The defeat and suppression of the classical perspective – with its evolutionary, institutionalist, and developmental descendants – cleared the way for a dogmatic economics that exalted self-regulating competitive markets. Not incidentally, the new hegemony lent itself to the view that governments should intervene only to remove institutional rigidities – monopolies, trade unions, managed prices, food and fuel subsidies, and so forth – preventing realization of the competitive ideal.

As we have seen, this perspective soon ran into serious – but temporary – difficulties with the Great Depression, mass unemployment, and the rise of Keynes, whose theory is revived in Harvard University economist Stephen A. Marglin’s Raising Keynes. At 896 pages and with a minimalist red-lettered cover, those in charge of marketing Marglin’s book are evidently basking in the afterglow of Thomas Piketty’s global bestseller Capital in the Twenty-First Century. But make no mistake: Raising Keynes is a far better and more carefully composed book.

Marglin has carried out the daunting task of rewriting, almost chapter for chapter, Keynes’s 1936 General Theory of Employment, Interest, and Money – complete with myriad graphics and mathematical appendices. Moreover, he gives us what he believes would have been Keynes’s response to all of the subsequent interpretations, criticisms, and inversions of his work, most of which came from economists at MIT (including Samuelson, Franco Modigliani, and Robert Solow) and the University of Chicago (such as Friedman, Lucas, and George Stigler).

Marglin’s basic argument is stated in two parts. First, he focuses on the “Keynesian first-pass model” in the context of the static, general equilibrium framework favored by John Hicks (this is known in textbooks as the IS-LM model). He concludes that within that framework, Keynes’s theory is reduced to dealing with “frictions and rigidities,” implying that “if only” markets were competitive in the neoclassical mode, mass unemployment could not exist.

This view, overwhelmingly dominant among mainstream economists to this day, justifies what journalists call “Keynesian policies”: easy money and budget deficits to fight unemployment. The implication is that eliminating pesky rigidities is just too hard (unless done at gunpoint, as in General Augusto Pinochet’s Chile, or by external diktat, as in many later cases, notably Greece at the hands of the International Monetary Fund a decade ago).

In his “second-pass model,” Marglin resets Keynes in a dynamic frame, dealing with events and changes that occur through time – a manner of thinking that we know from Roncaglia to have been habitual among the classical economists. Crucial elements that can change over time include a business’s hopes and fears for future profits, investors’ desire for yield relative to the security of holding cash, and the willingness of banks to supply loans – thereby creating “bank money” – to those seeking economic gain. In this world – the real world – decisions with uncertain prospects are taken sequentially, and it is the decisions themselves that matter – not whether they happened to be based on “rational” forecasts or whether the course of events was disturbed by some unforeseeable shock.