclassical microfoundations only to find that it would have to make some heroic assumptions and dubious reinterpretations of Keynesian concepts. Was this necessary? Perhaps not.
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