Imagine my reaction, then, when I opened the pages of this book to find some of the densest and driest prose I ve ever waded through It was quite similar to my reaction when, after hearing someone call Euclid s Elements the greatest book ever written by a human, I opened that book to find 400 pages of mathematical proofs Marx s Capital includes pages upon pages of scornful insults and his famous manifesto describes the evils of capitalism in language as colorful as Jonathan Edwards Sinners in the Hands of an Angry God But if Keynes is capable of inspiring controversy, it is through the audacity of his ideas, rather than the power of his prose.
In our post Kensyian world, so thoroughly shaped by this book, it may be difficult to fully appreciate the revolutionary quality of his ideas For example, one of the ideas Keynes was reacting against that supply creates its own demand seems downright stupid to a person who is coming into adulthood in the worst economic recession since the Great Depression But this very idea was enshrined in a law of economic thought in Keynes time In fact, as you read through The General Theory, you realize that Keynes was fighting against an orthodoxy as imposing as the Medieval Catholic Church This book might as well have been nailed on the door of the London School of Economics.
But, of course, this is not about beliefs it s about facts I am certainly not qualified to pronounce on the accuracy of the ideas in this book So I won t But I will say that Keynes is thorough, thoughtful, and rigorous To dismiss him as a crazed radical is to act like a crazed radical yourself Throughout the book, Keynes is careful to point out the assumptions in his opponents arguments, as well as his own He proceeds step by step, laying out his theories in careful, halting prose So much thought went into this book that taking the time to get through even a single paragraph often gave me a headache.
And like Adam Smith, Keynes avoids the problem that besets many on both the right and the left to treat economic problems as moral problems Marx put his faith in the proletariat revolution laissez faire capitalists put their faith in the free market I think faith of any kind is bad policy in human affairs.
Figuring out how the economy works is a theoretical and practical problem Once all of that is figured out, then you can talk about morality and justice but not before You can t have a trial if you don t have any evidence.
Bad writing, confused thinking, pernicious policies.
I first encountered the name Keynes when reading a Time magazine article in around 1975 about West Germany s chancellor Helmut Schmidt As I recall, the article was a complimentary one, in which Schmidt was portrayed as an intellectual technocrat who favored the intellectual and technocratic economics of John Maynard Keynes I got the impression that Keynesian economics was something advanced and new, a sophisticated modern theory to be used by sophisticated modern leaders who have the necessary intellectual power and humanitarian vision.
Over the years I would see his name crop up from time to time, usually as representing one pole in an economic debate that I didn t really understand I did not encounter a meaningful discussion of his ideas until I read Jane Jacobs s excellent Cities and the Wealth of Nations in 1986, in which she examines, in chapter 1, how different economists throughout history have tried to account for the phenomenon of stagflation, or, in other words, economic decline On page 16 she describes Keynes as the most influential economist of this century, but by page 27 she sends him off into history Keynes gloomily commented, as he observed the economic decline of Britain, that possibly an economy could develop structural flaws lying beyond help from his remedies another way of saying that things can go wrong which his theory couldn t account for.
Jacobs s own book, which is no longer than Keynes s, goes on to answer the question that stumped the earlier economists, including Keynes It makes an excellent work to compare with his, because it is a paragon of clarity of both thought and expression By contrast, Keynes s book is a paragon of obscurity and vagueness.
I had long thought that I should probably read Keynes as part of my general education, but I found myself reluctant to try him, both because of intimations of the difficulty of his writing, and because my own economic beliefs were leading me in the opposite direction to what his ideas seemed to be When I came across a review on in which the reviewer recommended reading this book along with a critical analysis by Henry Hazlitt called The Failure of the New Economics An Analysis of the Keynesian Fallacies, I immediately wanted to try it, and I bought both books at that moment.
I d already read Hazlitt and liked him His Economics In One Lesson is an excellent primer on the fundamentals of classical economics Like Jane Jacobs, Henry Hazlitt thinks and writes with great clarity Hazlitt, as a classical economist, is hostile to Keynes s ideas, and his book is a debunking of the General Theory, but his analysis is logical, and he has performed a great service to the reader of Keynes in grappling with Keynes s obscurities of expression to reveal their meaning and state them in plain terms.
Do you think I m being hard on Keynes Let s try an example Early in the book he sets out to define some terms One of the terms he wants to define isinvoluntary unemployment and the quotation marks are his Here it is Men are involuntarily unemployed if, in the event of a small rise in the price of wage goods relatively to the money wage, both the aggregate supply of labor willing to work for the current money wage and the aggregate demand for it at that wage would be greater than the existing volume of employment.
Got that No Go ahead read it again Take your time It s a definition, so in order to understand what follows in the book, you ll have to grasp this.
Friends, I didn t waste my time As a sentence, it reminded me of another one penned by James Joyce in Finnegans Wake Utterly impossible as are all these events they are probably as like those which may have taken place as any others which never took person at all are ever likely to be.
The difference being that Joyce s sentence is an impish joke, while presumably Keynes s is not.
All right, obscurity aside, what is Keynes actually trying to say in his book He s saying that the cause of unemployment in an economy is a deficiency of consumption Consumption is deficient because of people s liquidity preference that is, their desire to save some of their earnings They are enticed to save partly because interest rates are so high, which in turn is due to the greed of moneylenders The path to full employment is therefore to push down the interest rate to deter saving, and to boost consumption by all possible means by preventing any drop in wage rates on the one hand, and on the other by government s stepping into the breach by doing plenty of spending of its own If a government needs to run deficits and print money in order to spend, then well and good these actions are not only harmless, they are positively beneficial and it is immoral to shrink from them If these actions are undertaken vigorously enough, full employment will result and maximum prosperity will be achieved.
Keynes s great economic discovery was that Aesop got things exactly backwards in his fable of The Ant and the Grasshopper It was the ant who was doing things wrong, saving up for the winter For while he was seeing to his own future, he was beggaring the rest of society by creating unemployment The grasshopper s poverty was due not to his own lack of industry, but to the ant s liquidity preference Keynes doesn t actually mention Aesop s fable in his book I wish he had But he does make repeated arch jabs at the vice of thrift Not that he really blames people for trying to see to their own futures, but he laments the social damage that, according to him, results from their behavior That damage has to be undone, or better, prevented, by a sagacious government People are too foolish and too self centered to do what is best for the common good.
But wealth is not created by consumption it s created by production You don t make anyone richer by consuming you make everyone richer by producing And while it s true that producers produce for the sake of consumers, it s at best a circuitous and backwards way of going about things to try to stimulate the process by pushing ever larger amounts of printed money into consumers hands Keynes puts the cart before the horse in this and in many other ways in the course of his book.
Oh yes, along the way there are some equations too It s not clear whether Keynes himself sees these as anything than a metaphor or an illustrative device, and he even disparages the use of equations Equations can only have scientific validity if the variables involved can be isolated and controlled for in an experiment This is possible in physics, but not in economics The mathematics in the book is halfhearted and it s safe to skip Keynes himself even suggests doing so.
In his last chapter Keynes briefly outlines the implications of his theory for policy making By and large, the investment of capital is to be taken over by the state It will not be full blown socialism, he says, because the state need not own the actual means of production The state merely needs to decide where to allocate capital to the best overall social advantage Yes, this will mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity value of capital Both the sentiment here and its manner of expression are worthy of Karl Marx Keynesianism overall is Marxism Lite.
Keynes repeatedly talks about how to control human behavior, how to formulate public policies to neutralize people s purblind selfishness and misguided actions The citizens are the livestock on the great farm of the state Their behavior needs to be channeled in ways that are productive and beneficial a task that falls to the wise farmer and his farmhands, who in effect form the ruling class Keynes, by presumably being free of the vices he ascribes to others, is by implication a member of this ruling class He is its theoretician.
But could Keynes be right after all We re finding out Keynes s ideas triumphed in the 20th century, and are being implemented with even force today in the 21st Governments all over the world and at all levels are running unprecedented deficits paper currencies are being printed at record rates to try to stimulate sluggish, faltering economies interest rates are at zero or, in real terms, below zero great mountains of debt have been accumulated in an effort to capitalize ventures of all kinds, often failed ones And yet unemployment is high and growing it s higher than our governments dare tell us Maybe if we open the floodgates of money printing still further, that will finally create full employment The experiment has failed We are now just racing to the catastrophic endgame of Keynes s program I m afraid that Keynes s popularity arose not from any brilliance in his thought, which was disorderly and confused, or in his writing, which ditto, but from the fact that he told everyone what they wanted to hear He told workers that the path to prosperity was in spending and consuming, and that their wages should never go down and he told governments that their greatest virtue lay in spending, borrowing, and printing money Let s party We ve been partying now pretty much since this book was published in 1936 We ve been keeping the hangover at bay by taking and hair of the dog But the terrible consequences are becoming manifest Winter is coming, and we re now a world of grasshoppers soon we ll be in search of those few ants who might have some provisions put by.
I think most of these reviews are Ron Paul supporters that don t really understand monetary theory AT ALL No problem with that however, other than they project their own new version of what Adam Smith said If they understood Adam Smith and John Maynard Keynes, they would realize that they espouse economic theories, not ideologies on the role of government.
Keynes doesn t disagree with at all Adam Smith he expands on Adam Smith s theories which were a good 100 years prior Keynes and Smith are both capitalists and agree on basic tenants of capitalism, that a free market is an efficient means of allocating resources.
John Maynard Keynes, just as other economist such as Milton Friedman who espouse supply side intervention, is prescribing solutions to anomalies in the free market in this landmark book Keynes addresses how to repair or refocus a free market that veers off it s course sound similar Adam Smith, being a pioneer of economic philosophy, wasn t considering anomalies in free markets he was defining free markets Subsequent capitalist philosophers such as Keynes and Friedman expounded on the details and caveats of Smith s theories.
What Adam Smith actually advised was that the wrong interventions in a commercial market by government should be, first, reversed and secondly those wrong interventions should be avoided, and other interventions of governments should be encouraged This is not the same thing as being against government intervention as a whole He wasn t of the opinion ascribed to him by modern economists since the 18th century In fact, Adam Smith advised that certain interventions, not in his time undertaken with much consistency by government, should be undertaken as soon as possible.
By understanding Adam Smith, people can understand Keynes and his theories Keynes is just Adam Smith with 100 years of additional financial innovation to work from Not to mention Adam Smith was around during feudalism, John Keynes during the industrial revolution.
5 stars for the ideas and theories, which are undeniably right even thought it s impossible to convince the people who read Atlas Shrugged as though it s real But 3 stars because it is incredibly dense and hard to read I got through it, but only because I knew what the theory was already and I just wanted to make sure I hadn t missed anything But Keynes was speaking against Ricardo and others so he was fighting old battles.
This is the book that guided economic policy during the postwar boom up through the 1970s and believed by economists of a blue state persuasion It is not easy reading, a good economics book can explain it better than this book I wanted to read the theory from the originator but it is taught in an introductory Macroeconomics course at least on the east coast of the US sometimes called saltwater economics you will get something different if your economics teacher is of the conservative Chicago school Anyway, I put a few highlights in the status updates This should not be the go to source to get a clear explanation of Keynesian economics it is like trying to learn calculus by reading Newton in Latin It s a brutal read, especially the middle third With an intense focus on the fundamental nature of the three factors mentioned in the title, it s easy to get bored and distracted quickly.
Nonetheless, reading the General Theory reminds me of watching Citizen Kane The book has so thoroughly reshaped economics in its image that it s hard to recognize how revolutionary it truly is This exacerbates the problems of the middle third, since not only is it dry and technical, it seems pretty obvious now.
With a little patience comes a lot of reward Keynes is a wonderful writer, and it shows through in the little moments he gets to show off His statements on liquidity demonstrate both his wit and the strength of his thoughts For example, Of the maxims of orthodox finance none, surely, is anti social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of liquid securities It forgets that there is no such thing as liquidity for the community as a whole He also deserves a lot of credit for including an especially strong understanding of human nature and social psychology, topics far too often neglected in modern economics You can see this when he takes on the nature of interest It might be accurate, perhaps, to say that the rate of interest is a highly conventional, rather than a highly psychological, phenomenon For its actual value is largely governed by the prevailing view as to what its value is expected to be Any level of interest which is accepted with sufficient conviction as likely to be durable will be durable Obviously, this isn t the kind of thing that will get the general public s juices flowing It s something that Keynes acknowledges in the preface But for a book intended specifically for the economists of the early 1930s, it s startling how relevant these issues remain.
, 1929 1971 , 2006, 18 The importance of this book rivals Das Kapital Those who follow Marx have founded Communist regimes Everywhere else, governments have developed systems of national accounts to conform to his proposed system of national accounts with headings such as GNP, GDP, etc.
One major difference is that Das Kapital is somewhat utopian and left its followers no clear way to implement its recommendations The works of other writers notably Lenin and Stalin were required to make Marxism function in a real world situation.
Keynes in contrast was a British Government economist who proposed measures that could be readily implemented in North America and Western Europe Keynes propose a technique for moderating cycles to prevent excessive booms known in Keynesian terms as overheating and the busts known as recessions Everyone recognized that the busts were detrimental to the economy in the long term and in the short term caused tremendous hardship to society s least fortunate members.
Keyne s approach at its most simple was to increase government spending and reduce taxation during recessions to stimulate the economy Once the economy was in health, taxes would be increased and spending reduced to prevent the economy from overheating.
The first problem encountered with Keynesian economy was that the politicians were willing to spend heavily in times of recession to stimulate a recovery However, once the recovery was underway, they decided not to reduce spending which lead to the creation of what are now referred to as huge structural deficits which will never be eliminated.
The second problem occurred when Western Powers attempted to apply Keynesian economics to the third world They overlooked the fact that Keynes assumed a modern economy, a government with the means to collect the taxes it levied, a modern banking system, stock and commodity exchanges, enterprises that operated on Generally accepted accounting principles and a mature legal system In the absence of these conditions, Keynesian economics proves totally unworkable.
Ultimately, you do not read this book unless you are in graduate school studying the development of economic thought All universities in the non communist world currently use a textbook modelled on Paul Samuelson s great book Economics An Introductory Analysis that explain Keyne s theories very clearly More importantly their diagrams are much easier to understand than are Keynes In other words, if you have taken ECON 100, you are well acquainted with Keynesian economics.