Rediscovering the Economics of Keynes in an Agent-Based Computational Setting

The aim of this paper is to use agent-based computational economics to explore the economic thinking of Keynes. Taking his starting point at the macroeconomic level, Keynes argued that economic systems are characterized by fundamental uncertainty — an uncertainty that makes rule-based behavior and reliance on monetary magnitudes more optimal to the economic agent than profit — and utility optimization in the traditional sense. Unfortunately, more systematic studies of the properties of such a system were not possible at the time of Keynes. However, the system envisioned by Keynes holds a lot of properties in common with what we today call complex dynamic systems, and we may apply the method of agent-based computational economics to his ideas. The presented agent-based Keynesian model demonstrates, as argued by Keynes, that the economy can self-organize without relying on price movement as an equilibrating factor. In our implementation, self-organization, however, does not mean a steady long run equilibrium but a tendency to generate cycles.