Essay on John Maynard Keynes
John Maynard Keynes is the most influential economist with the twentieth century and is often regarded as getting revolutionized the perspective with the globe with regards to the economy and the role from the federal government in society. His major work The General Theory of Employment, Interest and Income opened up the world to current economic views and available new methods of dealing with economic problems that nations faced. Many countries to this day have based their governments on Keynesian theories.
John Maynard Keynes provided the theoretical basis for government intervention within the economy through fiscal policy to attain full employment. Keynes rejected the theories in the economists that believed that economy was self-correcting and might be expected to sustain low unemployment and high economic growth over a regular basis. Instead, he believed that the economy was subject to wide swings because of changing attitudes by organization to investment. As soon as optimistic, corporation would invest, once pessimistic, firm would cut back investment. This would quickly lead to a fall in production including a rise in unemployment.
Keynes did not consider that corporation investment decisions were made according to predictions or calculations in the industry conditions, but rather on what he named “animal spirits” of businessmen. As he wrote inside the General Theory of Employment, Interest and Money, “most, probably, our decisions to try and do a thing positive, the full consequences of that will be drawn out over quite a few days to come, can only be taken as a result of animal spirits – of a spontaneous urge to action instead of inaction, and not the weighted average of quantitative benefits multiplied by quantitative probabilities.”
This quote represents his views on the decisions created by organizations in general. Keynes concept that they may be produced depending not completely on a industry and its conditions but rather over a chances taken by the businesses themselves.
He did not feel that a free-market economy had the potential to accomplish more than enough economic growth to restore full employment. A single reason that he referred to during the General Theory of Employment was what he known as the stickiness of wages and prices. In his belief, wages and prices did not automatically decline.
Therefore, the economy does not adjust to changing industry conditions on its own. This was on if his factors for government intervention.
In Keynes viewpoint, the federal government would enhance or halt the economy through the use of a variety of policies, such as fiscal or monetary. A fiscal policy could be the use of government’s taxing and spending powers to achieve full-employment economy with stable prices and to smooth out sharp swings inside the organization cycle. The general role of the fiscal policy is to assist hold economic growth and work inside a country. This was a single of Keyne’s strongest beliefs. The government can decrease taxes and made jobs, that will increase spending; or it can improve taxes and reduce spending to keep back the level of demand and check inflation, which will aid achieve a budget surplus. Ideally, on a time span of a company cycle, government spending and revenues ought to balance out. Although, not always will this occur, resulting in deficits and surpluses within the governments’ funds.
Keynes said that if the federal government doesn't interfere inside a country’s economy, there would be problems. He said that as soon as the federal government has no input, there would be deficits inside economy. Prices will rise and basic necessities will be difficult to get, for your lower class. As quoted inside Economic Consequences of Peace,
“If, however, a government refrains from regulations and allows matters to eat their course, crucial commodities soon gain a level of price out from the achieve of all but the rich, the worthlessness from the cash becomes apparent, and also the fraud upon the public is also concealed no longer.”
Keynes focussed mainly on macroeconomics, like total investment and total consumption. He believed that the government need to only play a role in stimulating the economy instead of running it and having total control. To your government to control the economy, policies would ought to be implemented. These policies would try to ensure an economic equilibrium with full employment. You will find 2 varieties of policies: reflationary and deflationary. Deflationary policies are put in location after there is a dangerously high times inside economy.
Then the government will implement policies such as:
Increasing taxes – to reduce demand levels of consumers
Increasing interest rates – to discourage companies from investing money
The reflationary policies increase the economy once it reaches low peaks. Policies that will be implemented during these times include:
Cutting taxes – to improve consumer spending
Lower interest rates – to increase investment and discourage saving
Keynes thought that a slump did not last for ones long-run but was derived from a lack of demand. If private firms did not invest money to enhance demand, the federal government must do so instead. It could do so by employing a budget deficit. During these times the federal government would increase its spending to support the economy. As well as the reverse method, as soon as inside better times, it would decrease spending and consequently try to balance its budget. This was the belief that countered the classical economic view of laissez-faire.
“.. under the program of domestic laissez-faire … there was no approaches open to a federal government whereby to mitigate economic distress at household except through the competitive struggle for markets.”
Keynes throughout his life published quite a few great books that we nonetheless learn from today. During the years right after WWI, he published a book known as The Economic Consequences of Peace, in which he related to economic changes because of the war.
More specifically, he talked within the Treaty of Versailles and its capability consequences. In 1936, he published The General Theory of Employment, Interest and Funds also known as The General Theory, where he blamed the policies implemented by the Neoclassical economists at the time.
