the general theory of employment, interest and money summary

The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes. Comments on the four discussions in the previous issue of points in the General Theory, 209. The destruction of the inducement to invest by an excessive, I believe that the future will learn more from the spirit of. Monetarists are economic theorists whose beliefs indicate that money supply growth is the most important factor, and in fact the primary determinant, of economic growth. This is the aspect of the slump which bankers and business men have been right in emphasising, and which the economists who have put their faith in a ‘purely monetary’ remedy have underestimated.”. In a depression … there was no wage so low that it could eliminate unemployment. The Saving-Investment Approaches (S=I): The second approach to income determination given in the ‘General Theory’ is based on the Keynesian definitions of Saving and Investment. Of course there’s lots of different things you can invest in; we’re assuming that you do whatever maximizes your expected return. Let’s say I’m a lawyer who makes $300 an hour and minimum wage is $5 an hour. And total consumption is just all the stuff that isn’t sold to other businesses. For professional economists, after Malthus, were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation;—a discrepancy which the ordinary man has not failed to observe, with the result of his growing unwillingness to accord to economists that measure of respect which he gives to other groups of scientists whose theoretical results are confirmed by observation when they are applied to the facts. The post-World War II era was primarily devoid of prolonged unemployment, and the 1970s’ failure to continue the pattern turned people against Keynes’ ideas, some theorize, prematurely. We have addressed the first, but what are its implications of the second? And there are some, I believe, who practise the fourth, fifth and higher degrees. Why does redistributing income work? These can be either short-term expectations (the barrista will be given the day off if management doesn’t expect any customers) or long-term expectations (Starbucks won’t open up a new story if they expect coffee consumption to start going down). (1997). There are two obvious problems with this. Consumption is only one, though major, component of expenditure. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing. But I think this is entirely due to a difference in philosophies: the General Theory was the first book on economics I could really understand. This is a depressing thought, especially since Keynes throughout seems optimistic that once he’s explained everything so clearly, economics will be back on the right track. The remaining chapters of Keynes's book contain amplifications of various sorts and are described later in this article. 2. People can either be put to work making things for people to use today or making things for people to use tomorrow, but that tomorrow “cannot be pushed indefinitely into the future.” After all, an hour of labor cannot be “saved” and put into a bank for a rainy day! Either way, new expectations don’t always take effect immediately (if you just opened a new store and then decide it wasn’t worth it, you don’t immediately close it). The introduction of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation in the United States. “One of the chief social justifications of great inequality of wealth is, therefore, removed.”. Finally, with the additional demand equipment and so on will have to be replaced, raising marginal costs. Marginal efficiency of capital refers to the expected profitability of an additional capital asset; it may be defined as the highest rate of return over cost accruing from an additional unit of a capital asset. This isn’t a conspiracy, it’s just the natural outcome of a system that depends on rich people feeling good. Thus the interest rate depends on people’s desire to hoard cash — their liquidity preference (L) — and the quantity of money (M). Keynes disputed the classical assumption of automaticity of full employment and the classical prescription that in the event of an economic depression wage cuts would bring about full employment in the economy. If they expect to do a cash transaction in the future, they’ll need to sell a bond then — but if the interest rate has risen in the meantime, they’ll be selling the bond at a loss. Keynesian economics gained favor with economists and public officials following World War II. It is because of this that Keynesians have put more faith in fiscal rather than monetary policy. Earlier definitions did not throw any light on the factors which go to determine income or its relation with employment; this purpose was amply achieved in the definition adopted by Keynes. If people expect inflation, then expected yields go up and people invest more. If venture capitalists are spending all their money on useless cable, the solution is to take their money away. Thus, Keynes’ theory is “general”. Well, the naive view is that it doesn’t — the additional money gets used to buy more things which hires more people — until everyone is hired. Not much, Keynes argues. A nation’s GNP is the total value of goods and services produced in their economy over a certain period of time, typically one year’s time. Indeed, the basic model assumed that wages and prices are fixed as long as the government is reducing unemployment. they are simply bartered away; Pigou’s definition was of no use. I must not be taken to deny this, because I assert that a state of full investment in the strict sense has never yet occurred, not even momentarily.”. my shorter summary of the fundamental ideas, The General Theory of Employment, Interest and Money. Some of these are controllable by policy, others are not so.

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