The General Theory of Employment, Interest and Money

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Gutenberg ID

—

Title

The General Theory of Employment, Interest and Money

Language

en

Book source

Global Grey

Description max 80 words

A landmark economic work challenging classical theories, this book argues that unemployment is not merely a temporary friction but a systemic issue driven by insufficient aggregate demand. Keynes advocates for active government intervention to stabilize economies, emphasizing the roles of consumption, investment, and psychological factors in determining employment levels.

Summary up to 500 words

In *The General Theory of Employment, Interest and Money*, John Maynard Keynes fundamentally restructures economic thought by rejecting the classical assumption that markets naturally ensure full employment. He argues that the volume of employment is determined not by the automatic adjustment of wages, but by 'effective demand'—the total spending in the economy. Keynes identifies two primary postulates of classical economics as flawed: the belief that wages automatically adjust to clear labor markets and the notion that individual saving automatically translates into investment. Instead, he introduces the concept of 'involuntary unemployment,' where workers are willing to work at prevailing wages but cannot find jobs due to a lack of aggregate demand. Central to his theory is the 'propensity to consume,' which tends to decline as income rises. This creates a persistent gap between saving and investment that requires intervention to bridge. Keynes also introduces the 'marginal efficiency of capital,' a measure of expected future profitability that is heavily influenced by uncertain long-term expectations rather than just interest rates. Because these expectations are psychological and volatile, economies are prone to cycles of boom and slump. He argues that because these expectations are psychological and volatile, economies are prone to cycles of boom and slump. Consequently, he urges governments to manage aggregate demand through fiscal policy, such as public works, to maintain employment and stabilize the economy. This marks a decisive shift from laissez-faire to state-guided economics, asserting that the classical theory applies only to a special case of equilibrium that does not reflect the reality of modern economic society.

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4.2/5

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Categories

• Society
• Economics