Keynes’ monetary theory and transition economies

After a short outline of how Keynes’ monetary theory was being accepted, read and discussed before the transition period started at early 1990s, two key issues somehow connected with Keynes are being analyzed in this paper. The first issue focuses on the problems of selling of business enterprises, i.e.their shares, in transition countries, as they had to be transformed from stately or socially owned to privately owned companies. These problems are remotely similar to problems resolved or ‘resolved’ by the Say’s Law. If the government does not enable private sector to buy companies, domestic savings and capital formation will decrease. For instance, what the government should have done in cases where businessenterprises were socially owned is being analyzed and illustrated with IS-LM diagrams for the open economy. The second issue deals with how the central bank should behave – especially if the government had not done anything to enable smooth purchases of business enterprises by the domestic private sectors. The central bank should prevent either monetary expansion or appreciation of thedomestic currency by sterilized purchases of the surpluses of foreign currencies on the foreign exchange market. Both issues are somehow connected with Keynes and/or economists whether either his followers or not.