Keynes’s Theory in the Era of Global Finance
Jan Kregel
Keynes Seminar UAM Xochimilco Mexico City,October 16-17

Which Era of Globalisation?
• International Financial Flows and internationalmarket integration at the end of the 19th century was as great as it is in the end of the 20th century • Keynes early experience as an economist was formed in this earlier period of globalisation •Early work – Indian Currency and Finance, all dealt with the problems of the breakdown of this period of financial globalisation and the Gold Standard

Tract on Monetary Reform, Treatise on Money And the General Theory?
• The General Theory is usually considered to: – Refer to a closed economy – Presume fixed exchange rates – Ignore international aspects • International capital flows •international trade flows

Indications from Keynes’s

Treatise on Money
• In The Treatise on Money Volume II – the Applied Theory of Money Keynes makes a detailed analysis of the impact of aninternational system with global financial flows under an international standard such as the Gold Standard • Definition of Financial Globalisation– Uniform rates of interest in all countries – Loss of policyautonomy

National Policy Autonomy
• In Chapter 36 of the Treatise Keynes gives a very clear assessment of the impact of international finance on domestic economic conditions in the chapter entitled“National Policy Autonomy” • It deals with the potential policy conflict between international investment flows under an international monetary standard such as the gold standard, and the need tooffset the impact on the economy of the cyclical behaviour of domestic investment decisions. • Today we would talk of national “policy space” for developing countries

National Policy Autonomy
• Asingle international monetary standard requires the Central Bank to relinquish control over domestic interest rates • This implies a uniform rate of interest across countries. • Any attempt to use...
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