Reappraisal of Keynes’s A Treatise on Money as the Theory of Financial History

This essay presents a perspective for reading Keynes’s A Treatise on Money （Treatise） as the theory of financial history. Keynes introduced the Fundamental Equations (FEs) for the analysis of the monetary economy and applied them for understanding of the financial history. The causes of the fluctuation of the monetary economy are analyzed into three elements based on the FEs: monetary, investment and industrial elements. The first phase of credit cycle, recovery from the previous recession, begins with mild profit inflation promoted by excess investment over saving. The second phase, prosperity runs along the profit and commodity inflation with rising general price of commodity and increasing production and employment. The third phase of the cycle, recessions, goes on the process with declining general price. The recession turns to the recovery again with gradual rising general prices. It has been the credit cycle along the financial history since the 17th century. Historical illustration shows us the progress of the monetary economy since early prosperity of the merchant business by joint stock companies such as East India Company, Levant Company and Hudson Bay Company in the 17th Century. The excess investment over saving leads the profit inflation toward This essay presents a perspective for reading Keynes’s A Treatise on Money （Treatise） as the theory of financial history. Keynes introduced the Fundamental Equations (FEs) for the analysis of the monetary economy and applied them for understanding of the financial history. The causes of the fluctuation of the monetary economy are analyzed into three elements based on the FEs: monetary, investment and industrial elements. The first phase of credit cycle, recovery from the previous recession, begins with mild profit inflation promoted by excess investment over saving. The second phase, prosperity runs along the profit and commodity inflation with rising general price of commodity and increasing production and employment. The third phase of the cycle, recessions, goes on the process with declining general price. The recession turns to the recovery again with gradual rising general prices. It has been the credit cycle along the financial history since the 17th century. Historical illustration shows us the progress of the monetary economy since early prosperity of the merchant business by joint stock companies such as East India Company, Levant Company and Hudson Bay Company in the 17th Century. The excess investment over saving leads the profit inflation toward. However, the recessions had been fallen into deep and long depressions since 1890s. Keynes was especially impressed by world-wide depression of 1929-32 and studied on causes and effects of the deflation. It was the origine of Keynes’s macro-monetary economics. The Fundamental Equations in the Treaties evolved with the general theory of the propensity to consumption, the multiplier, the marginal efficiency of capital, the rate of interest and the liquidity preference in The General Theory of Employment, Interest and Money (GT) of 1936.