Fri 18 Apr, 2003 06:50 pm
What is your opinion of John Maynard Keynes' "The Theory of Employment, Interest and Money
" published in 1935?
It revolutionized economics but is now being criticized. I am admittedly ill informed on
the varied opinions that I'd like to have before forming my own. So if anyone is well
versed in economic history please let me know what you think of John Maynard Keynes'
He was both a theoretical, and practical genius.
Keynes in a nutshell is that deficit spending is often not only preferred, but necessary.
The economics is as sound now as it was then.
Of course, he had detractors then, as well.
But nobody could successfully argue against him.
Published in 1936, the book was a prescription for the economy at that date of time.
If I'm not mistaken you were the first person who responded to this post the last time I posted it.
I agree with almost 100% of what you and satts posted.
Perhaps a good question is what elements of his theories are less relevant now.
Prescriptive writing for the vast unemployment at that time did not take into account the restriction of resources, and the consideration on scarcity was actually the tradition of neoclassical economics.
I would have to say (from memory here because it has been quite some time since I reviewed his material, and of course, in layman's terms because I are one) that the main drawback rests in the far more fluid and dynamic economy which we presently have.
Imagine attempting to switch rails on a high speed bullet train.
You could be successful, but there is a higher probability of derailing it.
It's all in the timing.
Government, if it is consistent in anything, is consistent in having bad timing, particularly where matters of economics are involved.
Aother notion I present is that it represented a change that was needed at the time but there exists a point in whioh the opposite extreme is reached.
Defecit is good in some cases and in others it's catastrophic (e.g. when your deficit represents too much of your GNP). Now for some (e.g many Latin American nations with bad credit ratings), a swing in the opposite direction is in order.
This explains it all, Craven.
(of course it does)
Keynes is among the 5 most influential people in the XX Century.
He was a genius.
The modern State is not conceivable without his ideas.
The Rooseveltian rebuilding of America, the compassionate New Deal that gave the US the needed strength to be the victor in WWII is not conceivable without his ideas.
"We are all slaves of the thoughts of a dead economist", he once wrote. And he was right.
He went far beyond economics, and understood its goal: people, not numbers, or theoretical "long run" equilibria.
-"In the long run, we will all be dead", he remarked.
He said governments are often offering a jar of marmalade for tomorrow, and hardly ever deliver marmalade for today.
He was pro-business, productive business, and very much against financial speculation (which he understood better than anyone at his time).
The fiscal crisis of the State is attibuted to him, because of ideological battles.
BTW, a personal side note:
I hate when John is quoted out of context with the "in the long run we are all dead" quote (not that anyone has misquoted in this thread), this quote is used out of context quite often and my favorite retort is: "yes, but our children aren't."
It means "long run" is never attained (away from context).
Just curious, several years back when the deficit had finally been pay up, some argued that our country would be better off to have deficits. Something about bonds and investments based on government debt. Presently, we are cutting taxes and spending huge sums of money on war; are we moving into higher debt on purpose? Are the movers and shakers consciously pursuing Keynes' philosophy?
Was the debt paid up? I don't think it was but don't follow it closely enough.
Deficit is not a debt and can't be paid.
Cost-benefits on borrowing must be thought in terms of cost of today and sequence of returns in the future (with estimated interested rates). This is more Fisherian (neo-classical) than Keynesian.
Keynes did not propose deficit spending per se. What he said is that, while thhe opposite is true for the individual economic agent, for the economy as a whole, investment decisions determine savings decisions. If you crunch investment, you'll end up crushing savings. If you bet for a savings boom, you'll end up with unused excess capacity both of human and material capital.
For him, that meant having control of the interest rates. High and unstable real interest rates punish investment decisions, employment and growth.
Sequence of returns for the future is key in Keynes' work (no pun intended): two out of four main formulas in his "General Theory" are based on it: the calculation of marginal efficiency of capital and the calculation of money demand for the speculative motive.
(BTW, it is said that perhaps the major flaw in Keynes' model is that he doesn't explain how the idea of expected interest rates is formed in the public).
Around the time when "General Theory" was published, interest rates were extremely low, which was termed "liquidity trap", and monetary policy or policy on interest rates could not work, and Keynes proposed the use of fiscal policy.
"Marginal efficiency of capital (or investment)" was concerend with the investment decision by the private firms not economy as a whole.
Why do you hate Nash, Craven?
(a. I am interested, and b. it is more acceptable than just saying bookmark)
I think he is daft. But I'm not gonna rehash my distaste for Nash.
If I remember well (haven't read the "General Theory" in a decade) the Marginal Efficiency of Capital and the structure of interest rates determine single investment decisions, and also private investment as a whole. Keynes' point is that, in conditions such as those prevailing in the thirties -and in different moments, later- equilibrium is reached withour achieving full employment of resources.
Another question: the great depression was deflationary. Were real active interest rates also low?