Ramsey’s Belief and the Plausibility of Keynesian Economics

DOI: 10.4236/tel.2015.56084   PDF   HTML   XML   3,999 Downloads   4,409 Views  

Abstract

Using Ramsey’s formulation of the probability theory, this study considers the plausibility of alternative monetary theories—Keynesian and monetarism, which is defined by the people’s confidence in such theories. It is naturally assumed that the more complicated theory entails a dearer cost to understand. Keynesian equilibrium is supported only through belief in the stable intrinsic value of money. Conversely, monetarism requires that laypeople have special and difficult knowledge so as to be confident about its assertion; namely, the linear relationship between nominal money supply and price; the actual value of Marshallian k and the volume of nominal money supply. As such, the Keynesian belief is far more prevalent in the actual economy.

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Otaki, M. (2015) Ramsey’s Belief and the Plausibility of Keynesian Economics. Theoretical Economics Letters, 5, 725-729. doi: 10.4236/tel.2015.56084.

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1] Ramsey, F.P. (1926) Truth and Probability. In: Mellor, D.H., Ed., Philosophical Papers, Cambridge University Press, Cambridge, 52-109.
[2] Otaki, M. (2007) The Dynamically Extended Keynesian Cross and the Welfare-Improving Fiscal Policy. Economics Letters, 96, 23-29. http://dx.doi.org/10.1016/j.econlet.2006.12.005
[3] Otaki, M. (2011) A Pure Theory of Aggregate Price Determination. Theoretical Economics Letters, 1, 122-128. http://dx.doi.org/10.4236/tel.2011.13026
[4] Otaki, M. (2015) Keynesian Economics and Price Theory: Re-Orientation of a Theory of Monetary Economics. Springer, Tokyo. http://dx.doi.org/10.1007/978-4-431-55345-8
[5] Keynes, J.M. (1933) Essays in Biography. In the Collected Writings of John Maynard Keynes, Vol. 10, Cambridge University Press, Cambridge.

  
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