Reading Keynes’s policy papers through the prism of his Treatise on Probability: information, expectations and revision of probabilities in economic policy

Sylvie Rivot ()
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Sylvie Rivot: BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar

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Abstract: When scholars investigate the legacy of Keynes's Treatise on Probability (1921) for the development of Keynes's thinking, the attention usually focuses on the connections between Keynes's probability theory, his conception of decision-making under uncertainty and the theory of the functioning of the macroeconomic system that derives from it - through the marginal efficiency of capital, the preference for liquidity and the self-referential functioning of financial markets. By contrast, the paper aims to investigate the connections between Keynes's probability theory on the one hand, and his economic policy recommendations on the other. It concentrates on the policy recommendations defended by Keynes during the Great Depression but also after the General Theory. Keynes's economic policy can be understood as a framework for decision-making in situations of uncertainty: fiscal policy aims to induce private agents to change their "rational" probability statements, while monetary policy aims to allow more weight to these statements.

Keywords: Decision Making; Probability Theory; Economic Policy; Financial Markets; Keynes (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-03594813

DOI: 10.1017/S1053837221000377

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