Employment, Interest and Money: General Theory

Author: [British] John Maynard Keynes, translated by Gao Hongye
Publisher:
Publish Date: 1999-04-01
Features: The book argues that unemployment, in addition to the frictional and voluntary unemployment recognized by traditional economics, also includes involuntary unemployment, which is caused by insufficient aggregate effective demand. Effective demand refers to the total demand when the aggregate supply price of all goods reaches equilibrium with the aggregate demand price. In the short term, aggregate supply is unlikely to change significantly, so unemployment is due to insufficient total demand or effective demand. Effective demand consists of investment demand and consumption demand, and insufficient effective demand is a 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 full-employment equilibrium based on the traditional economic theory that supply itself creates demand as a special case, while considering less-than-full-employment equilibrium as the norm. From this, it constructs a more general theory that encompasses the original economics.