Buffer Stocks and Granary Formula: The Neglected Keynesian Economics Theory

John M. Keynes provided a new interpretation of Ever-normal Granary in the context of modern macroeconomics. In A Treatise on Money, Keynes introduced the short-period prices theory and its equation expression pq = xy, which reveals the significant impact of clearing surplus products through market mechanisms on prices and output. If the government is introduced into the equation and affects the relevant variables through a buffer stock policy, a stable economic state will emerge. In the Chinese context, the theory of short-period prices can be referred to as the “Ever-normal Granary equation”. Starting from investment practice, Keynes, as early as the 1920s, proposed the use of buffer stocks to address business cycles. And by the 1940s, he had elaborated a post-war global commodity control plan for the implementation of buffer stocks. After Keynes, Richard F. Kahn (1905–1989), a disciple of Keynes, further developed the idea of buffer stocks. Kahn believed that under conditions of limited funds, buffer stocks should play a dual role in speculation and assuming public responsibilities, and their buying and selling behaviors should be more flexible and proactive to prevent being exploited by the market. Keynes’ short-period prices theory and the concept of buffer stocks are intrinsically coherent with his masterwork The General Theory. The essential policy in The General Theory is for the government to carry out organized investments based on the “long-term marginal efficiency of capital” (long-term MEC), or socialization of investment, the essence of which is to use buffer stocks to stabilize the macro-economy. The macro-policy during a depression can be interpreted as follows: when market entities abandon various economic resources and hold money to avoid risks due to poor expectations (collapse of marginal efficiency of capital or MEC), the government should rely on buffer stocks or public works to implement the pingdi policy to stabilize the economy, either by storing or “employing” various resources, including labor, that have been discarded by the market (surplus resources). The government constructs an ever-normal stability mechanism by investing to compensate for investment, stabilize investment, and guide investment. A crucial component of this approach is achieving full employment, which has been further developed by the post-Keynesian school. This helps to deepen the concept of the “Ever-normal Granary” in macroeconomics.