Using the General Theory to explain the U.S. business cycle, 1950-2009

Despite its professed emphasis on the real world, the post Keynesian literature lacks a history of business cycle fluctuations in a particular economy. This is an extremely important oversight. Not only might such a study be useful to researchers, but students are anxious to acquire practical as well as theoretical knowledge and to see historical applications of theory. This article fills that gap by offering both theory and evidence regarding U.S. cycles from 1950 through the Great Recession. The theory is derived from Keynes's General Theory, while the evidence is composed of a simple statistical analysis along with a narrative covering each expansion and recession. It will be argued that, despite mainstream descriptions of capitalism as a relatively stable system occasionally interrupted by exogenous shocks, business cycles are systemic and a manifestation of the instability inherent to the capitalist system. The complete story cannot be told without reference to fiscal and monetary policy, oil shocks, strikes, and so on—but most of it can.