What unique insights did Keynes provide in the General Theory?

Jonathan Catalan asks this question in a recent post.

He goes through all the important material I think - where Marshall and Pigou got, what Hicks was doing, etc. Laidler came up in the comment section as one might expect. Hawtrey was there on money. There was surprisingly little discussion of the predecessors of effective demand - arguably the most important "contribution": Malthus, Marx, the mercantilists, and the various assorted underconsumptionists.

I'll let you read the post for what was offered there and just stick to my own thoughts on the question here. I'm not going to go into the details of the ideas here - assuming many of you have some background in it - I'll do more to think about the question itself.

To a large extent, I think it's an ill-posed question, not because it's not getting at something interesting (Keynes's contributions) but because of the sort of expectations it sets up. I doubt there's anything in The General Theory that wasn't anticipated in some way by many others. But this is how every great scientist works. All scientists stand on the shoulders of giants and progress is usually of two forms: tweaking and reorienting. I think Keynes did both to move the science forward, which is why he is so celebrated today.

It's for this reason that I've always thought Laidler's thesis and title in Fabricating the Keynesian Revolution were widely off the mark. His content is fine of course. The problem is it doesn't support the case that the Kenyesian revolution is a myth. Laidler goes through the same usual suspects that Jonathan does, but again misses the point - science isn't conjured up from thin air. It's a social enterprise and it advances by tweaking and reorienting (and funerals, of course). It's not like Keynes or Keynesians try to hide this either. Except for a few contemporaries I'm not sure there's anyone highlighted in Laidler's table of contents that Keynes doesn't himself cite frequently in the book! The same goes for the early Keynesian revolutionaries. One of my favorite early popularizations - Klein's The Keynesian Revolution - goes into great detail on all of these roots. If anyone was under the misapprehension that Keynes sprang fully formed from the head of Zeus it's because they stopped taking economics after their first macro course gloss-over of the man. The simplistic gloss-over is perhaps fine for every-day macroeconomic needs but it's hardly a thesis that a historian of thought needs to tackle. Anybody who cared on a deeper level pretty much  already knew this.

I think it's important not to overstate this point, though. Nothing in Keynes came out of the blue but he didn't just restate things either. Take this whole point about money demand that Jonathan raises. Yes, it's been long recognized that people want to stay liquid. The Cambridge version of the quantity theory made this explicit in a way that the version everyone's used to (do we just call this the monetarist version?) did not. And Keynes was talking about demand for money back when he was a sort of monetarist and long before The General Theory came to be. You don't have to stop with Marshall, though. Thomas Mun - a mercantilist I had mentioned the other day - was talking about this centuries before any of them, and he used it in a Malthusian way to talk about depressions in economic activity. But with perhaps one or two dubious exceptions, Keynes is the first one I know of to have discussed liquidity preference as the foundation of an interest rate theory (those dubious exceptions are both Americans actually: Benjamin Franklin and Irving Fisher each circled the same notion... I'd be interested in others if anyone knows of anyone else). This is a really important contribution even if it's only tweaking what others said. There's a big difference between saying that money demand can cause monetary disequilibrium - people have known that since the dawn of the modern age - and saying that money demand can influence interest rates.

This is the heart of Keynes's critique of the underconsumptionists: they had effective demand and money demand ideas right, but since they didn't have the right interest rate theory they wrongly focused on consumption.

This gets me to what we really celebrate Keynes for: the way he discriminated between ideas and then mixed them together in the right way. Keynes in a nutshell is effective demand, plus liquidity preference theory of the interest rate, plus some observations about the nature of long-run expectations that gives us a theory of investment behavior. Effective demand and the expectations point operate today effectively as they did then. We've re-Wicksellized interest rate theory, but we haven't lost Keynes in the process of doing that. A lot has changed - a lot in the very early years changed in fact. But it all hangs together in broadly the same way.

In many ways, this is a lot like Darwin. The structure of evolutionary biology today is fundamentally Darwinian but that doesn't mean that you can read Origin of the Species and participate in the issues at hand today. Too much has changed. Too much of Darwin's particulars are not operable any more. But the big-picture mechanisms are there which is why we celebrate Darwin. Darwin is also worth pointing too because clearly he too did not make things up out of thin air. Lots of people had not just questioned creation myths before - but had actually proposed evolution by natural selection. So what did Darwin provide that was unique? He put it together in a way that convinced his fellow scientists (eventually) and ushered in a shift in thinking in a way that earlier contributors didn't.

Einstein of course did not emerge out of the blue either! Relativity wasn't new. Poincare was there before (I imagine most of you are up to the task of manipulating m_r = E/c² into something familiar - if so, you need to give Poincare some credit). So was Lorentz, and several others. One thing that Keynes has over Einstein on this count is that at least Keynes went out of his way to cite Marshall, Malthus, Pigou, Hawtrey, Cassel, Fisher, the mercantilists, the underconsumptionists, Marx, etc. as predecessors to his work. As I said before - there's not a whole lot in Laidler's book that Keynes himself doesn't give you! Keynes probaly even cited people that he didn't have to (the "underworld" that wasn't really part of the mainstream scientific enterprise was nice of him to cite, but probably not necessary). When you read Keynes he is just oozing with praise and acknowledgements of the work of others (even people he was allegedly cutting ties with, like Marshall and Pigou). In contrast Einstein was notorious for not citing anyone that had come before him when he wrote up special and general relativity.

But Einstein pulled it together in a way that made it click for people. That doesn't sound as exciting, but that's what it takes. To move science forward you have to present a picture of the world that convinces people. It's one thing to say "people like to stay liquid so they demand money". OK. So? What kind of mileage can you get out of that point? For centuries people pulled a general glut out of that point, which was important. But Keynes got more mileage out of that than anyone else.

Now there's also the question of whether anyone else could have done it. I think the answer to that for any scientist is always "yes, of course someone else could have and in all likelihood would have done it". Intuition and special genius plays a role in the "who" and the "when" of scientific advances, but seemingly simultaneous discoveries are still not that much of a mystery. Current explanations are alway imperfect in certain ways and over time the nature of those imperfections become increasingly obvious. People start to focus on the imperfections and they try to fix them, sometimes through augmentation and sometimes through just reorienting the whole view of things in a way that seems to provide a more natural fit for the world we perceive around us.

Hicks is the natural candidate for who would have done it first if Keynes hadn't. Keynes's priority is of course in part chronological, it's part promotional (Keynes had been pushing these ideas even earlier htan 1936 and was good at pushing them afterwards), and I think it's also that Keynes provides a theory while Hicks provides more of a model.

You need the model-builder, of course. We were on the verge of a new standard for rigor in economics that Hicks played a tremendous part in inaugurating. Keynes probably wouldn't have been as popular as he was if it weren't for Hicks matching a rigorous model to his theory (Hansen as well, I should add). But under the classical theory/model distinction, Keynes really provides the theory and there's some natural primacy involved in that.

Keynes also talked extensively about the psychology of markets and about expectations. I'm sure he had nuggets in there that are genuinely "original". I don't mean to say that no word Keynes wrote was new. But that's obviously not why we celebrate Keynes. We celebrate Keynes because of how he pushed things forward and fit the pieces together.