Keynes and ‘Psychology’

Keynes’ views on expectations, rationality and business decision making have often been misunderstood, most recently by George Akerlof and Robert Shiller in their book, Animal Spirits . In this paper I discuss the role of “psychology” in Keynes’ economic writings, with particular reference to the General Theory . I outline the nature and significance of their misinterpretation in Section 1. Then, in Section 2, I summarise the literature on Keynes, Bloomsbury and Freudian psychology. I argue that it makes far too much of a very tenuous connection between the Cambridge economist and the Viennese psychologist, and cite the (very limited) evidence concerning Freud’s influence on Keynes. In Section 3, I conduct a detailed textual analysis of the use of “psychological”, and related terms, in the General Theory . In Section 4, I extend the discussion to Keynes’ entire Collected Works, before and after 1936. I conclude, in Section 5, that Keynes’ use of “psychology” is unsystematic and confusing, and should have been avoided.