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A Treatise on Money: The Pure Theory of Money / The Applied Theory of Money
2011 Reprint of 1930 Two Volume American Edition. Complete. Two volumes bound into one. Volume One: "The Pure Theory of Money". Volume Two: "The Applied Theory of Money". Full facsimile of the original edition, not reproduced with Optical Recognition Software. Volumes One and Two of Keynes' classic work published in a handy one volume format. Exact facsimile of the original Edition. Keynes had begun a theoretical work to examine the relationship between unemployment, money and prices back in the 1920s. The work was originally published in 1930 in two volumes. We reproduce this two volume edition in one volume. A central idea of the work was that if the amount of money being saved exceeds the amount being invested - which can happen if interest rates are too high - then unemployment will rise. This is in part a result of people not wanting to spend too high a proportion of what employers pay out, making it difficult, in aggregate, for employers to make a profit.
816 pages, Paperback
First published March 31, 2011
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About the author
John Maynard Keynes
413 books710 followersJohn Maynard Keynes, 1st Baron Keynes (CB, FBA), was an English economist particularly known for his influence in the theory and practice of modern macroeconomics.
Keynes married Russian ballerina Lydia Lopokova in 1925.
NB: Not to be confused with his father who also was an economist. See John Neville Keynes.
Keynes married Russian ballerina Lydia Lopokova in 1925.
NB: Not to be confused with his father who also was an economist. See John Neville Keynes.
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March 19, 2020
Keynes’ Treatise on Money might best be described as a work of self-clarification, conceived during the mid-twenties and hastily delivered during the early stages of the Great Depression while his theories were still in development. At the same time, though, it is a watershed work in the evolution of his thought, situated between his earlier monetarist views (e.g. the Tract on Monetary Reform, 1923) and what would now be recognized as ‘Keynesian’ economics, i.e. his General Theory of Employment, Interest and Money (1935).
At over 800 pages, its scope is quite wide: the nature of money and banking, including the theory of the purchasing power of money; the relationship between real (i.e. non-monetary) economic factors such as investment and the monetary dealings of the economy, including the causes and effects of the credit cycle; the structure of international monetary systems and how they affect — and in turn are affected by — national economies; and above all else a theory of central banking as a possible guarantor of price (and with it, economic) stability. At times Keynes’ ideas are not clearly explained, resting as it were on conjecture and colorful analogy, but having begun the work before the run up leading to the Crash of ’29 and having completed it the following year, it should not come as a surprise his desire to hurriedly prepare it for publication amidst such a drastic turn in global events, a period in which economic orthodoxy was proving impotent in the face of rising unemployment, falling incomes, and calls for the revolutionary overthrow of the prevailing socioeconomic order in many countries, whether by socialists and communists or fascists.
Despite the large expanse of topics covered throughout the Treatise, the central inquiry pertains to the nature of the business cycle, and why it is that economies sometimes do not find equilibrium at full employment and price stability. The credit cycle theory of Knut Wicksell looms large throughout the two volumes, mainly that there exists a ‘natural’ rate of interest separate as it were from the prevailing market rate, the former being that rate of interest which equates desired savings with desired investment and is consistent with a stable price level (or, put another way, the rate equal to the real expected return on new investment). It is the discrepancy between the two — indicating an inequality of savings and investment — that gives rise to credit expansions or contractions, which in turn drives changes in the price level and (because of the nominal rigidity of prices, especially wages) the level of employment and the output of goods and services. As long as the banking system is able to bring the two rates into equality and match desired savings and investment, so Wicksell, Keynes, and others believed, stabilization is secured. Impeding this transition to equilibrium from a state of disequilibrium, however, are a host of problems, many of which for Keynes are inherent to banking and the vicissitudes of human psychology, while others are indicative of the undeveloped state of central banking and the management of international trade and capital markets.
Even though the thoughts and theories of the mature Keynes are still a ways off from those in the Treatise, one nonetheless gets clear glimpses of that to which he is groping. His recognition of the international character of monetary systems — including the dilemmas a fixed international exchange standard places on domestic economies, and its ability to transmit shocks across the globe — alludes to the debates that would come to a head at the Bretton Woods conference in 1944 between his British delegation and the American delegation headed by Harry Dexter White, debates which have resurfaced again in the aftermath of the financial crisis of 2007–9. His tangent on ‘productive’ versus ‘unproductive’ consumption in Chapter 28 also appears to foreshadow the theory of the multiplier which would become a cornerstone of his mature theory as laid out in the General Theory. (Only after the first edition of Treatise rolled off the presses did his then-student Richard Kahn publish the first paper explicitly outlining the theory.) And while he remains optimistic about central banks’ capacity to stabilize the level of prices and regulate the credit cycle through the standard toolkit of open-market operations, the discount rate, and the required reserve ratio, Keynes hints at times (most especially in the later parts of Volume 2) of the possibility that monetary policy alone may be ill-equipped to bring desired savings and investment back into equality and restore equilibrium in strongly deflationary circumstances, in which case fiscal policy (e.g. public investment and employment) may play an equally important role as a stabilizer.
All in all the Treatise on Money is a long and sometimes taxing read, but even when it misses the mark it still manages to shed some light on often overlooked and neglected matters. Where Keynes shines is his ability to bring then-available statistics to bear upon his arguments without excessive ‘mathiness’, in addition to his colorful use of metaphors in making hard-to-grasp ideas much more concrete (e.g. the Biblical ‘widow’s cruse’ to explain how the act of consumption by one entrepreneur, while necessarily depleting his own profits, only increases the profits of another, leaving total profits and savings therefrom largely unchanged, an argument also taken up by his Polish contemporary and fellow economist Michal Kalecki who was groping towards many of the same conclusions albeit from a Marxian perspective). Aside from a purely economic and historical curiosity, I would not recommend it to the lay reader, not unless you have plenty of time and patience on hand. For the student of economics or history of economics, its value is perhaps a negative one: clearly defining a problem for inquiry and sketching the limitations of then-prevailing theories in adequately solving it. To paraphrase Ludwig Wittgenstein (a close friend of John Maynard and fellow Cantabrigian), it may be described as a work of elucidation analogous to a ladder which, once climbed, may hence be discarded.
At over 800 pages, its scope is quite wide: the nature of money and banking, including the theory of the purchasing power of money; the relationship between real (i.e. non-monetary) economic factors such as investment and the monetary dealings of the economy, including the causes and effects of the credit cycle; the structure of international monetary systems and how they affect — and in turn are affected by — national economies; and above all else a theory of central banking as a possible guarantor of price (and with it, economic) stability. At times Keynes’ ideas are not clearly explained, resting as it were on conjecture and colorful analogy, but having begun the work before the run up leading to the Crash of ’29 and having completed it the following year, it should not come as a surprise his desire to hurriedly prepare it for publication amidst such a drastic turn in global events, a period in which economic orthodoxy was proving impotent in the face of rising unemployment, falling incomes, and calls for the revolutionary overthrow of the prevailing socioeconomic order in many countries, whether by socialists and communists or fascists.
Despite the large expanse of topics covered throughout the Treatise, the central inquiry pertains to the nature of the business cycle, and why it is that economies sometimes do not find equilibrium at full employment and price stability. The credit cycle theory of Knut Wicksell looms large throughout the two volumes, mainly that there exists a ‘natural’ rate of interest separate as it were from the prevailing market rate, the former being that rate of interest which equates desired savings with desired investment and is consistent with a stable price level (or, put another way, the rate equal to the real expected return on new investment). It is the discrepancy between the two — indicating an inequality of savings and investment — that gives rise to credit expansions or contractions, which in turn drives changes in the price level and (because of the nominal rigidity of prices, especially wages) the level of employment and the output of goods and services. As long as the banking system is able to bring the two rates into equality and match desired savings and investment, so Wicksell, Keynes, and others believed, stabilization is secured. Impeding this transition to equilibrium from a state of disequilibrium, however, are a host of problems, many of which for Keynes are inherent to banking and the vicissitudes of human psychology, while others are indicative of the undeveloped state of central banking and the management of international trade and capital markets.
Even though the thoughts and theories of the mature Keynes are still a ways off from those in the Treatise, one nonetheless gets clear glimpses of that to which he is groping. His recognition of the international character of monetary systems — including the dilemmas a fixed international exchange standard places on domestic economies, and its ability to transmit shocks across the globe — alludes to the debates that would come to a head at the Bretton Woods conference in 1944 between his British delegation and the American delegation headed by Harry Dexter White, debates which have resurfaced again in the aftermath of the financial crisis of 2007–9. His tangent on ‘productive’ versus ‘unproductive’ consumption in Chapter 28 also appears to foreshadow the theory of the multiplier which would become a cornerstone of his mature theory as laid out in the General Theory. (Only after the first edition of Treatise rolled off the presses did his then-student Richard Kahn publish the first paper explicitly outlining the theory.) And while he remains optimistic about central banks’ capacity to stabilize the level of prices and regulate the credit cycle through the standard toolkit of open-market operations, the discount rate, and the required reserve ratio, Keynes hints at times (most especially in the later parts of Volume 2) of the possibility that monetary policy alone may be ill-equipped to bring desired savings and investment back into equality and restore equilibrium in strongly deflationary circumstances, in which case fiscal policy (e.g. public investment and employment) may play an equally important role as a stabilizer.
All in all the Treatise on Money is a long and sometimes taxing read, but even when it misses the mark it still manages to shed some light on often overlooked and neglected matters. Where Keynes shines is his ability to bring then-available statistics to bear upon his arguments without excessive ‘mathiness’, in addition to his colorful use of metaphors in making hard-to-grasp ideas much more concrete (e.g. the Biblical ‘widow’s cruse’ to explain how the act of consumption by one entrepreneur, while necessarily depleting his own profits, only increases the profits of another, leaving total profits and savings therefrom largely unchanged, an argument also taken up by his Polish contemporary and fellow economist Michal Kalecki who was groping towards many of the same conclusions albeit from a Marxian perspective). Aside from a purely economic and historical curiosity, I would not recommend it to the lay reader, not unless you have plenty of time and patience on hand. For the student of economics or history of economics, its value is perhaps a negative one: clearly defining a problem for inquiry and sketching the limitations of then-prevailing theories in adequately solving it. To paraphrase Ludwig Wittgenstein (a close friend of John Maynard and fellow Cantabrigian), it may be described as a work of elucidation analogous to a ladder which, once climbed, may hence be discarded.
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