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The traditional theory of interest, as Keynes understood it (CW, VII: Chapter 14, with Appendix; also CW, XIV: 101–4), was an essential part of a body of economic theory which he regarded as dealing with the ‘real-exchange economy’ (CW, XIII: 409). The task which he sought to undertake, therefore, was to develop an explanation of the phenomenon of interest in the monetary economic system. In doing so he saw himself as filling one of the three major gaps, as he described them, in traditional economic theory (CW, VII: 31). His theory of the determination of the rate of interest and his explanation of the role of the rate of interest in the economic system completes his analysis of the ‘system’s determinants’ on the demand-side. The other two determinants, it will be recalled, are the propensity to consume and the schedule of the marginal efficiency of capital (CW, VII: 183–4).

In The General Theory of Employment, Interest and Money (1936) Keynes set out to answer the question: what determines the employment of the available resources in the monetary- entrepreneur economy? Even to ask that question is to imply that the resources available at any particular time could be employed at different levels. If they could, the output of the economic system as a whole would not be fixed. Other things being equal, the level of output as a whole would correspond with the level at which resources were employed. Hence the question is synonymous with the question: what determines output as a whole? The answer to this question is what, as Keynes said, The General Theory purports to be (CW, VII: xxvi).1 The question is a valid one because (i) we know from experience that the extent to which resources are employed varies from time to time; (ii) the assumptions required to support a theory that resources are normally employed fully or that general unemployment is merely a temporary aberration are not plausible, as is argued below. It is not, however, until the question is addressed in a methodical way that its validity can be fully appreciated. Up to Keynes’s time the ‘pure theory’ relating to the question had ‘seldom been examined in great detail’ (CW, VII: 4). The issue was by no means totally ‘overlooked’, but ‘the fundamental theory underlying it [had] been deemed so simple and obvious that it [had] received, at the most, a bare mention’ (CW, VII: 4–5, footnote omitted).

The General Theory amply demonstrates that Keynes took his ideas about economics in general and about economic theory in particular seriously and followed them conscientiously. Hence, if that book is to be understood, it is essential that his conception of the nature and purpose of economics be appreciated. Although he did not write a systematic account of his views in this connection a reasonably clear picture of his thinking may be gleaned from various passages scattered throughout his writings and his correspondence.

Investment is the second source of demand for current output. For the most part, Keynes’s predecessors and contemporaries did not see any need to explain what determines the demand for goods for investment purposes as a whole. They took it that, savings, whether in physical terms or in monetary terms, were invested and that the rate of interest provided the mechanism which ensured that investment and savings would be equal to each other. Keynes’s insight that the question as to what determines the employment of the available resources had to be addressed, his model of the monetary-entrepreneur economy and his conception of the phenomenon of interest ruled out the possibility that the rate of interest would do any such thing. Accordingly, he had to work out a theory of the demand for output for investment purposes. He did so in a way that complemented his theory of the demand for output for consumption purposes.

Keynes regarded the received treatment of money-wages and of the quantity of money as being particularly unsatisfactory. As he saw it, the presuppositions of the existing theory were irredeemably flawed as far as the effects of changes in money-wages and in the quantity of money were concerned. For that reason he elaborated on the general principles of his own analysis with a view to formulating an explanation of the part wages and the quantity of money play in determining the employment of the available resources which would be consistent with his own method of analysis.

Keynes formulated the theory of the supply of output as a whole in terms of employment. The next step is to discover what governs the demand for output as a whole. As we saw in the previous chapter, he based his theory of the supply of output as a whole on the received theory of the firm. There was no received theory on the demand-side on which he could base a corresponding theory of the demand for output as a whole. Consequently, he had to develop a completely new theory for that purpose. He did so by reference to the demand for output for consumption purposes and to the demand for output for investment purposes. By reckoning consumption and investment in wage-units the employment implied on the demand-side is taken into account. Thereby, the demand for output as a whole is put on the same footing as its supply and the two sides can be analyzed with a view to the discovery of the conditions in which they would be in equilibrium.

The supply-side is as important as the demand-side in the general theory of employment. As in the general theory of value or price the two sides are as important as the two blades of a scissors (Marshall, 1920: 348). Yet Keynes says very little about his supply-side. The reason seems to be that he considers what he calls the aggregate supply function to involve ‘few considerations which are not already familiar’ (CW, VII: 89). ‘The form’, he says, ‘may be unfamiliar but the underlying factors are not new’ (CW, VII: 89). It may be taken, then, that Keynes did not see himself as making any fundamental additions to economic theory in his discussion of the supply-side even though he develops it in terms of the resources which firms employ and the expectations they form in a way which, in retrospect, seems to make a significant addition to the theory of the firm as it was in his own time.

A realistic view of this type of firm is grounded in the context of a capitalist environment without state encouragement. Founding, financing, and operation are considered as well as behaviour and performance. Our approach identified, more clearly than is usual is purely theoretical literature, areas where problems specific to worker co-operatives arise. The problem of why there are few such firms is considered. Also an hypothesis is offered as to why non-worker co-operatives often flourish and the question is posed: if worker co-operatives adopt the survival methods of these types could they be truly labour-directed?

In Ireland, enterprises are regarded as co-operatives if they are registered under the Industrial and Provident Societies Acts 1893–1978. To register, an organisation must satisfy the Registrar of Friendly Societies as to membership size, objectives of the society and acceptability of its rules. The acts, influenced as they are by the laissez-faire attitude of the legislature at that time, leave wide scope as to what may or may not be included in the constitution of ‘rules’ of the society. There are no compulsory clauses which must be inserted in the rules.