General Theory of Employment, Interest and Money (Revised Version)

Author: John Maynard Keynes
Publisher:
Publish Date: 2002-05-01
Features: This book is considered Keynes's masterpiece and marks the formation of the independent theoretical system of Keynesianism. The General Theory corrects the core of traditional Western employment theory—Say's Law. Keynes attempted to overturn the traditional labor market theory, interest theory, and monetary theory that form the basis of employment theory, and proposed countermeasures to address crises. The book argues that, in addition to the frictional and voluntary unemployment recognized by traditional economics, there is also involuntary unemployment, which is caused by insufficient aggregate effective demand. Effective demand refers to the total demand when the aggregate supply price of goods is in equilibrium with the aggregate demand price. Since aggregate supply does not change significantly in the short term, unemployment is due to insufficient aggregate demand or effective demand. Effective demand includes investment demand and consumption demand, and insufficient effective demand is the result of insufficient consumption and investment demand. The latter is influenced by three psychological factors: the propensity to consume, expectations of future capital returns, and the liquidity preference for money. Insufficient consumption demand arises from the declining propensity to consume, which prevents consumption growth from keeping pace with income growth. Insufficient investment demand is due to declining capital efficiency and liquidity preference. The former refers to the decline in the rate of return on investment, while the latter refers to people's preference for holding cash. Therefore, Keynes advocates for government measures to boost effective demand, such as: increasing wages to boost consumption, adopting progressive taxation to increase the income of the poor, and implementing deficit budgets and moderate inflation policies. He believes that stimulating investment is more important than stimulating consumption, as it has a multiplier effect. In terms of research methodology, it treats the traditional economic theory of supply creating its own demand as a special case and regards less-than-full-employment equilibrium as the norm, thereby constructing a more general theory that encompasses the original economics.