This book reconsiders Keynes's The General Theory of Employment Interest and Money and
establishes a new interpretation. In contrast to the existing models this book finds that the
stickiness in the nominal wage is not crucial for his theory. Moreover the author has also
succeeds in capturing the concept of liquidity in a rigorous mathematical model. In conjunction
with the development of the concept of liquidity the separation of the decision between
savings and capital investment which plays a key role in the principle of effective demand and
denies Say's law is exactly and originally formulated. The theory thus developed is applicable
to elucidating some serious political economic causes that entrap the long-stagnated Japanese
economy. For example an analytical explanation is provided about why disinflation deflation
incessantly progresses despite the exorbitant expansionary monetary policy (ijigen kin-yuu
seisaku) by the Bank of Japan. This phenomenon is an unsolvable question from the
quantity-theoretic approaches (e.g. monetarism and new Keynesianism) which although they
differ in assumptions concerning the length of adjustment periods commonly assume that the
price level sooner or later rises in proportion to the quantity of money. Owing much to Keynes
the author's approach considers that the price level is mainly governed by its marginal prime
cost which is equal to the nominal wage as a first approximation. As such the drastically
sagging wages during the past 10 years provoke serious disinflation deflation. It should be
noted that this discussion never depends on the quantity of money.
