Reason and reasonableness in Keynes: Lessons from the Economic Consequences of the Peace 90 years later

Abstract

The crisis that has hit the world economy has made once again topical the principles that Keynes advocated to address the loss of market confidence and the decline in production and employment. A re-reading of the Economic Consequences of the Peace points along a path parallel to the one usually associated with Keynesian policies - deficit spending and public investments - which relies on the concept of reasonableness. This paper outlines the context in which the Consequences was written and then traces Keynes's approach back to the Bloomsbury background. It is argued that the distinction between reason (or rationality) and reasonableness, to be seen also in Rawls, is one of the characteristic features of Keynes's economic thought which can be used to trace out a parallel between the humiliation of the conquered at Versailles and the debtor mortification inflicted on Lehman Brothers. The conclusion is that the return to Keynes we should wish for is not only a matter of supporting demand in order to avoid general deflation, or reform of the international monetary system to avert the effects of the present world imbalances, but more extensive application of the Keynesian concept of reasonableness against the so-called rationality of individuals and markets. © 2011 Springer-Verlag Berlin Heidelberg.