Keynes on theorising for policy

Abstract

Keynes made a unique contribution to thought about economic policy in three important respects. First, he spearheaded a new line of thought on macroeconomic theory and policy-making which involved a more active role for the state. Second, he was actively engaged at the centre of economic policy-making in the UK in both the domestic and international spheres. Third drawing on his work in philosophy, the content of his macroeconomics and his experience of policy-making, Keynes developed a distinctive, two-stage, approach to the relationship between theory and policy. This chapter focuses on this third aspect, illustrating it by exploring how Keynes addressed issues such as domestic and international monetary reform. It is argued that Keynes’s methodology as a theorist was geared to facilitating policy application. Employing practical reason, Keynes paid particular attention to policy context in order to identify how theory might need to be modified for application rather than seeking universal application. In a further departure from the emerging positivism in economics Keynes kept on the surface the nature and implications of his political philosophy and also the role of social institutions.