According to [the general equilibrium approach to monetary theory], the principal way in which financial policies and events affect aggregate demand … - James Tobin

I had, to be sure, been drawn into economics when the General Theory was an exciting revelation for students hungry for explanation and remedy of the Great Depression. At the same time, I was uncomfortable with several aspects of Keynes’ theory, and I sought to improve what would now be called the microfoundations of his macroeconomic relations.

Ball, Mankiw, Romer and others style themselves as New Keynesians. Their program is to develop improved microeconomic foundations for imperfectly flexible prices. In the process, they hope to illuminate the paradox that individually rational or near-rational behavior can result in significant collective market failures. These are certainly laudable objectives. In the end, I suspect, the program will not change the essential substance of Keynesian macroeconomics. But it will make Keynes more palatable to theorists.

Keynesian economics at a minimum provides a license for welfare state measures and other government efforts towards redistribution of wealth. The license is the faith that macroeconomic stabilization and prosperity are compatible with a wide range of social policies, that modern capitalism and democracy are robust enough to prosper and progress while being humane and equitable. That faith conflicts with the visions of extreme Right and Left, which agree that extremes of wealth and poverty, of security and insecurity, are indispensable to the functioning of capitalism. Keynesian policies helped to confound those dismal prophecies in the past; I think they will do so again.