Exorcising animal spirits out of Keynes
Paul Jorion, Stewardship of finance chair, Vrije Universiteit Brussel
To be published in a forthcoming issue of the European Journal of Social Theory: special issue on “Rethinking Capitalism”, 2014
Might be referred to as “European Journal of Social Theory (forthcoming): http://www.pauljorion.com/blog_en/?p=1229″
Torn between the duties associated with the capacities of academic, banker and statesman, Maynard Keynes was in a constant hurry. He glossed over the missing parts of the economic theories he devised by referring to various unfathomable ‘psychological mechanisms’. It is claimed here that interest rates set at the level defined by the marginal yield of capital, a hypothesis Keynes envisaged cursorily but only to assert it leading to ‘circular reasoning’.
Keynes never considered the power balance between lenders and borrowers to be relevant in setting the level of market rates. However, resorting here as a blueprint to the economic arrangement known as sharecropping, power balance between involved parties is shown to be at the core of a fitting explanation.