This book reconsiders Keynes's The General Theory of Employment,
Interest and Money and establishes a new interpretation. In contrast to
the existing models, this book finds that the stickiness in the nominal
wage is not crucial for his theory. Moreover, the author has also
succeeds in capturing the concept of liquidity in a rigorous
mathematical model. In conjunction with the development of the concept
of liquidity, the separation of the decision between savings and capital
investment, which plays a key role in the principle of effective demand
and denies Say's law, is exactly and originally formulated.
The theory thus developed is applicable to elucidating some serious
political economic causes that entrap the long-stagnated Japanese
economy. For example, an analytical explanation is provided about why
disinflation/deflation incessantly progresses despite the exorbitant
expansionary monetary policy (ijigen kin-yuu seisaku) by the Bank of
Japan. This phenomenon is an unsolvable question from the
quantity-theoretic approaches (e.g., monetarism and new Keynesianism)
which, although they differ in assumptions concerning the length of
adjustment periods, commonly assume that the price level sooner or later
rises in proportion to the quantity of money.
Owing much to Keynes, the author's approach considers that the price
level is mainly governed by its marginal prime cost which is equal to
the nominal wage as a first approximation. As such, the drastically
sagging wages during the past 10 years provoke serious
disinflation/deflation. It should be noted that this discussion never
depends on the quantity of money.
