INTRODUCTION

Although we can agree with Schumpeter that the General Theory lies within the tradition of Monetary Analysis it is not always clear that Keynes's argument is a coherent presentation of the properties of that analysis. Both Kaldor (1983) and Lavoie (1984b) have warned that Keynes should not always be followed too closely on some issues. In particular Kaldor (1983) identifies three limitations of the General Theory which are relevant here. These are:

1. The failure to completely escape the quantity theory tradition and acknowledge that in a bank money system changes in the money supply are often the consequence and not the cause of the changes in prices and incomes;

2. Excessive reliance on the Marshallian microeconomic analysis of perfect competition;

3. The failure to deal with international trade and exchange rates, i.e. the closed economy assumption.

The first point has been thoroughly investigated by Moore (1986: ch. 13) who comes to the conclusion that although Keynes recognised the properties of bank money in the Treatise, the suppression of 'all technical monetary detail' in the General Theory led to his treatment of the money supply as fixed. In modern terminology this is usually interpreted to mean that Keynes treated the money supply as exogenous. But treating the money supply in this way is compatible with the quantity theory tradition and inconsistent with the treatment of the rate of interest as an exogenous variable.