We come now to a short chapter of Keynes’s called “The Choice of Units.” It is less than nine pages long; but it repays close analysis because it strikingly illustrates the inconsistencies in his thinking, as well as the loose, shifting, and sometimes self-contradictory concepts that he considered basic.

Chapter 5 of the General Theory, “Expectation as Determining Output and Employment,” is in the main both sensible and realistic.

Keynes begins by pointing out what ought to be obvious:

The admirers of Keynes’s General Theory never tire of contending that it is “dynamic.” “It has helped to make us think of economics in dynamic rather than in static terms” writes Hansen.1 And again: “The General Theory is something more than just static theory. Over and over again Keynes is thinking in highly dynamic terms.”

1. Confusing Definitions

Chapter 6, “The Definition of Income, Saving, and Investment,” and Chapter 7, “The Meaning of Saving and Investment Further Considered” are among the most confused that even Keynes ever wrote. And upon their confusions are built some of the major fallacies in the General Theory.

1. Digression on Mathematical Economics

1. Reasons for Not Spending

After a first chapter of eighteen pages on “The Propensity to Consume: I. The Objective Factors,” Keynes has a chapter of only five pages on “The Propensity to Consume: II. The Subjective Factors.” He begins by declaring that:

“There are, in general, eight main motives or objects of a subjective character which lead individuals to refrain from spending out of their incomes” (p. 107). It is worth quoting these practically in full:

1. The Magic of It

We now come to the strange concept of “the multiplier,” about which some Keynesians make more fuss than about anything else in the Keynesian system. Indeed, a whole literature has developed around this concept alone.

Let us try to see what Keynes means by the term.

1. Slippery Terms

We have had frequent occasion to note the ambiguities, inconsistencies, and contradictions that run through the General Theory; but in Chapter 11, “The Marginal Efficiency of Capital,” they reach an even higher level than in the chapters preceding.

We shall see, as we go on, that Keynes uses the phrase, “marginal efficiency of capital,” in so many different senses that it becomes at last impossible to keep track of them. Let us begin with his first formal definition:

1. The State of Confidence

1. No “Liquidity” Without Saving