Is the General Theory worth reading today?

My first class for graduate Macroeconomics II (ECON 607) was on Wednesday and I began, as I always do, with a very brief overview of the history of macroeconomic thought – a history which begins with Keynes’ General Theory of Employment, Interest and Money (1936).  Published in the wake of the Great Depression, the General Theory contained many new ideas which still animate a lot of research and policy intuitions today.  Virtually all macroeconomics in the 40 years (roughly) following the General Theory was based to some extent on the Keynes’ ideas or on the Hicksian image of Keynes’ ideas in his IS/LM model.  Hick’s IS/LM model was introduced in “Mr. Keynes and the Classics: A Suggested Interpretation” published in Econometrica in 1937.  (In the interest of full disclosure, there are many economists who did not, and do not, accept that Hick’s IS/LM model captures the core ideas in Keynes – a future post perhaps.)

As I was talking about this material in class and trying to give the first-year students a sense of how these contributions connected with work going on now, I made the off-hand remark that I didn’t think that it was really worth reading the General Theory as a first year graduate student.  I didn’t mean that reading the General Theory is a bad thing to do of course.  I just wasn’t convinced it was the best use of the students’ time, at least not at this point in their careers.

My guess is that the important insights of these earlier contributions have been, more or less, adequately incorporated into modern textbooks.  I’m fairly sure that few modern biologists read Darwin’s original Origin of Species, and even fewer modern mathematicians read Euclid’s Elements.  If you want to have a good understanding of modern geometry and number theory, you should simply read a good college-level mathematics text on the subject.  The same holds for the study of evolution.  As great as Darwin’s contribution was, our modern understanding of evolution now eclipses his.  This is the reason behind my casual dismissal of the idea of reading the original General Theory.  If you want a good understanding of these ideas, you are better served by consulting say Mankiw’s intermediate-level Macroeconomics than by reading Keynes or Hicks.  For a somewhat more advanced treatment, you can take a look at Chapter 10 in Blanchard and Fisher (1989).

I would guess that the same holds for other revered tomes as well.  Is there really good reason to read the original Wealth of Nations or Ricardo’s Principles of Political Economy?  I doubt it.  The contributions of authors like Smith, Ricardo and Keynes (and many others), are so important that, when they aren’t advertised in bold type, they swim through the background of graduate and undergraduate textbooks.  Reading a text like Marx’s Capital is of highly dubious value.  True, fewer of Marx’s ideas are present in modern texbooks compared with Smith and Co. and so students are exposed to these ideas less frequently.  There is a good reason for this however:  many of Marx’s ideas simply don’t have much currency in modern economics.

I could of course be completely wrong.  I recall Christy Romer saying that her decision to spend one of her summers in graduate school reading Friedman and Schwarz’s A Monetary History of the United States was one of the best decisions she ever made.  In a course on the history of thought, or on the rhetoric of economics, I would expect the students to read selections of the originals.  And, of course, there are ideas in the earlier works that are poorly understood, underappreciated or simply forgotten.  Remember though, there is a probably a reason these ideas were not incorporated into the contemporary narrative of economics.

But for a graduate student today, the best way to get up to speed is by reading standard modern textbooks.  David Romer has already gathered together what he thinks of as the essential components of modern macroeconomics.  You will learn more and learn faster by reading Romer’s Advanced Macroeconomics than you will by reading the General Theory.


36 thoughts on “Is the General Theory worth reading today?

  1. Welcome to the blogosphere, Chris!

    I think you are correct — the opportunity cost of reading GT is too high, though it should be read at some point. (Not sure the same holds true for Darwin’s Origin–a beautiful read, short and clear). For undergrads, a nice little book is Heilbroner’s “The Worldly Philosophers.” For grads, I would recommend David Laidler’s “Fabricating the Keynesian Revolution.” Here is a review:

    I recommend Laidler’s book highly. What you will find is that the statement you made above:

    “Published in the wake of the Great Depression, the General Theory contained many new ideas which still animate a lot of research and policy intuitions today.”

    is not quite true. As Laidler points out, the ideas in the GT were swirling about in the economic discourse for decades prior to its publication. (The book is not an exercise in disparaging the GT — Laidler is obviously a great admirer of the man and his work.)

    • Thanks for the message! I read the Heilbroner book as an undergrad. I know there are a lot of people who say that many of the ideas in the GT where actually present before. I’m not as well read on that margin as I need to be to comment one way or the other. I’m sure Brad DeLong will respond and tell me I’ve got it all wrong …

  2. Wasn’t it Larry Summers who said that his easiest way of putting out great research was reading Keynes and then mathing it up? Mankiw, Romer, Blanchard and Fisher are all very incomplete treatments of Keynes at best, and barely faithful to the General Theory at worst (which is not to say they they aren’t good treatments of their respective levels of macro). My point being that there are a bunch of relatively neglected insights in the General Theory, which are possibly good for research output if done right, no?

  3. Hi,

    I am here following Noah Smith’s introduction to your blog and look forward to learning a lot from your blogging – I studied economics and went to B. School and I do blog about economics but feel I always learn so much from the ‘pros’: My economics is mostly intuitive…

    Here, though, I just wanted to push back a bit on the usefulness of reading at least some of the Great Ones in the text. You point out that many are not convinced that Hick’s ISLM reflects Keynes’ insights. That’s a pretty important point and, surely, a serious student of economics might want to be able to judge for him/herself whether the ISLM does or does not stand as a good representation of Keynes’ thoughts.

    With regards to Marx, I will be up-front and disclose that, while not a communist, I like a lot of his ideas notably on class and class warfare. But, when debating such sensitive topics with right-wingers or just plain conservative ones, I often prefer to quote Adam Smith – He had many of the same intuitions and made many of the same points (on merchants – aka ‘capitalists’ – colluding to exploit market power, for example) but it always take right-wingers by surprise when the guy they were told was their Prophet turns out to be ‘a socialist’… while they would reject a Marx quote purely as a knee-jerk reaction…

  4. Perhaps there is an equilibrium in which fewer people read the old works because the good novel research ideas are more sparse, and more people read the new works because the novel research ideas are dense but more likely to be discovered by a contemporary. The marginal student may be indifferent — in terms of research output — between reading Keynes and Woodford.

  5. Welcome to the world of blogging.

    On your point that you’re “fairly sure that few modern biologists read Darwin’s original Origin of Species”, one thing that has surprised me in my interactions with biologists in the last few years in just how many have read it cover to cover (and most would have read parts of it). That surprise is in the context of some articles a few years ago expressing amazement that some biologists haven’t read it. Yes, there are some biologists who have not read it, but also many who have (Having said this, it would be nice to conduct a survey).

    One difference between Origin and the General Theory is that Darwin’s theory is still the centerpiece of evolutionary biology. Even though Darwin lacked the tools of genetics, the core ideas of the Origin (more so the first than later editions) have held up well. Even where Darwin could not solve the problem, he often posed the question in the right form for others to examine. Conversely, the General Theory is worth reading, but it’s not the centerpiece of economic thought. And to some people, it’s plain wrong.

    • Good points. Do you think that the biologists you have talked to read it later in their careers or early on? My prior is that such reading would be much more likely later in a career and not as a basic introduction or articulation of the theory of natural selection.

      • Most would have got some exposure to the Origin through graduate school if not before – it is inevitably on a reading list at some point (the question of how often those reading lists are followed is another question). So, some way from an introduction, but part of the learning process.

        One interesting thing about the Origin is how popular it became and still is outside of academia. At the time of its publication, it was the basic introduction and articulation of the theory of natural selection. It was popular with mainstream readers, and the first printing of 1,250 copies in 1859 sold out on its first day. Today it is still read for that purpose (or at least people listen to the Richard Dawkins audiobook version). If someone outside of a university setting wanted an introduction to evolutionary biology, the Origin is not the first book I would recommend, but I’d include some solid chunks of it in their reading list.

  6. One reason to read Keynes that you didn’t mention: he is a marvelous prose stylist. The are probably as many phrases in the General Theory that are quoted daily by economists and investors as there are phrases in Hamlet quoted by the reading public.

  7. Hi Chris,
    I must say that graduate students should read General Theory, because there are ideas there that have not been developed sufficiently… the major idea is Effective Demand. It is a fundamental concept of General Theory and one you do not see in the textbooks. Effective demand is NOT aggregate demand. This is the big mistake…
    Effective demand is one concept that must be understood right away and correctly.
    I have spent over a year developing a model for effective demand and it is an experiment in progress as the economy once again is hitting the effective demand limit.
    Here is my blog for effective demand. The basic definition is that labor share sets a demand constraint upon the utilization of labor and capital… Lots of data developing to show that.

    I will add you to my twitter list. Look forward to reading more from you.

  8. Fisher’s Debt Deflation is a good read. I read it cover to cover on a 3 hour flight a few years ago, it’s dense with insights.

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  10. This post touches on a very important point to me. I am one of those people who is infatuated with the idea of reading through the classics, but actually doing it is a long, disappointing slog. Plato/Socrates may have been a very intelligent man who deserves a lot of credit for kickstarting rational, investigative thought, but we now know that almost everything he believed is false. Our understanding of the world today is so leaps-and-bounds, out-of-the-ballpark different from what people once believed that it makes the pre-moderns seem almost like children by comparison.

    Anyway great post and welcome to blogging!

  11. Keynes pulled a lot of punches in the GT, particularly “the” interest rate, better described, once digging into the complete works, as a “complex” of rates. So, one can begin with the GT, but ought to go deeper. Textbook “moderns” mostly simplify what really isn’t.

    Anyway, for online debating with people who have only heard others simplify, the infallible recipe to never hearing back from any of them is prescribing GT chapter 17. Nobody has done “modern” finance better.

    Mankiw, the Rush Limbaugh of economists? Who knows better but twists and buries? Really?
    A purgative is needed, at least Adam Smith’s ‘Theory of Moral Sentiments,’ where the invisible hand caresses but also slaps.

  12. As you noted, Seth makes a good point that Keynes was a marvelous prose stylist.

    The point I want to make is that I have found reading about HOW great thinkers like Keynes and Marx came to their conclusions, and how they reacted to criticism, to be instructive. As someone pointed out, a lot of Keynes was synthesized from others at the time or before, and he had his small army of brilliant helpers, upon whom he relied heavily. And what I’ve read of Marx impressed me as to his willingness to reexamine his positions, literally to a fault.

    Where one might fit all that into a graduate course, on the other hand, is a good question.

  13. Reading a textbook is a very different thing than reading an original work. Textbooks have as their very purpose as being teaching devices. As such, they summarize and synthesize material found in a whole library of original works. This is what makes them ideal for teaching beginning classes in just about any subject.

    However, when one goes beyond lower division classes, and advances into upper division or graduate work, a higher degree of scholarship is expected. A doctoral thesis which cites extensively to Mankiw’s textbook would certainly be received with giggles and a failing mark. At some point an understanding of the foundational works for any field of study is required for advancement in that field of study.

    • ” At some point an understanding of the foundational works for any field of study is required for advancement in that field of study.”
      No doubt this is true. But I disagree with your conclusions: I don’t think that “understanding…” must come from THOSE works/books.

      “be received with giggles and a failing mark.”
      True: but can you honestly say this isn’t to a large extent a question of… well… status? “Signalling”?
      Worse, this hits the students above all others. The brightest ones are looking for “fashionable” sources of knowledge. Obscurity and legendary status are too sweet a poison to avoid.

      “As such, they summarize and synthesize material found in a whole library of original works. ”
      I would like to point out that to a large extent, scientific books are “not lean”.
      Consider the Origin of Species: “As many more individuals of each species are born than can possibly survive; and as, consequently, there is a frequently recurring struggle for existence, it follows that any being, if it vary however slightly in any manner profitable to itself, under the complex and sometimes varying conditions of life, will have a better chance of surviving, and thus be naturally selected. From the strong principle of inheritance, any selected variety will tend to propagate its new and modified form.”

      Darwin gives his whole game away! In the first sentence, bam.
      I can make it shorter: “If there’s heredity of information, if there’s variability, and if the resources are limited, there will be evolution.”

      The rest of the book, naturally, is very important: that was what really swayed the scientific literati of the day. Providing evidence, considering alternative hypothesis, arguing back and forth.
      But today, that “fat” is … well… obsolete. The evidence and the arguments have moved immensly forward. Additional ideas were added on top (ev. psych, a whole field), some were discarded (panspermia), etc.

      I’m not saying that it’s useless or a mistake to read the old books. But I don’t think it is the most cost effective use of a student’s time. Especially since a lot of those books had been written in an obscure language (i.e. not the conceptual framework used today).

      • “I’m not saying that it’s useless or a mistake to read the old books. But I don’t think it is the most cost effective use of a student’s time.” It’s not effective because of our piecemeal system of education. An integrated system would be able to teach a range of subjects by building upon a base.

        “Especially since a lot of those books had been written in an obscure language (i.e. not the conceptual framework used today).”

        I agree with this critique, but mind you this is again due to the fact that modern scholarship has essentially severed ties with with it’s traditional roots making (almost) anything written after 1900 unreadable. I’m not sure it’s possible to reform economic education through the structures of economic courses alone, but part of that foundation will have to consist in learning to at least read and comprehend old old texts.

  14. Econ textbooks today are just awful the pedagogical structure is messed up, facts are presented naked wholesale without background information, and they haven’t changed in structure or content in 50 years. I’m not kidding, I checked between an intro econ text written no and one written in 1970. The old version is essentially dueling with Marx from start to finish, the new one still is but it seems to have forgotten who Marx is. The difficulties in reading old texts lies largely in understanding the context within which they were written, the background and history of economics should form the core intro. Macro/micro and everything else will fall in place once it’s understood where they belong.

  15. Reading monetary history of United states now, and with this one you are missing one important difference – it is more historical book, apart from being theoretical, so it brings new things to think about even if you are fairly familiar with monetarism.

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  18. I think the value of reading Keynes is to understand a mode of thinking about economics that has no relation to the current vogue for mathematical models. Perhaps it would be better to think about the way things actually work than to focus on the fairy tales told by the Gaussian Copula.

    We learn how to think clearly by reading others who try to think clearly and then by practicing thinking. We do not learn how to think by making up systems of partial differential equations and then guessing at constants.

  19. My first graduate courses in micro and macro were taught with an unusually heavy emphasis on the history of economic thought. They were also two courses from which I feel I learned the most. The macro course was centered around the central relationship between saving and investment which highlighted three basic schools of thought (with a few variations). I’ve always felth that approach made learning fundamental theories in macro easier and more enjoyable. I would encourage economics teachers to follow such an approach in one or more courses.

    As for the biological analogy, economics is not a science in the same sense as biology. Yes the mathematical modeling can be sophisticated and, yes, there’s a vast literature on econometric testing. However, with the exception of some clever papers utilizing natural experimental data and some behavioral research, economics is not really an experimental science. Because a lot of economics is about modeling and examining data for correlations, I think there is more reason to review the history of economic thought than the history of biological thought. I suspect there have been many ideas that have been forgotten through neglect of the history of economic thought that could be useful in modern analysis. An example is the lineage from Smith’s “division of labor being limited by the extent of the market” to Allyn Young’s 1928 article to some strains of endogenous growth theory today. Some really interesting (older) economic ideas are probably not taught in textbooks simply because they are waiting to presented as formal models.

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  21. I don’t have a PhD yet I have read the General Theory twice. Like in any other old book many parts are useless (Keynes going over definitions) or wrong (Keynes’s prediction of secular stagnation). When you read Hamlet you are also confronted with irrelevant stuff (e.g. Shakespeare attack on the current fashion of children actors) but this doesn’t make it a bad drama.
    Back to the General Theory, what I found most valuable about it is the stuff which is not in the modern textbooks.If you only read your Woodford you would wrongly assume that Keynes was a classical economist who thought that there is an excess supply on the labour and product market because of price and wage rigidity. In Ch.19 Keynes makes a general equilibrium analysis and claims that more wage flexibility would actually reduce output, something which is only formalized in Post-Keynesian literature via assuming that wage earners spend more of their income.

    I am not implying that Keynes / the Post-Keynesians was/are right about this. But I have serious issues with the name “New Keynesian” as it is key ingredient is in direct conflict with Keynes’ claim.

    Reading Keynes broadens your horizon, you realize that wage/price stickiness is perhaps not the actual cause of the underemployment equilibrium. And economist who have read their Keynes produce more valuable research. For example Stiglitz and Greenwald wrote a bunch of papers in the nineties in which they dissed New Keynesian literature (via evidence and via pointing out that it is in direct opposition to Keynes) and used asymmetrical information in finance markets to create a situation with an underemployment equilibrium. Sounds pretty actual to me.

  22. Chris, to be clear, you haven’t read the classics you mention right? Smith, Ricardo, Keynes etc. What about Fisher, Minsky or even George?

    Because you only “guess.. that the important insights of these earlier contributions have been, more or less, adequately incorporated into modern textbooks.”

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  24. What would you say if you hear a English literary professor tells his/her English-major students: “Why read classics? That’s a waste of time. A Guide to Classic Literature or a style manual is just enough.”

    You will probably laugh at him. But this is essentially what you are telling your students.

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