THE ROLE OF THE GOLD STANDARD IN KEYNESIAN MONETARY THEORY

Authors

  • Scott Sumner

    1. Professor, Bentley College, Waltham, Mass., Phone 1–781-891-2945, Fax 1–781-891-2896 E-mail Ssumner@Bentley.edu
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    • *I thank H. Clark Johnson, Axel Leijonhufvud, David Laidler, Hugh Rockoff, Kevin Stiroh, and several anonymous referees for helpful comments and suggestions.


Abstract

This paper shows that many of the most distinctive features of Keynesian economics are best understood if one views the General Theory as essentially a gold standard model. A close examination of Keynes's statements on contemporaneous policy issues suggests that the gold standard had a profound impact on his views on monetary policy effectiveness. In particular, I show that the liquidity trap has been widely misunderstood. Finally, I argue that post–General Theory developments in Keynesian economics are best understood as a response to the inapplicability of Keynes's original message to a world of fiat money regimes. (JEL B22, E12, N1)

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