Keynes proves mathematically that the Speculative demand for money creates involuntary unemployment

books:


	• The General Theory of Employment, Interest, and Money (Great Minds Series) John Maynard Keynes Prometheus Books, 1997 - 403 pages average customer review:based on 46 reviews view larger image
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The Economics of Pessimism

One sometimes hears that money is the root of all evil. Keynes would agree, but not because of any animosity towards the profit motive (Keynes was definitely not a socialist and he even agreed with and endorsed Hayek's "The Road to Serfdom"), but because in an economy using money imbalances between the value in any currency of demand and the value of supply are possible.

Virtually all economists accept the price mechanism which speedily reconciles any imbalance between supply and demand. The macroeconomy is the sum of all markets and should therefore be more or less in equilibrium. The great French economist Jean-Baptiste Say formulated this in one of the rare laws in economics : every aggregate supply creates a corresponding aggregate demand. The law definitely holds in a barter economy, because even if products or services are not consumed they are lent out to others who will use them. Hoarding purchasing power by keeping money to put under the matress is impossible... without money.

Money makes it possible to have leakages of purchasing power because money received by selling goods or services is not spent. If money earned is not consumed it is by definition saved. Usually this would mean that these sums are made available to individuals or companies in need of capital so that savings are equal to investment. Any imbalance would be readjusted by a change in the interest rate.

Keynes pointed out that saving is not necessarily synonimous with investment viz. that savings can be hoarded as money and that there are good reasons for doing so.

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Please remember...

You must all please remember that Keynes was first-and-foremost a socialist. His overall goal in creating his theories was to "prove" that socialist economic theories could function in the world of the early 20th century. Read Keynes thru this screen, and you'll understand what he's attempting (unsuccessfully) to do.

I gave this book a 5 star rating for the following reason: if you can overcome it's dryness and reliance on theories of little substance, you will see that socialism at large is truely bunk. (having been educated formally in Keynsian theory, disproving it, and all it's socialist correlaries, is a passion of mine) Please remember as you read this; if socialism and Keynesian economics was a viable theory for governments to function, the governments of the entire old eastern communist block would still be alive and functioning in their pre-1992 forms, and quasi-socialist countries the world over would be growing ever larger than the US economy once they've moved out of their manufacturing based economies and joined us in competing with other service based economies. (They have not been able to effectively compete beyond certain stages of growth)

Keynes' theory doesn't work. His own writings are more theory and fantasy than reality.

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Keynes proves mathematically that the Speculative demand for money creates involuntary unemployment

Keynes presented a generalization of neoclassical theory.Keynes starts the GT in chapter 2 where he analyzes the neoclassical theory of the labor market.He notes that the most advanced technical treatmant was presented by Pigou in his 1933 book,The Theory of Unemployment.Keynes demonstrates in the appendix to chapter 19 that Pigou's model of his theory is a special case of Keynes's general model developed in chapters 20 and 21.The primary result of neoclassical theory is that an optimum result (full employment)is obtained in the aggregate labor market if the aggregated real wage(w/p) equals the marginal product of labor(mpl) derived from an aggregated production function(O= phi(N)).This is expressed as w/p=mpl,where w is the money wage,p is the price level,and mpl is the aggregated marginal product of labor.In chapters 20 and 21 Keynes presented his mathematical analysis.This leads to his generalization of the quantity theory's equation of exchange,MV=PO,to incorporate uncertainty and the speculative demand for money besides risk and the transactions demand for money.There are two such generalizations.Chapter 20 analyzes the labor market and the commodity market.Mathematically,there are two ways of expressing Keynes's first generalization in chapter 20-w/p=mpl/ep or the more convenient w/p=mpl/(mpc+mpi).Unless the elasticity ep=1(ep can range from 0 to 1) or the mpc + mpi=

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review

A classic, definitely not an easy read. Keynes brings his economic phillosphies into the light. Not the kindest author but his chapter The Marginal Efficiency of Capital is epic and relivent today. Published in 1936, this book stands the test of time and allows you to develop a mental model of numerous business cycles. Who's reading Keynes? Warren Buffet, he quotes Keynes like everyone else quotes Shakespeare.

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