Looking Backward from the General Theory: On the Historical Origins of Keynes’s Financial Market Views

This part of the book will attempt to set the context for Keynes’s understanding of financial markets. The object is to identify the background and setting of what is distinctive about Keynes’s views on financial markets in the General Theory. It will be assumed that the reader is familiar with the broad outlines of Keynes’s basic theme, whereby investment drives output under the influence of financial market behavior.1 Two specific issues that emerge from his treatment in the General Theory will be followed backward into the literature and history of Keynes’s place and time. First, where did Keynes get his deep institutional understanding of asset market activity, of the purchase and sale of securities and financial instruments of all kinds? To the extent that this “insiders” view of the financial markets permeates his “Liquidity Preference” analysis and his views on stock markets in the General Theory, this is a pertinent question. In this regard his views on speculation and its relationship to the motives of investors is the crucial theme. Second, from whence came Keynes’s theoretical treatment of asset market activity presented in the General Theory — particularly, the most developed expression of it found in Chapter 17? In this regard we need to delve into the influences on his views of what constituted the subject of Chapter 17, “The Essential Properties of Interest and Money.”